DeFi – Building the Bank of the Future with "Money Legos"
If you’ve followed the previous articles, you already know that Bitcoin is the money and Ethereum is the computer where the money follows instructions. Now we reach the next level: DeFi or Decentralized Finance.
1. What exactly is DeFi?
DeFi is the name we give to an entire system of financial services (like loans, savings, or exchanges) that work without a bank, an office, or a boss in the middle. Instead, everything works with Smart Contracts (code instructions) that are public and transparent.
2. "Money Legos"
One of the most incredible things about DeFi is what we call interoperability. Since everything is open-source, developers can build new pieces on top of existing ones.
-
It’s like having a box of Legos: you can take the "exchange" piece, snap it onto the "loan" piece, and create a brand-new financial service without asking anyone for permission.
3. DeFi vs. CeFi (Traditional Banking)
To understand it better, look at these key differences:
-
Custody: In a bank (CeFi), they keep your money, and you have to ask permission to move it. In DeFi, you hold the keys to your wallet, and custody is 100% yours.
-
Privacy: In traditional banking, you have to reveal your full identity (KYC process). In DeFi, you use a pseudonym and don't need to provide personal data.
-
Censorship: A bank can block your account or a transfer. In DeFi, transactions are irreversible, and no one can stop them.
4. Basic "Dictionary" to stay on track
In this world, you will hear new words. Here are the three most important ones to get started:
-
TVL (Total Value Locked): The total amount of money that people have trusted and "locked" into a protocol.
-
DEX (Decentralized Exchange): A place where you can swap one coin for another without giving your funds to a company.
-
Stablecoin: Cryptocurrencies that are always worth the same as the dollar, to keep your money from constantly fluctuating in value.
In short: DeFi is an open financial system where anyone with internet can participate, and where you are the sole owner of your money.
Please sign in to leave a comment.
Comments
0 comments