Decentralized finance, or DeFi for short, offers financial instruments that, unlike the classic financial sector, are not subject to the management and control of a central middleman such as banks, stock exchanges or brokers.
In DeFi applications, this task is performed by the network of participants, which is based on the “rules of the game” of the respective blockchain protocol.
The decentralized organization of DeFi is made possible by smart contracts, digital contracts. In order to be able to use DeFi, a decentralized application (dApp) is required. These dApps can represent the same financial services as we are used to from classic financial intermediaries (brokers). This can be, for example, the trading of securities, the processing of payments or the granting and utilization of loans. We can use derivatives to speculate on asset price movements, trade cryptocurrencies, or insure against risk and earn interest on savings-like accounts. There are already many use cases and the range is increasing rapidly. Today, practically every application in the DeFi sector has its counterpart in the traditional financial sector.
At the beginning of March 2022, the crypto market capitalization of DeFi was USD 132 billion (as of 3/8/2022 3 p.m.)
