DeFi, explained

DeFi is really f*cking scary. But it’s the fastest growing industry in the world. You do not want to fall behind the 8 ball. Read this 4 minute page to stay ahead of the curve:

A Quick Definition

DeFi (aka decentralized finance) aims to be today’s financial system with code replacing institutions.

*It won’t completely replace traditional finance. But, many aspects of it will be disrupted.

In DeFi, blockchains (and smart contracts) replace the financial institution as the middleman who guarantees a transaction will happen (ex: a loan will be paid). Smart contracts are public for anyone to inspect and audit, keeping users accountable from writing bad contracts.

Smart contracts, explained:

In short, smart contracts are blocks of code that follow instructions and can’t be changed.

How smart contracts work
4 examples of smart contracts in crypto

Now let’s tie it all together with an analogy:

You can think of DeFi in layers:
  1. The blockchain – establishes a common truth & is the backbone to everything else
  2. The assets – like $ in today’s economy it incentivizes, facilitates, & connects everything
  3. The smart contracts– code that provides functionality & does the behind-the-scenes work
  4. The applications – the finished products that users interact with

What’s the difference between DeFi & TradFi?


(source: Ethereum Foundation)

Want to dig deeper? Here’s a map of the entire DeFi ecosystem