What DeFi is all about
The term "decentralized finance" refers to a financial system that is not based on or organized around a central actor or institution but rather is driven by a multitude of dispersed actors and organizations that frequently cooperate or compete with one another.
For instance, the Federal Reserve, payment processors, and sizable banks are some of the primary players in the traditional financial industry (CeFi, or "centralized finance"). The DeFi space attempts to avoid those major players by letting smaller projects and teams fill those positions.
Shirin Bucknam, co-founder of Crypto Witch Club, a Brooklyn-based online education group devoted to blockchain and web3, claims that "In the DeFi space, there is no central authority to report to." It's a whole novel approach to solving problems.
In actuality, as public interest and adoption in cryptocurrencies and decentralized finance increases, lawmakers and government regulators are watching with increasing curiosity. Nevertheless, new cryptocurrency and other DeFi ventures are constantly being inspired by these decentralized concepts.
The current financial system's intermediaries are all replaced in the DeFi universe by "smart contracts," which are pieces of software or code. In order to link the appropriate parties and guarantee that the transaction goes through, a smart contract does the heavy lifting when you execute a transaction. This is essentially how the cryptocurrency ecosystem works, which is one of the factors contributing to DeFi's continued rise to fame and relevance.
According to Dr. Merav Ozair, a blockchain expert and fintech professor at Rutgers Business School, "DeFi allows for applications, which are built using smart contracts — the idea behind DeFi is that all the products and services that are in the economy today can be self-executed using an automated code."
In conclusion, DeFi is a collection of lending platforms, exchanges, and several other institutions that were developed independently of the traditional financial system and are currently functioning without the guidance of a centralized organization or overarching concept.
