What is DeFi?

#DeFiSeries.

In simple terms, DeFi is an acronym for Decentralized Finance. It is a term that defines how financial activities are carried out without any form of centralization.

DeFi is the movement that allows users to utilize financial services which includes, but not limited to lending, borrowing, staking and trading without the need to rely on centralized platforms.

These financial services are provided by Decentralized Applications (Dapps), most of which are deployed on the Ethereum blockchain network.

To understand DeFi better, we need to understand where we are coming from.

Traditional financial institutions, in this case the Banks, have provided financial services in a centralized way, where financial activities are monitored, controlled and governed, leaving the majority of players at the mercies of bank policies.

These and many more are the problems DeFi looks to solve. let’s walk through some of the problems of Centralized Institutions and how DeFi has solved them.

Banks create and implement policies all to their favor, with little or no concern on how it affects users of the banks. They monitor transactions and have information on users. Some of these policies could lead to the crash of these banks, taking deposits and assets down with them.

With DeFi however, things are different, as DeFi policies are open sourced line of codes, meaning it can be accessed and assessed by the general public, giving no preference to one person or the other. They are built on Blockchain networks, and have Decentralized governing bodies.

As a person who uses Centralized Institutions to carry out remittances, I have been faced with a lot of issues, ranging from the high cost of transactions t0 the exchange rates from banks and international money policies. It could also take some few working days to have payments delivered to my destination.

DeFi, using cryptocurrencies as a means of payment solves this problem by cutting off intermediaries thereby greatly reducing transaction fees. Transactions are done way quicker, at an average of 2–3 minutes, and the recipient gets to exchange to fiat at the rate of the country of residence.

I have always dreaded going through long queues, many verification and documentations just to perform financial services. There are many more who don’t even have access to these institutions to carryout transactions. In Nigeria, EFInA data shows that only 64% of adults were financially included by the end of 2020. This means that 36% of Nigerian adults, or 38 million adults, remain completely financially excluded

DeFi gives all participants equal opportunity, it’s protocol is without discrimination. It provides accessibility to everyone, pushing boundaries and carrying out financial services beyond borders. DeFi looks to meet the needs of the unbanked with the use of Dapps to facilitate activities. To use Dapps, one just needs to have a smartphone with internet access.

These and many more are why the DeFi movement is of great importance. DeFi seeks to help the unbanked, connect the gaps Centralized Institutions have created, and allow users perform financial activities with no form of censorship or monitoring at a cheaper and faster rate.