DeFi

What is DeFi?

DeFi (Decentralized Finance) is an ecosystem of financial tools built on blockchains. it aims to recreate traditional financial serviceslike lending and tradingwithout the need for banks.

How does DeFi work?

1. Smart contracts act as the "middlemen," executing logic automatically.
2. Liquidity is provided by users (LPs) who deposit assets into shared pools.
3. Borrowers provide collateral to take loans directly from these pools.
4. Traders swap assets using Automated Market Makers (AMMs) instead of order books.
5. All transactions are transparent, 24/7, and available to anyone with a wallet.

Why does DeFi matter?

DeFi provides financial inclusion for the unbanked and offers more efficient, transparent, and higher-yielding services than traditional finance. It enables "Programmable Money" where complex financial strategies can be automated.

Key features of DeFi

• Permissionless and borderless
• No central intermediaries (banks)
• Transparent and open-source
• Highly composable ("Money LEGOs")
• Non-custodial (users keep their keys)

Examples of DeFi

• Aave, a decentralized lending and borrowing platform.
• Uniswap, a protocol for permissionless token swaps.
• MakerDAO, a system for minting the decentralized DAI stablecoin.