The term DeFi is short for “Decentralized Finance”. Decentralized finance (DeFi) is an emerging concept that is revolutionizing the traditional finance sector. The need for an open, transparent, and secure financial system is the key driver behind the concept of decentralized finance.

DeFi is making a new financial system that is transparent and doesn’t require trusting intermediaries like banks, central governing authorities. DeFi relies on cryptography, blockchain and smart contracts. DeFi is based on blockchain, the technology behind digital currencies, which allows several entities to hold a copy of a history of transactions, meaning it isn’t controlled by a single, central source. DeFi is distinct because it expands the use of blockchain from simple value transfer to more complex financial use cases.

Here is the main difference between DeFi (Decentralized Finance) and CeFi (Centralized Finance) system.

DeFi is an open financial system that runs on software built on top of a public blockchain. It involves the building of financial products and services on top of a blockchain to promote or enhance the development of an open and transparent financial system. DeFi seeks to revolutionize the financial sector by acting as an alternative to centrally-governed institutions, such as banks, that have historically acted as financial intermediaries.

Conventional payments processing requires documentation, insurance issuance, and validation and contracts. All of these steps are performed on sluggish legacy systems that reduce operational efficiency. Such delay result is high receivables and lowered profitability. By digitalizing and implementing blockchain solutions, users can reduce dependency on several IT solutions. Blockchain can transparently offer contract management and, at the same time, handle payments in real-time.

Currently, most of the DeFi projects are built on Ethereum. The main reason for this is Ethereum’s programming language called Solidity that allows for writing advanced smart contracts. These smart contracts enable developers to build far more sophisticated functionality than simply sending and receiving cryptocurrency. These programs are what we now call decentralized apps or DApps.

DeFi will undoubtedly continue to push Ethereum’s limits, as new DApps and tokens are launched at regular intervals. At Oridoc, we are excited about the future of DeFi and developments in blockchain. If you want to learn more about DeFi, don’t forget to check out the articles about blockchain and NFT.

If you want to explore how to use DeFi for your business, just drop a line via our contact form and we will guide you through over a cup of coffee.