Everything You Need To Know About DeFi

One of the significant advancements in blockchain technology is the digitized financial service.

DeFi, the acronym for Decentralized Finance, encompasses digital financial services and activities.

DeFi applications are built on blockchain technology.

DeFi applications allow you to carry out financial transactions, exchange, buying, and selling.

There are several accounts of the history of DeFi.

The prominent ones include the telegram chat between developers and entrepreneurs on how to build an app that will enable financial services on the Ethereum blockchain.

Other accounts point to the launch of applications and blockchain protocols.

The characteristics of DeFi applications vary; however, they have standard features.

Keywords: DeFi, applications, financial, blockchain, protocol, decentralized.

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Technological advancement and innovation are taking the world by storm. A significant spotlight on technological innovations is the blockchain network.

The blockchain network enables app and software developers to build their platforms from scratch for diverse purposes.

You can build a gaming platform, digital art platform, marketplace, and Financial service providers on the blockchain network.

The Financial service applications deployed over the blockchain technology are called DeFi, and DeFi is the acronym for Decentralised Finance.

At this juncture, we shall familiarize ourselves with the definition of DeFi.

What Is DeFi?

Image: Skalex

DeFi is an encompassing and comprehensive term. DeFi illustrates all decentralized applications and projects in the blockchain that enables you to carry out all traditional financial services.

Using a Decentralized Finance (DeFi) application, you can make transactions, purchases, exchanges, and swap monetary tokens across decentralized platforms.

Depending on how sophisticated the blockchain developers want their DeFi application to be, there are several types of DeFi apps.

These apps range from primary use cases that allow you to borrow, lend and trade tokens to advanced uses like streaming payments, to create synthetic assets, and playing the lottery.

To give a clearer picture of the DeFi protocol, we shall examine the history, those qualities that distinguish a Decentralised finance protocol from the traditional financial services, and some of the popular DeFi protocols.

History Of DeFi

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There are various accounts of the history of the Decentralized Finance protocol, and we shall identify the few with trackable records that are not controversial.

The first account of the launch of DeFi dates back to 2009. Some groups of industry players described the launch of Bitcoin as the first DeFi protocol to go public.

Bitcoin is the first decentralized application on the blockchain network. It allowed individuals to control their assets, make transactions and provide other financial services. These are the basic features of the DeFi protocol.

Even though Bitcoin ushered in the DeFi protocol and is open to everyone on the internet, experts believe it could not actualize the full potential of DeFi.

In 2015, Ethereum launched its DeFi protocol signifying the second generation of the digital financial service.

To further actualize the full potential of DeFi, the Ethereum blockchain developers launched MakerDAO.

MakerDAO is an ethereum-based protocol that enables the token holder (Dai stable coin ) to exchange it against Ether (Ethereum’s coin). MakerDAO brought about an advanced dispensation in the DeFi protocol.

MakerDAO has its lending protocol, stable coin, interconnected ecosystem, and open, permissionless financial services. This DeFi protocol has the dollar-pegged digital equivalent.

In September 2018, Compound Finance launched its DeFi protocol. This DeFi app is significant in history because it created a decentralized market for borrowers to take out loans.

You are entitled to interest rates paid by borrowers who took the collateralized loans as a lender.

Another popular account says that the term “DeFi” was conceived in August 2018. In a telegram chat between Inje Yeo of Set Protocol, Blake Henderson of 0x, and Brendan Forster of Dharma, they rubbed minds on building an open financial application on Ethereum.

The chat between these Ethereum developers and entrepreneurs led to the adoption of “DeFi.” Other names considered include Open Horizon, Lattice Network, and Open Financial Protocols.

Since 2018, several developers have continued to leverage blockchain technology to build DeFi applications. At the moment, several DeFi applications enable online users to perform financial transactions seamlessly.

At this juncture, it is important to highlight the characteristics of the Decentralized Finance (DeFi) protocol.

Features Of DeFi

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The following are the features of DeFi:

Decentralization

DeFi protocols are decentralized. The Decentralized financial apps are built on public blockchains.

The decentralized nature of DeFi protocols makes it run by thousands of nodes spread across various locations. The DeFi platforms are developed and managed by a community of users.

The activities, transactions, and decision-making are not centrally controlled. The platform users become owners of the financial applications, participate in decision making and propose changes and updates.

Open Source

The DeFi protocol is open source. There are no borders or boundaries to the accessibility of DeFi apps. DeFi is likened to the internet, where everybody can access the internet from anywhere.

You can seamlessly make transactions, exchange tokens, and borrow and lend money in their digital format. DeFi protocol is an entire ecosystem on the blockchain.

The code and mechanisms that run the DeFi protocol are open and accessible for all stakeholders to see. As a stakeholder, you can see, inspect and verify how the application works.

Non-Custodial

The DeFi protocol runs via a distributed network. People can control their assets and tokens, transfer the values, and exchange them from one person to another.

You do not require intermediaries to control your digital assets. Every user has keys to their blockchain wallets and can solely manage the assets.

When experts say DeFi is non-custodial, the platform does not have custody of your asset, and the DeFi applications only serve as gatekeepers.

Conclusion

The DeFi application has several historical events that could be considered where the idea was born. Some experts believe that the origin of the DeFi protocol dates back to its launch and deployment over applications like ethereum.

To avoid the controversy, this article highlights the significant historical accounts of several experts on how the DeFi protocol was launched.

While several applications leverage blockchain technology, not all possess the characteristics listed above. Some popular blockchain apps that include these characteristics are grouped under the Decentralized Finance protocols.

Among them, the prominent ones include Ethereum ( Uniswap, Synthetix, Balance swap), Curve Finance, Yearn Finance, and others.

Author: Valentine. A, Gate.io Researcher

This article represents only the researcher's views and does not constitute any investment suggestions.

Gate.io reserves all rights to this article. Reposting of the article will be permitted provided Gate.io is referenced. In all cases, legal action will be taken due to copyright infringement.