Introduction
What is Decentralized Finance? 🤷♂️
Decentralized Finance (DeFi) is a field of application for distributed ledger technologies involving the development of financial products and services that mitigate reliance on central authorities.
Decentralized finance (DeFi) began as a marketing effort coordinated by a consortium of organizations working on DeFi products and services around a website and telegram group.
Website: https://defi.network/ Telegram: https://t.me/de_fi
The founding member organizations included MakerDAO, dy/dx, Compound, CDx, Coinbase Wallet, Kyber Network, bZx, Market Protocol, 8x Protocol, Centrifuge, Connext, Loopring, and Dharma Labs. Source
What is Decentralization?
Decentralization can refer to a number of things.
In a general sense, decentralization is a process by which power is distributed away from an intermediary authority.
In the context of blockchain and distributed ledger technologies, it means developing open-source software that removes dependence on various intermediaries.
A good way to determine whether or not an application is "decentralized" is to ask yourself the following question: "Would the application become unavailable in the event that the company or companies building it were to cease to exist?
If the application would become unavailable, it's not decentralized.
If the application wouldn't become available, then it is.
What is Finance?
According to Investopedia:
"Finance is a broad term that describes activities associated with banking, leverage or debt, credit, capital markets, money, and investments. Basically, finance represents money management and the process of acquiring needed funds. Finance also encompasses the oversight, creation, and study of money, banking, credit, investments, assets, and liabilities that make up financial systems."
Finance encompasses the theory and practice of raising and managing funds in a personal, organizational, or public context and considers both micro and macroeconomic perspectives.
Personal finance explores how individuals and families gain money through things like jobs, investments, and inheritance and the pros and cons of various strategies for managing that money.
Organizational finance looks at the norms of how companies raise capital at various stages and explores strategies for managing it
Public finance examines how governments raise money through things like bonds and taxes and the various ways those funds can be managed and spent.
Microeconomics examines the ways in which human actions and decisions affect the use and distribution of resources under conditions of scarcity with the goal of finding the best way for people to behave in order to maximize the utility of the resources available to them.
Macroeconomics examines the operation of markets within an economy and searches for the optimal way to run an economy.
The Principles of DeFi
As listed on the website, the core principles of DeFi include:
Interoperability and Open Source
Accessibility and Financial Inclusion
Financial Transparency
DeFi is about using decentralized infrastructure to develop financial products and services. These products and services often take the form of protocols or decentralized applications (dApps) that operate on Ethereum.
Ethereum is a public, permissionless implementation of distributed ledger technology that enables the creation of censorship-resistant applications. In other words, no single organization or individual providing infrastructure to operate the network has the power to stop an application from using it.
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