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In this article we will just try to understand DeFi with explanation. You can say that this article will let you dive in to DeFi world, I hope I will try my best in explanation.

What is DeFi?

There is our first question and this is the main theme of article. I will try to explain it with little detail. The DeFi stands for "Decentralized Finance". It is "Open Finance" which means it is open for everyone. It is "Permission Less Finance", you don't need permission to participate, it is probably my favorite term for permission less finance.

What DeFi is trying to do?

DeFi is trying to recreate or create a completely new sort of parallel "Financial System". "Saving", Landing and Borrowing", "Trading", and "Insurance", these all are part of "Financial System". DeFi is sort of great grandchild of Bitcoin, which was really the first successful decentralized money protocol. As it turns out most DeFi applications or protocols, this is all software we are talking about are built on Ethereum. The name of the network is the Ethereum network, the money that actually exists on it is called ether (ETH). Let's try comparing DeFi with CeFi, to understand decentralized finance, it is the best way.

CeFi (Centralized Finance):

Centralized Finance or Traditional Finance, its all permissioned. To open up a brokerage account, you need to sign up, you need to give them your name, you need to give them a lot of personal information and banks. The brokerage required to comply with anti-money laundering rules, you have heard the abbreviation of "AML" or "KYC" which stands for know your customer. They are supposed to get to know you to find out and make sure that you are legitimate, individual that you don't have some shady past, that you are not laundering money and somethings like that. So this is Centralized or Traditional Finance.

This finance is closed source, you can't really go inside your schwab account or robinhood account. One big problem with centralized finance or traditional finance is that it can be censored, if "PayPal" doesn't like you they can freeze your funds, they can kick you off etc. It is very expensive finance, controlled by the finance cartel of central banks, regulated exchanges and other rent-seekers who lobby the government for regulations that keep out new entrants. There is no competition, everything is centralized, everything is regulated, everything is controlled.

DeFi (Decentralized Finance):

DeFi is exact opposite of CeFi, it is decentralized so anyone can sign up. It is permission less, there is no "KYC" no "AML". It is all open source for most of these protocols. It is much less expensive as well from Centralized Finance.

That was all for today's article, in which I tried to explain DeFi with comparing it with CeFi. This was the need to understand DeFi easily and correctly. I hope you understood, and enjoyed. I will try to write about DeFi more, with little tutorial of recreation of financial system using DeFi.

Thank you all for reading.
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