Decentralized Finance

Frequently shortened to DeFi, Decentralized Finance is the opposite of CeFi (Centralized finance). DeFi is characterized through digital assets, protocols, smart contracts and blockchain-built dApps (Decentralized Applications).

The central point of DeFi is that it does not depend on a central actor for its operation but multiple decentralized actors. Everything is done through smart contracts, which use code to perform previously defined actions. These smart contracts are typically open source and when verified can be found on the corresponding block explorer.

DeFi is further characterized as permissionless since there are no intermediaries who are required to manage users' assets, providing users with full control over their investments. This provides a greater degree of freedom but in turn a greater individual responsibility for the management of funds.

A key concept for DeFi investors is to DYOR (Do Your Own Research) in order to ensure they understand what a DeFi protocol is, how it works, and the risks involved in using the protocol.