The term DeFi is an abbreviation of decentralized finance, which is used to describe the ecosystem of financial applications developed on top of blockchain systems.
Understanding the term
What is the definition of DeFi?
It is the collective usage of decentralized networks along with open-source software to create multiple types of financial products and services. The ecosystem will facilitate the development and operation of Decentralized apps on top of a trustless, transparent framework. This includes permissionless blockchain and other peer-to-peer protocols.
There are three primary functions of decentralized finance as of now – the creation of monetary banking services, facilitating P2P or pooled lending and borrowing platforms, and enabling the functionality of DEXs, tokenization platforms, prediction markets, derivatives, and other advanced financial instruments.
This has led to the creation of several DeFi services which have been used in funding protocols, index construction, subscription payment protocols, data analysis applications, and other use cases. DeFi dApps can also be used for identity management services such as KYC, AML, and others.
The meaning of a DeFi crypto ecosystem can be explained as follows. It is an emerging financial technology based on secure distributed ledgers, which eliminates the control that banks and other financial institutions have on financial products and services.