Decentralized Finance

Decentralized Finance (DeFi) describes a  financial systems, which is distributed, open and not maintained by a single authority. The DeFi applications are built on Blockchain Technology, and primarily on the Ethereum Blockchain. Additionally, many smart contracts are implemented on an open-source platform, so users can easily choose which services works best [2].

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The technology enables traditional financial products, such as loans, to be offered as transparent products without intermediaries [1]. In most cases, the lenders assign the value in stablecoins. These are cryptocurrencies which are linked to fiat currencies in a ratio of 1:1 [1].

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The use cases of decentralized finance cover a wide range of applications. The most popular sectors are borrowing and lending platforms. In this case the lenders and borrowers are brought together on decentralized platforms based on smart contracts. This guarantees trust and therefore no middleman is needed. Another popular use case of decentralized finance are decentralized exchanges. These are cryptocurrency exchanges, where all trading rules are regulated by distributed mechanisms [2].