The Chinese name for DeFi is Decentralized Finance. We all know that the financial services around us, such as loans, transfers, trading, and insurance, are currently provided by third-party institutions as guarantors. However, blockchain itself can solve the issue of trust. Therefore, some people have proposed to eliminate third-party financial institutions and rebuild the traditional financial system through blockchain, smart contracts, and other technologies. This can ensure that there is no centralized entity, the entire system is trustworthy enough, and everyone in the world can freely use financial services. Thus, the concept of DeFi was born.
DeFi is a general term for finance, including many sub-businesses. Currently, DeFi includes lending, exchanges, aggregators, insurance, derivatives, stablecoins, and many other areas, with lending and aggregators being the most thriving.
Lending#
There are many lending projects in DeFi, but they can all be compared to bank loans. The difference is that the entities have changed from banks to various smart contract lending protocols written in code. Users can use assets like Ether as collateral to obtain a certain amount of USD stablecoin as a loan. After using the money, you only need to repay the corresponding amount of USD stablecoin and some loan interest. The system will automatically release your collateral. The entire process of asset evaluation, review, and loan issuance is autonomously completed by smart contracts, solving the problem of lengthy and cumbersome traditional lending processes.
Aggregator#
Aggregators can be compared to bank wealth management services in the world. We can deposit our digital assets into aggregators, which will find a batch of projects with the highest returns among low-interest lending projects, combine our money, and invest it to earn profits.
Conclusion#
Whether it's lending, aggregators, or other areas, the biggest difference between them and traditional financial services is decentralization. Because there is no third-party institution like a bank in DeFi, each DeFi project has its own autonomous organization, where everyone can join and participate in the maintenance and management of the project. Any major decisions are made through voting, similar to the U.S. congressional system, where everyone collectively decides on the project's development and changes. In general, DeFi is more like a reflection of the financial market in a decentralized world, carrying a vision of hope. Not everyone can enjoy good financial services in this world, so it is hoped that DeFi can truly create a decentralized financial world where everyone can participate.