DeFi, or Decentralized Finance, is a revolutionary sector in the blockchain industry that uses smart contracts to create permissionless financial services. These services are open to everyone and operate without intermediaries, such as banks or brokers. DeFi applications aim to recreate traditional financial systems, such as loans and insurance, in a more open, transparent, and accessible way.
Examples of DeFi applications include decentralized exchanges (DEXs), lending and borrowing platforms, yield farming platforms, and prediction markets. Some well-known DeFi projects include Uniswap, Aave, and Compound.
The DeFi sector has seen rapid growth and innovation, with new use-cases and ideas being realized regularly. Concepts such as Automated Market Making (AMM), Flash Loans, and Yield Farming have emerged from the DeFi space, revolutionizing the way we interact with financial products and services.
Yield Farming, for instance, allows users to earn rewards by providing liquidity to DeFi platforms. This has created a new way for users to earn passive income from their cryptocurrency holdings.
Most DeFi applications are built on smart contract-enabled blockchains, with Ethereum being the most popular due to its advanced developer tooling and flexible scripting language. However, the high fees on Ethereum have led to the emergence of other DeFi-friendly blockchains.
Binance Smart Chain (BSC) and Polygon (MATIC) are examples of blockchains that have gained popularity for DeFi applications due to their lower transaction fees compared to Ethereum.
As the DeFi sector continues to grow, we can expect to see new DeFi-focused blockchains emerging, and existing blockchains expanding their DeFi offerings. This could include the addition of DeFi products or the support of DeFi through sidechains.
SmartBCH on Bitcoin Cash is an example of a sidechain that supports DeFi applications. It allows for Ethereum-compatible smart contracts to be executed with lower fees, opening up the Bitcoin Cash ecosystem to DeFi.
* All terms and definitions may update as the Cryptionary improves.