What is DeFi?
DeFi (short for Decentralized Finance) means "decentralized finance" or "Open Finance". DeFi actually refers to a decentralized protocol used to build an open financial system, designed to allow anyone in the world to conduct financial activities anytime, anywhere. In the existing financial system, financial services are mainly controlled and regulated by the central system, whether it is the most basic deposit and withdrawal transfers, loans or derivatives transactions. DeFi hopes to establish a transparent, accessible, and inclusive peer-to-peer financial system through a distributed open source agreement to minimize trust risks and allow participants to obtain financing more easily and conveniently. DeFi is an open source technology that aims to disintermediate by introducing a decentralized layer, eliminate rent-seeking middlemen, remove traditional financial institutions or third-party intermediaries, and allow individuals and individuals to directly serve each other's financial needs through the blockchain. It highlights the characteristics of openness (no access required), distribution, and transparency of decentralized finance. Thereby improving the current financial system in all aspects.
Compared with traditional centralized finance, DeFi has three main advantages:
a. Individuals with asset management needs do not need to trust any intermediaries, new trust will be rebuilt on the machine and code;
b. Everyone has access rights and no one has central control rights;
c. All agreements are open source, so anyone can cooperate on the agreement to build new financial products and accelerate financial innovation under the network effect.
8 characteristics of DeFi projects:
1. Financial characteristics: The agreement must specifically target financial applications, such as credit markets, token exchange, derivative/synthetic asset issuance or exchange, asset management or forecast markets.
2. No permission required: the code is open source, allowing any party to use or build on it without a third party
3. Anonymity: Users do not need to reveal their identity.
4. Non-custodial: Assets are not managed by a single third party.
5. Community-based governance: A single entity does not have upgrade decision-making and management privileges. If anything, there must be a trusted way to transfer individual rights to the community.
6. No pre-mining, no founder rewards, and no private equity. Participants have the same opportunities.
7. Self-certified innocence, transparent capital flow, and verifiable system solvency chain.
8. All codes of the project, including smart contract and client code, have passed the third-party audit.