What is DeFi?
Defi is a financial business with its own private key and digital currency as the main body.
- First of all, DeFi is a model of the encrypted financial system . According to whether encrypted assets are involved, the financial system can be divided into traditional financial system (not involving encrypted assets) and encrypted financial system. Among them, according to whether to rely on centralized financial institutions or trading venues, the encrypted financial system can be divided into DeFi (not relying on) and CeFi (centralized finance) (see the attached table for details).
- Secondly, the core of DeFi lies in "decentralization" . DeFi provides financial services such as transactions, loans and investments on the blockchain by using cryptocurrencies and smart contracts, but does not rely on any centralized financial institutions, intermediaries or trading venues. In other words, DeFi provides financial services similar to traditional financial services while achieving financial disintermediation.
- Third, DeFi also has a fairly high level of anonymity . Both parties using DeFi transactions (borrowing and lending) can directly conclude a transaction, and all contracts and transaction details are recorded on the blockchain (on-chain), and this information is difficult to be perceived or discovered by a third party.
The difference between Defi finance, open finance and token economy
Token economy, in the words of Mr. Meng Yan:
Token is an encrypted digital certificate that can be circulated. If Token is called a pass, Token economy can be called a pass economy. The token economy is the most important application in the blockchain. The token economy and the blockchain are two systems. The token economy can operate without relying on the blockchain, but if you want the token economy to achieve the best development , must have the support of blockchain.
As for open finance, it is a broader concept than Defi finance. Combined with the words of Mr. Tao Rongqi, founder of X-Order, and Yao Qian, general manager of China Securities Regulatory Commission:
Open finance is finance based on distributed ledgers. Its characteristics are: 1. Highly integrated system: registration, settlement, payment, delivery, completed on the chain; 2. Unified and seamless business connection: 7X24 thousands of assets, global cross-chain delivery; 3. Ecological openness Inclusion: Currencies, securities, alternative assets, everything.
Open finance should include both centralized finance and decentralized finance, as well as digital currency finance and traditional financial services, and open finance is based on specific businesses, which means that open finance not only emphasizes financial services, but also It also emphasizes the intercommunication between the underlying businesses.
Open finance is more of a concept, emphasizing the use of blockchain technology to strengthen the distributed cooperation between different centers, and the use of blockchain technology to enhance the credibility of data, so as to make data and financial services more open and financial The connection between businesses is closer, the cost is lower, and the efficiency is higher.
In short: open finance should be a bigger concept, and Defi finance is only a part of it.