How does DeFi work?

Decentralised Finance (DeFi) is an umbrella term for a range of blockchain-based financial applications, connected under a common idea to disrupt financial intermediaries.

DeFi is a concept where financial applications are available on a public decentralised blockchain, which makes them open to anyone without referring to brokerages or banks. As of the end of April 2021, decentralised finance has more than doubled year-to-date having reached around $60 billion in total value locked (TLV).

Representing digital peer-to-peer financial service technologies, DeFi is aiming to bypass financial middlemen and traditional banking services, delivering cost-effective and fast transactions with no minimum transaction amount, no paperwork, complete transparency and audibility.

DeFi utilises smart contracts and cryptocurrencies to render services that do not require intermediaries.

According to Rafael Cosman, CEO and co-founder of TrustToken: “Decentralised finance is an unbundling of traditional finance. DeFi takes the key elements of the work done by banks, exchanges and insurers today – like lending, borrowing and trading – and puts it in the hands of regular people.”

What are DeFi coins? 

DeFi crypto represents decentralised financial applications, which run on blockchains. Ethereum is considered a go-to platform and a most popular foundation for DeFi applications.

DeFi mirrors habitual concepts used in banking and traditional finance. In 2021, DeFi tokens are capable of delivering a diverse range of financial services, from loans and mortgages to complicated contractual relations and asset trading. Moreover, they do it with no additional bureaucratic burden, usually required to fulfil any financial transaction. 

The list of DeFi tokens is constantly growing, adding new names to the board of “blue crypts'' with a market capitalisation of more than 2 billion. Uniswap, Aave, Maker, Compound, Chainlink and Ankr are some of the most talked-about DeFi coins in 2021 so far. 

However, even if you are a strong supporter of decentralised finance, you should still conduct a thorough fundamental and technical analysis before starting trading DeFi coins, which are highly volatile instruments.