What is DeFi?

DeFi stands for decentralized finance. 

DeFi is the financial services or institutions, typically banks, on the blockchain. What services traditional financial institutions provide can be expected to see on DeFi. 

Although we have concepts like distributed computing and decentralized computing for decades, DeFi is in fact a new concept or application scope with blockchain as infrastructure.

Key features of DeFi

The key advantages or new features of DeFi inherit the essential advantages of blockchain technologies like removing "trusted third parties" and tamper-proof. Such key advantages of DeFi could make it quite different from traditional finance or financial institutions.

(1) Removing "trusted third parties"

Removing "trust third parties" is one of the key features in blockchain, as it transits trust in third parties like government and banks into machine trust. Trust and credit are even more important in financial industries. Trust and credit are keys to the modern monetary and financial systems. Removing "trust third parties" is disruptive for traditional financial institutions as lots of their revenue simply comes from the roles as an agency and has protective monopoly-like services.

(2) Smart contract

The smart contract is a new way of doing business, it can help streamline the business logic. After removing "trusted third parties", we trust in smart contracts. We map traditional financial services and business logic into the composition of smart contracts and External data or services(Oracle, or some credit or guarantee from outside blockchain), and (or) interoperation of other blockchains like identity and some other verification services.

(3) Security, Privacy and transparency

These advantages also stem from the essential advantages of blockchain.

Typical DeFi projects

The pioneer in DeFi is no doubt bitcoin. In bitcoin's white paper, expressed one of its goals is "removing trusted third parties" citing bitcoin as "A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution". Bitcoin created a new monetary and financial system. In the post "Blockchain Brings Monetary and Financial Freedom", it has introduced three internal factors of money: money form, money issuance, and the flow of money. Bitcoin is a cryptographic form of money, a PoW based money issuance standard, and a completely new money movement system. As money issuance is at the core of monetary system beyond the financial system, so it is not part of DeFi. But money movement is essential part of the financial system, and thus bitcoin is a DeFi. Bitcoin opened the door to the challenge both monetary and financial systems where monopoly and absolute power are the features.

Likewise, Ethereum is also DeFi project. And some other public blockchain's like Algorand, EOS.

While Somebody prefers to refer DeFi projects as applications based on public blockchains. Below are some typical DeFi projects in narrow-down definition.

(1)MakerDao 

The MakerDao project is the contemporary success story for decentralized finance (DeFi). The project went live in December 2017, with DAI as the USD stablecoin and MKR functioning as the governance token. In the world of decentralized finance, MakerDAO is by far the most popular application running on Ethereum and has been steadily increasing traction since its launch.

(2) Compound

Compound is a typical blockchain-based borrowing and lending DiFi project.