What is DeFi, and How Can You Use It

Decentralised DeFi protocols are built on the foundation of Ethereum cryptocurrency

By Radhika Parashar | Updated: 21 September 2021 19:21 IST

DeFi platforms allow users to keep custody of their Ethereum-based crypto assets

Highlights

DeFi systems remove the need for a bank or middleman for transactions
People with no bank accounts can use DeFi in their favour
A solid framework to define DeFi is under construction

Decentralised Finance (DeFi) is a system that allows financial products to appear on a public blockchain network which is not regulated by a central bank or intermediary. Most applications that categorise themselves as “DeFi” are built on the foundation of Ethereum – which is world's second largest crypto blockchain and currency. DeFi systems aim to provide an autonomous and decentralised option for financial services that are otherwise regulated by banks and national or international administration.

While a solid infrastructure to shape up DeFi is still being chalked out, it is gaining popularity among investors and traders because it locks the invested money in smart contracts. People can deposit their crypto assets into pools of Ethereum-based crypto tokens, each unit of which can represent large sums of money.

How can you use DeFi

People looking to deposit their money somewhere other than a bank can consider investing in DeFi protocol. It would simply mean that the deposited money would be pledged in Ethereum cryptocurrency. Each token of an Ethereum-based crypto has a different monetary value. Ether, the native token of the Ethereum blockchain, is trading at Rs. 2,42,183 in India at the time of writing, but different tokens have different values.

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There are also a number of different DeFi applications, from loans to exchanges, which operate on blockchain technology so that there is no central authority involved. Instead, they are based on smart contracts, stored in, and executed on, the blockchain.

DeFi platforms allow users to keep custody of the crypto assets they get as they deposit their money in the protocol. As per a report on PortalCripto.com.

However, while there is a lot of excitement in the cryptocurrency space around DeFi, there are also naysayers. Critics of DeFi point to the lack of security in DeFi platforms, as an issue preventing widespread adoption.

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Earlier in July for instance, DeFi platform Poly Network suffered a major hack attack. The crypto-hack costed the company around $610 million (roughly Rs. 4,530 crores), most of which, the company reportedly claimed was returned by the hackers.

Interested in cryptocurrency? We discuss all things crypto with WazirX CEO Nischal Shetty and WeekendInvesting founder Alok Jain on Orbital, the Gadgets 360 podcast. Orbital is available on Apple Podcasts, Google Podcasts, Spotify, Amazon Music and wherever you get your podcasts.

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Further reading: DeFi, Decentralised Finance, Protocol, Cryptocurrencies, Ethereum

Radhika Parashar

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Radhika Parashar is a senior correspondent for Gadgets 360. She has been reporting on tech and telecom for the last three years now and will be focussing on writing about all things crypto. Besides this, she is a major sitcom nerd and often replies in Chandler Bing and Michael Scott references. For tips or queries you could reach out to her at RadhikaP@ndtv.com. More