CAIA Blog: What Is DeFi? January 19, 2021
January 2021 - Crypto
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By Dan Eyre
You may have heard about tech’s newest portmanteau in the last few months: DeFi. This is due to the meteoric rise in value of the related assets. This post will attempt to explain what DeFi is, and what the medium- to long-term impact will be. To understand DeFi we first need to break out and define its two morphemes: “decentralized” and “finance.” Admittedly, the “finance” component of DeFi is perhaps broader than a traditional definition of finance would be. There is also no formal definition for all of the activities that make up DeFi, but for the sake of simplicity we will say that the “Fi” in DeFi includes:
Trading—the exchange of one asset for another;
Lending & Borrowing—the borrowing or lending of an asset for interest;
Derivatives—asset whose value is derived on the value of other asset(s);
Prediction Markets—trading on the outcome of events; and
Insurance—event-driven compensation in return for a premium.
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