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The crypto economy is founded on the principles of decentralized finance. Find out why it’s considered by some as an alternative to banks.
Decentralized finance (DeFi) is a financial technology developed as an alternative to the centralized system of governments and banks, including those in Canada. DeFi relies on distributed digital ledgers (a.k.a. blockchains) to create networks where cryptocurrencies are mined, staked, transferred or held by anyone, anywhere in the world with internet access.
As a rapidly evolving alternative or supplement to centralized financial institutions, DeFi aims to build financial infrastructure based on transparency and community. So, anybody with internet access can see the transactions that take place on a blockchain, and DeFi protocols function on rules and procedures developed by a community of users. In contrast to this, the inner workings of legacy banks are not entirely open to the public, and the banks themselves are run by a board of directors for the benefit of shareholders.
The aim of DeFi to give individuals control over their money by improving access to financial products and services, with faster transaction times and lower fees compared to traditional financial institutions. Getting involved with DeFi is as simple as investing in a cryptocurrency, playing around with dApps, or looking into NFTs.
Currently, DeFi lacks the checks and balances of legacy financial institutions such as banks, but regulation is likely on the horizon
Example: “Sending money internationally using DeFi has saved me a lot of time and money, since transactions are almost instantaneous and fees are low.”
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