The first time Erin Holloway encountered the world of decentralized finance, she had the same question as almost everyone else: What exactly is it?
Even with nearly 20 years of financial experience working for JP Morgan, the industry puzzled her at first and piqued her curiosity. On the one hand, DeFi — as it’s called for short — is a field brimming with promise, envisioning a more egalitarian financial future run on blockchain. In it, anyone — especially those underserved by the banking industry — can take out a loan or invest in a company without going through a financial institution.
What Is DeFi?
Decentralized finance is cryptocurrency’s answer to the traditional financial system. It ecnompasses any blockchain-based application that facilitates peer-to-peer financial transactions, allowing users to trade digital assets on crypto exchanges, lend and borrow crypto, purchase goods and more. Transactions are then registered, encrypted and stored across a distributed ledger, thus preventing centralized control over assets.
On the other hand, one of the more popular cryptocurrencies — the blockchain-based digital currency that DeFi depends on — started as a joke (Dogecoin) and there are countless stories of coins that could portend the future or descend into scandal.
So, which is it? The reality is somewhere in the middle. It’s still considered the Wild West of technology and finance, but its future potential also can’t be ignored.
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