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-> DeFi stands for decentralized finance, which means finance that operates independently without a central authority. The concept involves financial services and products that are built on blockchain technology. A blockchain is a public database that records and stores information about financial transactions in a series of blocks. Transactions must undergo a validation process using a consensus algorithm before they can be added to the blockchain. This helps ensure the authenticity and immutability of the transaction.
->To understand how DeFi works, you need to know about smart contracts. These are computer codes that automatically execute agreements once specific conditions are met.
-> DeFi applications are mostly built on the Ethereum blockchain and offer various financial products and services. Some of the main applications include:
- Crypto Exchange: DeFi enables decentralized exchanges (DEX) where users can trade cryptocurrencies without intermediaries.
- P2P Lending: DeFi offers peer-to-peer lending and borrowing of cryptocurrencies without intermediaries.
- Asset Tokenization: DeFi allows the creation of digital representations of assets that have economic value and can be traded.
- Income Protocols: DeFi enables users to lend digital currencies for the network to perform credit transactions and earn passive income.