Understanding DeFi

Chapter 1. Introduction to DeFi

DeFi is shorthand for decentralized finance. That’s generally what you hear when you ask about DeFi, as if that clears up all the confusion. But for most people, that definition doesn’t do a thing to clarify what DeFi is, what it does, and why anyone would want to use or build a DeFi application. So let’s fix that. After all, the most important characteristic about any decision is that it’s an informed one. And you can’t make an informed decision in DeFi unless you know what you’re working with.

DeFi runs on blockchain platforms or decentralized applications (called DApps). Understanding the basics of blockchain is the core of understanding how DeFi works and why, so we’re going to cover that first, so you can follow along with the specifics of DeFi. After all, it would be pretty hard to explain the benefits of a Bryant pivot versus an Iverson step back if you have no working knowledge of the rules of basketball. You need to understand the boundaries of the game before you take on the advanced plays, so we have to help you understand what blockchain is and how it works before we get into one type of blockchain application. In this chapter, you’ll learn what blockchain is and how it evolved, what decentralization is, what traditional finance and decentralized finance are, and the differences between them.

General Warning to Readers

For those reading this and thinking they don’t need a lawyer, or a CPA, or any other paid advisors:

1. This book is ...