Decentralized Finance

Decentralised Finance (DeFi)

As a new and very popular phenomenon, Decentralised Finance (called as DeFi) indicates a fully independent ecosystem of financial services that are completely built upon blockchain technology. Within this brand-new environment:

• All services should be open-source,
• Permissionless should be applied as a primary rule,
• Services should be entirely transparent,
• Everyone can reach this ecosystem from everywhere,
• The Ecosystem does not need any regulatory body,
• Services are designed as Peer–to–peer (P2P),
• Millions of low-income individuals can use financial services for the first time.

In DeFi, new and unique financial products or services will be created easily, and should be strengthened with “interoperability”. Needless to say, traditional frameworks and Intermediaries such as banks, agencies, payment providers, investment funds, or arbitrators will lose their positions and commission incomes with the rise in DeFi. These advancements will also lead to a decrease in the operational costs of financial transactions and builds different value creators inside. All transactions will be held and secured on blockchain technology and appears a new ecosystem that covers many different users who would not have access to financial services.

The main components of DeFi are:
• Open and decentralised lending and borrowing protocols,
• Instant transaction settlements,
• Cryptographic verification mechanism,
• Monetary banking services as stablecoins, mortgages, and insurance,
• Widely usage of “Smart Contracts” for building an intermediary-free structure,
• Decentralized marketplaces for trading entirely digitally without using trusted intermediaries, and
• Security token issuance platforms.

As of June 2020, the value of DeFi reached 2 billion Dollars with offerings to lend and borrow services, exchange services, monetary banking services (e.g. the issuance of stablecoins), tokenisation services, derivatives, and prediction markets. Until the end of 2020, it will be expected that the transaction volume exceeds 2,5 billion USD level with cooperation with political stakeholders, regulatory supervisors, traditional finance, and fintech components.

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