Thread by @CoreDAO_Academy

1/ What is #DeFi?

A thread 🧵

2/ #DeFi, or decentralized finance, refers to the ecosystem of financial applications being built with blockchain technology and without relying on a centralized entity like a bank.

3/ #DeFi's core premise is that there is no centralized authority to dictate or control operations. It's a different approach than the traditional models of finance for fiat currency or centralized finance (CeFi) within the #cryptocurrency markets.

4/ With centralized models, there is a core foundational authority that can influence and control the flow of transactions. The central authority often is also responsible for custody of assets. With #DeFi, there is no central authority.

5/ Instead, authority is distributed in a decentralized approach that is intended to provide more power and control to individuals.

6/ In the #DeFi model, all transactions for buying, selling, loans and payments with #cryptocurrency can occur without a central authority in a peer-to-peer (P2P) approach. Custody of assets is a fundamental component of any financial model.

7/ In the #DeFi approach, individual traders have control over the private cryptographic encryption keys, which enable custody of #cryptocurrency assets.

8/ Financial transactions within the #DeFi model are enabled with smart contracts that are often supported on #Ethereum-based blockchains.

9/ The #DeFi model also includes the notion of decentralized exchanges (DEXs) that operate with the purpose of helping to connect and enable individuals looking to execute #cryptocurrency transactions.

10/ #DeFi is also often closely associated with the concept of decentralized apps (dApps), typically for financial services use cases.

11/ A #blockchain is a form of immutable distributed ledger that cryptographically secures entries, which are used for transactions. Blockchains are also the basis of cryptocurrencies, which are tokens that are created in a blockchain that have value.

12/ With a CORE-based #blockchain, smart contracts help the #DeFi model work. A smart contract is an application that runs on a blockchain using the inherent distributed ledger and cryptographic encryption capabilities.

13/ The smart contract specifies terms and conditions for the execution of a given operation. Instead of a central authority enabling a transaction to occur, a smart contract is programmatically enabled to perform the financial transaction that is specified in the contract.

14/ A smart contract can hold #cryptocurrency assets that can be sent from one entity to another. With #DeFi smart contracts, the terms and conditions of a transaction are also transparent and available as code, which means they are viewable by others to audit and analyze.

15/ There is no need for a central authority to enable a smart contract with #DeFi as the system works in a P2P model. As such, if two peers can agree to execute a transaction, it can be done without the need for a third-party central authority.

16/ Within the #DeFi model and its usage of smart contracts, there is an emphasis on empowering the individual user. #Cryptocurrency asset custody relies on control of both private and public encryption keys.

17/ With the decentralized approach, custody in the form of the private cryptographic encryption keys are held by the individual.

18/ DeFi offers users a number of benefits that can help to improve confidence, security and trust in cryptocurrency-based transactions and applications, including the following👇

19/ Decentralized☀️
Because it's decentralized, #DeFi is not subject to the inherent risks with CeFi, where the failure of an exchange can lead to a complete collapse and loss of user funds and accounts.

20/ Permissionless☀️
As a decentralized model, there is no need for a central authority to approve or enable a transaction. Instead, the model is permissionless as the programmatic logic of smart contracts defines what is possible.

21/ Transparency☀️
The smart contract model can enable users to understand the terms and logic of a transaction in a transparent model without hidden code.

22/ Anonymity☀️
While smart contracts can be transparent on the blockchain, there is no need or requirement for users to be identified. With #DeFi, Know Your Client requirements, which are common with centralized and regulated models, do not specifically apply.

23/ Custody☀️
In #DeFi, users control assets, and custody of the cryptographic private key for cryptocurrency tokens is held by the user.

24/ dApps☀️
#DeFi supports dApps, in which users can benefit from financial services applications and other use cases, such as gaming and social media.

25/ Fees☀️
Without a central authority, #DeFi provides users with the promise of lower fees than transactions executed in the CeFi model.

26/ CeFi vs. #DeFi ( centralized exchanges vs decentralized exchanges) With cryptocurrency-related financial services, there are two prevailing models in use today with CeFi and DeFi. When comparing CeFi vs.

27/ #DeFi, it's important to note that there are similarities and differences between the two approaches. Both models enable traders to buy, sell and loan cryptocurrency assets and have a concept of an exchange that can help to facilitate transactions.

28/ Blockchain-based technologies are also central to both CeFi and #DeFi models. The two approaches differ with dramatic results in organization and management.

29/ The CeFi model relies on a central authority to govern transactions. The central authority also holds custody over assets.

30/ In contrast, the #DeFi approach relies on smart contracts and a P2P decentralized approach to enable financial services. Instead of asset custody being the responsibility of the centralized exchanges, it is the individual users that hold custody of their own assets.

31/ Follow @Coredao_Org and @CoreDAO_Academy for more educational posts and learn how to navigate in the blockchain world☀️