Decentralized Finance

Financial tools and apps powered by blockchain

DeFi is used to denote Decentralized Finance, and broadly describes a variety of financial applications and solutions that are made possible with blockchain technology. By replacing centralized services with decentralized autonomous organizations, anyone and everyone can benefit. This is commonly referred to as DAO - a Decentralized Autonomous Organization, like MakerDAO. Most DeFi solutions are made with the intent of providing service better than what today's financial institutions offer.

Early cryptocurrencies like Bitcoin showed that you could remove the middleman to transfer wealth. DeFi seeks to improve the speed, privacy and sophistication of such transactions, using smart contracts. These are preprogrammed transactions that only execute if certain conditions are met. DeFi widens the use case for cryptocurrencies several magnitudes beyond Bitcoin's ledger system.

Most of today's DeFi solutions are built with the Ethereum blockchain, since Ethereum has the most extensive developer base. However, similar blockchains like Binance Smart Chain and Solana have seen increased use as DeFi becomes more popular.

Common use cases

Lending platforms have become popular as they reduce the need for an intermediary between asset and borrower. Replacing the role of a bank reduces typical overhead, often resulting in more favourable interest rates for borrowers and high interest payments for lenders.

Decentralized exchanges (DEX), have grown as alternatives to typical cryptocurrency exchanges. Rather than a centralized record of all trade orders (an order book), asset price is determined based on availability. For example, after transacting ETH for some BTC, there will be more ETH available to purchase for the next person who comes along. This is reflected in the exchange rate, making BTC more expensive and ETH cheaper. You may have heard the term liquidity pool, this is it. We plan to find ways for Tuned to better interface with these new exchange in the future.

Looking forward

Remember that DeFi on its own is not a cryptocurrency, but a term that refers to financial solutions that rely on the blockchain. Once the code's been written, and deployed as smart contracts, you can expect it to operate without intervention. This technology enables an ecosystem of applications with the capacity to facilitate permissionless financial services. It can be effectively understood as another layer of financial apps operating on top of a blockchain.