1 min read

What is DeFi?

DeFi = Decentralized Finance.

Enjoy the rest of your day!

The idea of money is inherently decentralized. If you and I both agree that a piece of paper is worth the same as a dozen eggs or a gallon of milk, we can swap that scrap back and forth for our animal byproducts all day. There doesn't need to a central agency in charge of the pieces of paper if everyone can agree.

The problem is getting everyone to agree. Governments create currencies and the citizens of the countries use those currencies to represent how much benefit they have provided to society. Not all money is earned, so it's not a perfect proxy, but for most purposes it's close enough.

Cryptocurrency is just digital money without a government. If you provide a benefit to the blockchain, you can earn money for doing so. As long as there are other people who accept that currency, you can use your digital money as if it were a normal dollar/euro/etc.

The problem is "finance". There are a lot of people in society who devote their entire lives to turning money into more money. Currencies aren't just a means of exchange, they enable a lot of fancy math/statistics/economics/finance. Typically, these fancy activities are performed by big companies and governments. But if finance is supposed to decentralized (DeFi) by blockchain, then more people need to be able to do these fancy activities.

If you don't understand finance and technology, you'll have a hard time joining in with DeFi today. This centralizes financial power to sophisticated investors in our decentralized networks. It's just centralized finance by another name.

In order for DeFi to be a reality, the "fancy activities" need to be accessible so more people can participate.

More tomorrow,


P.S. This week on the podcast, I interviewed Ron Hamenahem (head of design for the Koinos Group) about design in the context of blockchain. Enjoy!