First, to understand DeFi, it is important to understand our current centralized financial system. Financial services markets are traditionally overseen by different regulators. To gain access to money, one must work with financial intermediaries for auto loans, mortgages, brokerage accounts, investment accounts, stocks and bonds. Regulators set the guidelines and rules consumers must meet to get a bank account, access loans and invest. As users of these services, we must comply with these laws and rules to access money. DeFi is an alternative approach. Unlike traditional banks and investment firms, DeFi financial services firms use digital assets, instead of fiat currency, to provide banking and financial services, such as lending, investing and management services.

In the current banking system, a customer opens a savings account and earns interest on the deposit. The bank lends the money you and other customers have deposited to another customer or business at a higher interest rate and takes a profit on the difference. The idea behind DeFi, using the example above, is that you could earn the full amount of interest paid by the borrower instead of some lesser amount set by the bank. If you’re familiar with cryptocurrencies, you’ve probably heard of Altcoin and Ethereum. They are two of the most popular cryptocurrencies in an ever-growing and vast marketplace.

Bitcoin and Ethereum are not just cryptocurrencies. They are built on blockchain technology, a decentralized digital ledger that shows Bitcoin and Ethereum transactions. Blockchain technology allows users to — among other things — obtain, sell and invest in digital assets, like Crypto AI. DeFi uses the blockchain to allow users to engage in financial activities without any regulatory oversight and to handle finances on a peer-to-peer level. The DeFi blockchain technology is run using apps, called decentralized apps, or “dApps”, and “protocols” that allow users to access the applications from anywhere in the world.