In the world of finance, there are a lot of acronyms flying around that can be confusing for people who aren’t familiar with the field. DEFI is one such acronym, and it stands for decentralized finance. In short, DeFi is the umbrella term for financial applications that run on blockchain technology. These applications include everything from lending and borrowing to asset management and insurance.

Decentralized finance—often called "DeFi"—refers to the shift from traditional, centralized financial systems (bank-controlled)  to peer-to-peer finance (transparent algorithm-controlled) enabled by decentralized technologies built on the blockchain. From lending and borrowing platforms to stablecoins and tokenized BTC, the DeFi ecosystem has launched an expansive network of integrated protocols and financial instruments. By deploying immutable smart contracts on blockchains like Ethereum, DeFi developers can launch financial protocols and products that run exactly as programmed and that are available to anyone with an Internet connection. Moreover, in DeFi a single player is never able to affect an algorithm programmed, meaning that in pure DeFi, banks, for example, will never be able to risk someone’s money without consent as network does not allow changes in algorithms and every single operation is stored and available to check by any network user - more transparency with less control.

At the moment connection between crypto and fiat is tight with the help of stablecoins - cryptocurrencies that are connected to fiat currencies in order to provide secure ways to save money in crypto. For example, 1 USDT is always almost equal to $1. 

Other cryptocurrencies for now have high volatility, meaning their value in USD or EUR may change fast - both grow and drop, which allows using investment instruments to increase your income dramatically. 

Whatsoever, it’s important to remember that the potential profit directly correlates with the possible risks , so portfolio management is something to keep in mind. 

The breakthrough of DeFi is that crypto assets can now be put to use in ways not possible with fiat or "real world" assets. Decentralized exchanges, synthetic assets, and flash loans are completely novel applications that can only exist on blockchains. As the ecosystem of DeFi protocols has grown, so too has the opportunity for yield and returns on investment. Automated liquidity provision mechanisms allow DeFi to offer competitive interest rates on crypto deposited into them. Some protocols allow users to deposit crypto into a lending pool and earn variable or fixed interest rates in return. Other protocols do something similar but also allow users to borrow crypto directly from the protocol itself. The Maker Protocol enables users to lock crypto up as collateral in order to generate Dai, a stablecoin that is pegged to the US dollar. In this way, decentralized finance protocols open up new earning opportunities for crypto investors who would otherwise have to rely on centralized exchanges for yield-bearing services like staking or margin trading. However, traditional services like margin trading are also available for crypto if one wants to use them.

What's more, because these protocols are built on blockchains like Ethereum, they also benefit from Ethereum's composability—meaning that they can easily interact with one another to create even more powerful financial products and services. Decentralized exchanges, synthetic assets, flash loans, and yield-bearing services are just a few examples of the kinds of applications made possible by decentralized finance. As the ecosystem continues to grow and mature, we can expect to see an explosion of creativity and innovation in the space—all powered by advanced blockchains. 

There is a lot more to know about DeFi, crypto, investments and the future of finance!