What is DeFi? (Decentralized Finance)

December 14, 2021

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WTF is DeFi?
And why are people making so much money from it?
Here is how Decentralized Finance works in the crypto world.

This article was inspired by our friends at Whiteboard Crypto. Click here to check out their videos!

In centralized finance, banks and governments control the flow of money.
They can print more money, stop people from borrowing, and charge high interest rates.

Decentralized finance uses pieces of code to act as a bank.

Here are the 5 pillars of DeFi


Coins that are tied to real world assets (ie. Dai, Tether).
instead of buying and selling with US dollars, use stablecoins to avoid fees and complexities.

Lending & Borrowing

In crypto, people need to "overcollateralize" (give more than they're borrowing).
this allows people to use money without losing value of their original collateral.

Decentralized Exchanges

Instead of going to a bank, decentralized exchanges (DEXs) allow people to exchange money from a pool of money gathered from individuals.
they are operated through code so there is no central authority and there are lower fees.


Smart contracts can automate insurance systems to verify conditions and pay people.

margin trading

Margin trading involves using loans to buy and sell stocks.
In DeFi, margin trading is faster, open to anyone in the world, and safer.

Companies to Watch:

Tether: stablecoin

MakerDao: creator of Dai (stablecoin)

Compound: DeFi lending platform

Aave: DeFi lending platform

Uniswap: Decentralized Exchange

PancakeSwap: Decentralized Exchange

SushiSwap: Decentralized Exchange

Matcha: DEX aggregator

3 Startup Opportunities:

Check out Whiteboard Crypto

Their videos are the best for learning about crypto. Click here to check them out!

Experiment with DeFi tools

Try buying a stablecoin. Contribute funds to a pool. Swap coins on Uniswap. Get familiar with these platforms by participating in them.

Next DeFi innovation

OlympusDAO spearheaded the way to DeFi 2.0 (we'll write about this soon). Others are claiming to have made DeFi 3.0. What other innovations are possible in Decentralized Finance?



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