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What is decentralised finance?

Dezy Learn is here to break down both decentralised and traditional finance basics so that you are able to make informed decisions on your money.

Decentralised finance, or DeFi is an emerging field built on decentralised and distributed technologies. The aim of DeFi would be to remove third parties (ie. banks) from financial transactions and the fees that they charge.

DeFi 101

What is Decentralised Finance (DeFi)? How does DeFi work?

How do security audits work in decentralised finance (DeFi)?

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Is it time for your next haircut? Mullets, DeFi and Money explained.

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Where do Decentralised Finance (DeFi) yields come from?

"5% What's the catch?" The most common skepticism newcomers have when being introduced to decentralised […]
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Smart contracts, blockchain and beyond. What are smart contracts?

The future powered by smart contracts is bright (and benefits you). We are all familiar […]
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What is DeFi? How is it different from Crypto and Bitcoin?

Here you will find Defi, Crypto and Bitcoin explained in a way that addresses the […]
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What is a blockchain?
Blockchains are immutable and distributed ledgers. This means that a network is now able to transact with each other trustlessly and permissionlessly.

What does blockchain have to do with decentralised finance?
Let us break it down for you. Imagine you are on an e-commerce website. You see an item you like and add it to your cart, clicking check-out. From you entering your card details to your funds being remitted into the merchants’ bank account, it would probably have touched several financial institutions and banks.

Why is this the case? Old financial systems are hardly interoperable and have been band-aided together. This leads to huge inefficiencies. Transactions become more expensive, and you can barely earn interest with savings accounts in banks these days.

With a distributed ledger, you are now able to directly make a transaction to the merchant without needing an intermediary like Paypal or Visa. Wait a minute… what if you end up sending this seller money and never receive your product? Would you have any recourse? This is the main reasons for intermediaries like PayPal existing in the first place - to bring trust to the network and “mediate” any disputes. So who deals with this in the case of distributed ledger technologies?

Enter the smart contract.

What are smart contracts?

Smart contracts place logic on top of a blockchain that are automatically triggered. If we continue on with the above scenario, you would send your funds into an escrow, that would release funds to the seller upon your receipt of your item from the seller.

Related: What are smart contracts?

Where blockchains allowed for peer to peer payments without intermediaries, smart contracts then opened up a whole new world of products by allowing for programmable money. By introducing “if-this-then-that” logic onto a blockchain, a smart contract allowed for reimagining of financial instruments and legal structures. 

Are smart contracts and blockchains safe?

The cryptocurrency industry comes with risks. Smart contracts run the risks of being hacked, and funds can be lost in this manner. There are several things you can do to protect your funds when engaging in decentralised finance strategies:

  • Diversification
    Don’t put all your eggs in one basket. By diversifying your strategy across a range of different decentralised finance protocols, you do not have a central point of faliure

  • Insurance
    You can purchase decentralised finance native insurance on your DeFi strategies. InsurAce and Nexus Mutual are both insurers that are native to the cryptocurrency industry.

  • Security
    How do you know if the smart contract you are interacting with is safe? It is important to do research in the case of anything you are new to. One of the signals that a smart contract is safe is that it has undergone a security audit.

    What is a security audit? We dive deeper here. But TL;DR - a security audit means that the protocol has undergone a 3rd party audit of their smart contract code. While this is not a 100% guarantee of safety, it is an indicator that this is a safer strategy than an unaudited protocol. 

In summary, decentralized finance or DeFi, is an emerging financial technology that would theoretically simplify the way money, financial products, and financial services are managed. DeFi relies on blockchain technology and smart contracts which enables transactions between distributed corporate ledgers and secure digital wallets. This makes transactions almost instantaneous, and cheaper. 

Dezy Learn is here to help you with the building blocks

Enjoying diving deeper? Check out our other modules which offer insight into different aspects of both decentralised finance and macroeconomic factors. 

  • Finance 101

    There’s no shame in starting with the basics, so much of finance is obscured by vocabulary. Understand the difference between APY and APR, how insurance works with your bank account and much more.

    Get started.

  • Stablecoins 101

    Now that you’ve gotten a few concepts down in terms of decentralised finance you can dive into what stablecoins are, and the nuance around the different types.

    Stablecoins in all their varieties are core building blocks within the decentralised finance sector. Why are algorithmic stablecoins riskier than the others? What makes a stablecoin stable? All these questions and more answered within our stablecoin series.

    Read more.

  • Inflation 101

    Have you been feeling the cost of everything increase? You are not imagining things. Understand inflation, the macroeconomic factors that are contributing to it, what it means for you and your money.

    Our inflation series takes you through the relationship between interest rates and inflation, how different asset classes react under downward pressure with interest rates and more.

    Dive in.
What is Dezy?

Dezy bundles decentralised finance primitives to provide you with easy access to stable yield. Funds are diversified across a range of battle tested and audited decentralised finance protocols. All funds are insured in case of smart contract vulnerabilities.

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    Dezy Pte Ltd UEN: 202116623N, 80 Robinson Road, #08-01, Singapore 068898
    1. Decentralised finance is an emerging field with fluid regulations and not without risk.
    2. Dezy is not licensed by the Monetary Authority of Singapore.
    3. Learn more about how we mitigate risk for consumer protection with insurance, diversification, and technical security measures.
    4. Dezy insurance coverage applies only to certain assets / protocols where insurance is applicable. Learn more about insurance.
    Dezy Pte Ltd UEN: 202116623N, 80 Robinson Road, #08-01, Singapore 068898