What’s DeFI? Should You Pounce On This Developing Crypto System?

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Ryan Kaye

- February 3rd, 2022

Decentralised finance is all the rage in the crypto world. Well, according to the hype anyway. DeFi is red hot. It’s the most rewarding – and riskiest – part of cryptocurrency FinTech.

It’s a $100 billion overwhelming force that anybody says could be the collapse of big finance, replacing commission-driven bankers with booming smart contracts that enable DeFi projects to operate with no need for any central authority whatsoever. According to the hype, DeFi is pure, unadulterated capitalism. Is this the end of the London Stock Exchange (LSE)?

Have you just ventured into cryptocurrencies? Then you may have come across a type of crypto token called DeFi, an abbreviation of decentralised finance. But what’s the meaning of it? Let’s take a look.

What’s DeFi?

Essentially, DeFi is an algorithm-based, decentralised finance service. DeFi crypto is an abbreviation of “decentralised finance,” a blanket term for blockchain and Ethereum applications intended for disrupting monetary mediators.

This cryptocurrency is delivered via DLT platforms and requires no mediators, and it depends on smart contracts.

Understanding the DeFi trading market

DeFi Decentralised Finance on dark blue abstract polygonal background. Concept of blockchain, decentralized financial system

Given that $100 billion’s been invested in it, mainstream finance can’t afford to overlook it. Decentralised finance is, in a lot of ways, cryptocurrency at its deepest: a finance market tool that requires zero need for banking, bankers, banks, brokerage, or brokers.

It’s an entirely peer-to-peer technique for carrying out what the financial firms have been carrying out for decades – offering a source of reliability – minus having to pay the tax necessitated by a reputable go-between.

And this is why it’s evolving. However, philosophy is, on the whole, messier than fact – and this is true with DeFi.

Decentralised exchanges, knowns as “DEXs” can provide derivatives and trades with speedier, more cost-effective than even centralised crypto. What’s more, the borrowing and lending platforms can offer borrowers and lenders superior rates than banks.

That said, as with any investing, DeFi includes risks: front running attacks, inefficient access control, wrong liquidity pool estimates, and so on, not to mention understanding new products such as liquidity pools and yield farming.

How does DeFi work?

DeFi finance employs the same blockchain technology used by cryptocurrencies. To clarify, a blockchain is a secured and distributed ledger or database. dApps, applications that manage transactions, are used to operate the blockchain.

For example, in a blockchain, trades are documented in blocks then authenticated by other handlers. If an authenticator agrees on a transaction, the block is closed and encrypted then another block is produced with data about the preceding block inside it.

Next, the blocks are “chained” together by the data within each previous block, hence the name “blockchain”. Data held within preceding blocks can’t be altered, otherwise it’ll affect the subsequent blocks. Thus, there isn’t any technique to tweak a blockchain. It’s this principle, together with other safekeeping practices, that makes a blockchain so secure and one of the preferred methods of decentralised banking.

How is DeFi different from Bitcoin? 

Digital banking

DeFi is based around the fundamental principle of Bitcoin — one of the leading digital currencies — and inflates it. It produces a complete digital replacement to the London Stock Exchange, however, minus all the related charges. Think banker wages, office towers, trading floors.

Currently, DeFi coin is mainly used to provide credit. At the moment, lending accounts for almost half the DeFi industry.

That said, you can deploy the DeFi technology and model to reproduce a whole host of monetary services, including derivatives, savings, and trading.

While DeFi isn’t huge right now, it’s developing rapidly. At the beginning of 2020, it was under $10 billion, but recently, it’s hitting almost $100 billion.

The global and incredibly decentralised make-up of the DeFi division coupled with the difficulty to track clients means regulators are met with a unique series of challenges.

A few of the main appeals of DeFi for numerous consumers include:

  • The ability to keep your capital in a safe digital wallet rather than holding it in a bank.
  • The capacity to transfer your money instantly.
  • Eradicates the need for charges banks and other financial companies charge for using their services.
  • There’s no need for approval, as anyone with an internet connection can use it.

Is DeFi the future?

Since early 2020, DeFi has seen a sharp increase. Back in January, the DeFi crypto market was hovering at roughly £2 billion, but currently, it’s nearly $160 billion (£117 billion). With such a lot of activity, it’s no wonder so many believe DeFi is the future of cryptocurrency.

That said, there’s still a lot that needs doing to guarantee the additional implementation of DeFi crypto. This includes enhancing consumer assurance, better investments to progress DeFi foundations, and more clarity on any possible guidelines.

Key takeaways

With exciting new approaches and applications to finance, we think DeFi crypto will no doubt become the future of decentralised money. Not only does it have the scope to revolutionise financial services for a considerable portion of the UK that already hold crypto assets, but it also entices more people to technology.

But, because it’s a new field, we recommend bearing in mind the risks associated with it and learning as much as you can before pouncing on any new investment.

Join the DeFi movement

DeFi is about to get a whole lot bigger, so we’re helping to bring talent into this hot new category. At the moment, we’re finding ourselves working towards DeFi recruitment mandates. Want to be part of the movement towards a world of open finance?  Are you a candidate wanting to get into Defi or crypto? Or are you an employer seeking new talent in your DeFi business? Then give us a call on +44(0)20 7971 7700 or drop us a line at