DeFi stands for Decentralized Finance and its financial services are transparent, decentralized and reliable. Decentralized blockchain technology is used to improve current financial services. It is used, for example, to take out loans or insurance and to invest. The bottom line is that DeFi wants to revolutionize the world of finance by offering services on a blockchain platform normally only provided by a traditional banking institution.
Normally you go to a bank to get a loan, you give your identity card and explain what your profession is. In the United States, this is combined with your credit score, while in Europe people look more at your income, your future potential and whether or not you have an account with that bank. Then the bank employee determines on the basis of this data whether you can get the money.
With DeFi, which runs on the blockchain (for example Ethereum), it is all algorithmic. A smart agreement, with an open-source code that is accessible to everyone, takes care of everything. All you need is Ethereum or another cryptocurrency to provide as collateral. This is then leveraged and your loan contract is ready. The smart contract or smart contract on the blockchain takes care of the rest.
