There’s no doubt that the world of finance is changing. With the rise of Bitcoin and other cryptocurrencies, it’s become clear that there is a need for a new kind of banking system. This is where Decentralized Finance (DeFi) comes in. DeFi is a new way of doing things that cuts out the middleman and puts control back into the hands of the people. In this blog post, we will discuss what DeFi is and why it matters!

What is Decentralized Finance (DeFi)?

Decentralized finance—often called “DeFi”—refers to the shift from traditional, centralized financial systems to peer-to-peer finance enabled by decentralized technologies built on the Ethereum 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 Ethereum, DeFi developers can launch financial protocols and platforms that run exactly as programmed and that are available to anyone with an Internet connection. By doing so, DeFi opens the door to a more inclusive financial system.

By cutting out the middleman, DeFi promises to reduce costs, increase transparency, and make financial services more accessible to everyone. While still in its early stages, the DeFi ecosystem has already grown to become one of the most active sectors in the cryptocurrency space, with billions of dollars’ worth of value locked in Ethereum smart contracts. And with new projects launching every day, it shows no signs of slowing down.

Why does DeFi matter?

DeFi matters because it represents a fundamental shift in the way we think about financial systems. For too long, our financial system has been controlled by central authorities—whether that’s banks, governments, or other institutions. This centralized system is often inefficient, opaque, and expensive. It’s time for a change.

With DeFi, we now have the opportunity to build a new financial system that is decentralized, transparent, and accessible to all. This new system has the potential to empower individuals and communities around the world by giving them more control over their own finances.

DeFi is built on the idea of creating financial instruments that are open, transparent, and accessible to anyone with an Internet connection. By using decentralized protocols and smart contracts, DeFi applications can offer users a wide range of features and benefits that traditional financial services cannot match. For example, DeFi applications can provide instant and permissionless access to financial products and services, as well as 24/7/365 operation. In addition, DeFi protocols often offer much lower fees than traditional financial providers, as well as better security and privacy protections. As the DeFi ecosystem continues to evolve, we can expect to see even more innovative applications and protocols that will further democratize finance.

The Decentralized Finance stack

The Decentralized Finance (DeFi) stack is a comprehensive suite of protocols, smart contracts, and decentralized applications (dApps) that together enable the creation of financial services on the Ethereum blockchain. By using Ethereum’s decentralized infrastructure, DeFi developers can build everything from lending and borrowing platforms to margin trading exchanges and synthetic asset issuers.

DeFi systems essentially have the same components as traditional financial ecosystems, including stable currencies and a variety of use cases. However, all components of decentralized finance are contained within a software stack that is separated into four layers;

  • Settlement layer, known as layer 0, contains a public blockchain and the native cryptocurrency. All transactions made via DeFi apps will use the native digital currency.
  • Protocol layer, which sets out the standards and rules that regulate the tasks and transactions completed on the DeFi system. It is the layer that gives the Decentralized Finances system its liquidity. Exchanges, loans, derivatives and asset management all fall under this layer.
  • Application layer, which uses the standards set out by the protocol layer to facilitate crypto exchanges by combining sophisticated technologies with a user-friendly process. Fungible tokens and non-fungible tokens both come under this layer.
  • Aggregation layer, which connects the application layer to applications for instant crypto transfers as well as lending and borrowing. This allows for a smooth transition between related services.


In conclusion, Decentralized Finance is a big step forward in the world of finance, and has the potential to change the way we think about financial systems forever. Still in its infancy, DeFi contracts grew in value from $41bn in March 2021 to $80bn by August. Some experts predict a 1000% growth before the end of 2022. With its many benefits, it is easy to see why DeFi is gaining so much traction in the crypto community. We can expect to see even more amazing applications and protocols emerge from the DeFi ecosystem in the years to come.