Web 3 in my opinion ushers in the age of digital ownership.
Web 3 is powered by the concept of Blockchain technology, which allows organisations to securely store digital records across a network of computers, built by the nodes of the system. In essence, the Blockchain works like a digital ledger, whereby the ledger records all transactions in chronological order and the public can access this information in real-time.
DeFi stands for Decentralized Finance, and it refers to a financial system built on blockchain technology that aims to offer traditional financial services and products without the need for intermediaries like banks or financial institutions. Instead, DeFi platforms use smart contracts and decentralized applications (DApps) to provide financial services directly to users.
Key characteristics of DeFi include:
Decentralization: DeFi platforms operate on public blockchains like Ethereum, which are decentralized and open to anyone with internet access.
Smart Contracts: Smart contracts are self-executing contracts with the terms of the agreement directly written into code. They automate processes and remove the need for intermediaries.
Interoperability: DeFi applications are designed to be interoperable, meaning they can interact with each other, allowing for composability and the creation of more complex financial products.
Open Source: Most DeFi projects are open source, meaning their code is publicly accessible and auditable.
Transparency: Since DeFi runs on public blockchains, all transactions and data are transparent and verifiable.
Popular DeFi services and products include decentralized exchanges (DEXs), lending and borrowing platforms, stablecoins, yield farming, liquidity provision, and insurance, among others.
It's important to note that while DeFi offers many benefits, such as financial inclusion and open access to financial services, it also comes with risks, including smart contract vulnerabilities, regulatory uncertainties, and potential security issues. As with any financial activity, users should exercise caution, conduct thorough research, and understand the risks involved before participating in DeFi protocols.
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