The decentralization of the existing traditional financial model is referred to as decentralized finance (DeFi). This decentralization is achieved with the help of blockchain technology. The primary goal of DeFi is to host the traditional financial services such as lending and banking on the blockchain systems, removing the requirement of any intermediary party to conduct any form of transactions.
Since, decentralized finance is at a nascent state, it is undergoing several evolutions with various use cases of the technology being tested and identified simultaneously. These are on the lines of the vision of Vitalik Buterin, the founder of Ethereum and one of the first blockchain enthusiasts to suggest the use cases of blockchain beyond finance and payment.
Ethereum’s smart contracts power the applications serving the DeFi needs. Smart contracts are nothing but immutable self-executing software running on the blockchain and executing transactions on the basis of certain predefined conditions.
The purpose of DeFi is to bring transparency, security, and trustlessness to the traditional financial system. The applications that serve the DeFi services are known as decentralized applications or dApps.