What is Defi? Put your money to work and earn more interest than at the banks

The blockchain. Every transaction is recorded for all to say and you can track where all the more goes or how much is in it. Only one person has posession of the money at one time. You cannot say you have the money in the suitcase and rely on rep alone (like the gangstas you see in the movies meeting up to exchange goods).

If this system is now secure and we have trust. Then we could start doing things with the money – one way is to loan to another person. This is where decentralised finance comes in. If you have some money/BTC that you do not need to use in the short term future – you could give this money to loan this to somone else at a agreed upon rate.

The trouble historically with peer-peer lending that this is not your main game. If the borrower doesn’t pay – how do you get the money back or how can you take the collateral without penalty? You dont have the muscle to pick up payments or are you bothered to be the bad guy lender. This is where the blockchain solves enforcement.

How is this all enforced? Everything is running according to code. So a protocol (AAVE or uniswap) would get people together and then agree to run the exchange code. A person can be need of AUD and stake their 1BTC in return for some cash. There is no need for the structures of law to take place because it is all code. The downside will be checking for errors in the code. We expect there to be standard trusted protocols in place in the future.

If all goes well. You can receive yield from your assets greater than the bank can give at the moment all around the world. That means loaning from the bank isn’t always needed.

Comparison with traditional home loan – Lending to buy a house you borrow to buy an asset. if you don’t pay the interest that asset gets taken away from you. Inforcement is done through contracts and the rule of law wherever you are. Since you are not 1:1 collateral your credit worthiness is taken into account (job, savings, spending habits )

Future takeaway I like to predict the future by seeing what will be removed rather than added. We see that the traditional role of banks is not necessary in this Defi world. The middleman is taken out and their %cut for being financiers is removed.