What is DeFi?

DeFi is a broad concept looking at global finance without a central authority, a process that is said to lower the barriers to entry and provide new opportunities for investors to profit.

DeFi, an acronym short for “decentralized finance,” is an all-encompassing term for financial services made available through public blockchains, the most common being Ethereum (ETH).

With DeFi, users can perform the same tasks they would with the bank, such as earning interest, borrowing, lending, buying insurance, or trading assets, but without a third party. In practice, users will typically engage with decentralized apps (DApps), which require users to begin transferring assets without ever opening an account.

The benefits of DeFi are a lower barrier to entry, especially for the unbanked population, and higher earning opportunities with rewards being transferred directly from the user paying significant fees to those operating the platform.

Why are DeFi yields so high?

A combination of increasing demand and reduced fees taken by a middleman results in higher reward opportunities for investors.

Use cases around decentralized finance have opened up several new avenues for earning passive income. Much like a bank will pay interest when users commit their funds to a savings account, DeFi protocols hold digital assets as resources to confirm transactions and execute processes over the proof-of-stake (PoS) consensus mechanism.

High yields then become a possibility due to the high demand for leverage, available through native tokens and protocol fees. As the DeFi ecosystem matures and adoption grows, many users are becoming aware of the abundance of opportunities, further spurring the growing industry.