Everyone is talking about DeFi, what exactly is DeFi?
Editor's Note: This article comes fromBabbitt Information (ID: bitcoin8btc), Author: Mathew Di Salvo, Compiler: Captain Hiro, published with permission.
Editor's Note: This article comes from
Babbitt Information (ID: bitcoin8btc)
Babbitt Information (ID: bitcoin8btc)
, Author: Mathew Di Salvo, Compiler: Captain Hiro, published with permission.
secondary title
1. The rise of Defi
A few years ago, the concept of Defi did not exist in the blockchain industry. It took only a few years for Defi to become a "bad guy" in the blockchain industry from an unknown "poor boy".
There are already many articles about Defi on the Internet. I fully recognize the potential and bright prospects of Defi. In this article, I just want to clarify what Defi everyone is talking about from the most fundamental concept.
Some people say, isn't Defi simple? The definition of the Chinese concept is very clear, it is decentralized finance.
That's right, the concept is indeed very clear, but it is not easy to really understand, and it is precisely because it is not easy to understand, so in real life, some unscrupulous merchants often secretly change the concept or expand the connotation infinitely .
Decentralized finance is made up of two words: "decentralized" and "finance". In fact, the concept of "decentralization" alone is quite complicated, and it is not so easy to really understand it.
What's more, not only is the concept of "decentralization" difficult to understand, most people's understanding of "finance" is also limited to the surface, let alone superimposing these two concepts to understand "decentralized finance".
For example, we can ask a few questions casually: Is FOMO3D, which was popular in the market back then, decentralized finance? Is the DEX launched by the centralized exchange decentralized finance? Do other businesses besides mortgage, lending, and asset synthesis belong to the category of decentralized finance?
Or we can go further: What is the relationship between Defi finance and the token economy? What is the relationship with asset digitization? What is the relationship with open finance?
In my opinion, the decentralized finance that many people understand is not the real decentralized finance, but can only be regarded as "financial business of digital currency". It is true that they are financial services, but they do not have the characteristics of decentralization. It may be more accurate to describe these services in terms of digital currency financial services, open finance, and programmable economy.
Decentralized finance, I think, refers to a certain type of business.
secondary title
2. What exactly is Defi?
In order to have a more accurate understanding of the concept of Defi, I have done a lot of thinking and consulted a lot of information. My current definition is as follows:
Defi is a financial business with its own private key and digital currency as the main body. This is the clearest definition I can think of so far.
This definition includes three levels of meaning: the first is to own the private key, the second is to take digital currency as the main body, and the third is financial business.
1. Master the private key yourself.
Mastering the private key yourself is the core of Defi, because the Chinese translation of Defi is called decentralized finance, and decentralization is the core attribute word. If there is no attribute of decentralization, it cannot be called Defi at all.
Since decentralization is so important, what is decentralization? How to judge whether a financial business is decentralized? Of course, in real life, you can judge from many aspects, but I think the simplest and most intuitive way is to see if you have the private key.
There are many centralized exchanges or other centralized institutions that will launch various businesses, and then they call it Defi business. If you just look at their descriptions, it seems that this is indeed the case, and their business rules are also open to the public. , expressed in code, the business seems to be indeed a financial business, and you can easily be fooled if you are not careful.
Moreover, there are many businesses in real life. You actually have no way to accurately distinguish whether they are centralized or decentralized. Their boundaries are not so obvious. The nature of their business is between the two. There are attributes of centralization and attributes of decentralization, and it is difficult to make an accurate distinction.
However, it will be much clearer from the perspective of whether you control the private key.
If we own the private key, then we can simply think that this business is decentralized; if we do not control the private key, then we can simply think that this business is not decentralized. Unless it proves that its decentralization property is indeed relatively strong through other angles afterwards, then we will adjust our understanding of it.
If you want to find out the most important features of Defi, I think "owning the private key" should be the most important feature.
2. Take digital currency as the main body.
Defi is the Defi of digital currency, with digital currency as the main body, there is no doubt about it.
Because when we talk about Defi, we actually refer specifically to the blockchain industry, specifically to the digital currency circle. Most of the targets in this circle are digital currencies, and they are all native digital currencies. Traditional finance is very little involved.
If there is a project, which is obviously a traditional financial business, but under the guise of DeFi, you need to carefully screen it.
Many friends have asked me this question in private: What do you think is the relationship between asset digitization and Defi?
In my opinion, at present, asset digitization and Defi are two different business lines, and the relationship is not too big for the time being. After the development of both in the future, asset digitization can be regarded as the upstream or starting point of Defi.
First, convert traditional assets into digital assets through asset digitization, so that these assets can interact efficiently on the chain, so that they will naturally become Defi businesses.
This point seems to be taken for granted by definition, but when we actually encounter cases in real life, we often ignore this point.
At present, what can be called financial business includes transactions, lending, asset synthesis, mortgage, and liquidation. These are all traditional financial businesses. It is no problem to understand these businesses as financial businesses. However, some companies will fish in troubled waters, calling their messy business as financial business, and their irrelevant business as Defi business, and forcibly rubbing hot spots.
Let me give you an example. Back then, FOMO3D was very popular. It was once considered to be a new form of blockchain business in the future, and it can even be said that FOMO3D was the prototype of all Defi today. But strictly speaking, does FOMO3D belong to Defi finance? I don't think so!
FOMO3D is more than "decentralized" but not "financial". It is more like a traditional lottery business or a traditional commercial business rather than a financial business.
The above are the three most important features of Defi finance in my opinion. As for other features, such as "automatic execution through code" or "rules cannot be tampered with", they can only be regarded as appearances, not cores. For example, there are many Internet companies now, and their rules are automatically executed through code; and the rules of Defi are not completely unmodifiable, there are still many ways to modify them, and some can be modified in a centralized way. Can be modified through decentralized governance, so these are not core features.
secondary title
3. The difference between Defi finance, open finance and token economy
Above we have made a clearer and more specific definition of what Defi finance is. You must know that in addition to the most popular Defi finance on the market, there are other concepts, such as open finance, such as token economy, and the relationship between these concepts What is the relationship and similarities and differences?
Token economy, in the words of Mr. Meng Yan:
Token is an encrypted digital certificate that can be circulated. If Token is called a pass, Token economy can be called a pass economy. The token economy is the most important application in the blockchain. The token economy and the blockchain are two systems. The token economy can operate without relying on the blockchain, but if you want the token economy to achieve the best development , must have the support of blockchain.
In my opinion, the token economy is very similar to the asset digitization I mentioned above. They both aim at the "digital currency as the main body" in the definition of Defi, and they are just a form of digital assetization.
But the difference is that Defi focuses more on pure financial business, while token economy emphasizes the combination of token and real economy.
