Money has been an inevitable aspect of human civilization since ancient times. In addition to providing viable tools to facilitate financial transactions, currency is also an important symbol of trust between the parties involved in specific transactions. At present, cryptocurrencies are sweeping the world. DeFi, namely decentralized finance, is gradually becoming one of the hot topics in discussion. The huge demand for DeFi developers is also one of the reasons for attracting people's attention to decentralization. So how did DeFi come about? What is its purpose?

1、 What did DeFi do?

Humans initially exchanged goods and services, but as we evolved, so did the economy. So money was invented to facilitate the exchange of goods and services. Subsequently, money helped introduce innovation and create a better economy. However, progress comes at a cost.

Historically, the central government has issued currencies to support our economy. As more and more people begin to trust them, this has finally given them greater power. However, this trust has been broken from time to time, leading people to question the ability of the central government to manage these funds, as well as their powers and functions. DeFi is developed based on the idea of creating a financial system that is equal and open to all. Its emergence minimizes the need for trust and reliance on the central regulatory agency.

DeFi offers a lot of opportunities to achieve a transparent and stable financial system without the control of a single entity. The turning point of financial application is in 2017. This project not only transfers funds, but also provides more functions.

Financial markets can generate great ideas and promote social prosperity. However, the power of these markets is central. When people invest in today's financial system, they give their assets to intermediaries, such as banks and financial institutions; This makes risk and control the core of these systems. However, bankers and institutions seem unable to see the risks in the market. A typical example is the 2008 financial crisis. Therefore, when the central government controls currency, risks will accumulate in the central government, endangering the entire system.

Bitcoin and early cryptocurrencies were originally developed to allow individuals to fully control their own assets, but they were decentralized in terms of issuance and storage. Providing a wider range of financial instruments remains a challenge until the emergence of smart contracts makes DeFi possible.

2、 What is the purpose of DeFi?

What is the cause of DeFi? In an era when decentralized finance is called an unstoppable phenomenon, this seems to be a question for many people. In fact, it is obvious that the central factor in the traditional market is affected by the government, which is also central in structure. Therefore, the monetary system should also play a role through centralized entities such as banks. Centralization means the management and supervision of centralized entities, which have absolute control.

Almost all banks provide interest for customers' savings in the form of fixed term or fixed amount. However, by lending to enterprises at higher interest rates, banks use customers' money for investment in different markets. Therefore, the bank gets more profits from customers' funds, and returns a small part of the profits to customers.

The global annual interest rate hovers between 2-3%, which indicates that customers do not get the income they want from bank deposits. Therefore, clients should find ways to diversify their investments in stock markets, plans, mutual funds and many other financial instruments. At this point, the importance of DeFi becomes obvious because banks do not allow customers to control their investment diversification.

In addition, a centralized approach also implies higher risk due to single points of failure. Many questions about the functionality of central entities also create a need to focus on alternatives. For example, the timing of the authorities' decision to print more money, and the impact of factors such as financial demand or continuous demand on such decisions, are some of the issues that cast doubt on the potential of the central financial system.

summary

The above content is an introduction to the birth history of DeFi, and what is the purpose of DeFi? The answer to this question. The guarantee of tangible goods traded in currency is a powerful reason. For this reason, it is almost impossible to imagine a commodity without currency. And focus on the factors that led to the origin of DeFi. Novice can use this discussion to build basic knowledge about decentralized finance, not just know what DeFi is.