DeFi Demystified

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What is DeFi?

DeFi is one of the hottest topics today.  In this blog post we will take a look at what it is and and an example of how it's being used by BRED.

Decentralized finance, or DeFi, simply refers to financial software that is built on the blockchain to make it easy for anyone to piece together digital assets and financial smart contracts. It is widely considered an alternate future for the traditional finance sector.

 

“Decentralized finance, also known as "DeFi", will undoubtedly replace existing financial systems with open sourced protocols that serve the same purpose,” explains Kobhi Nanthakumaran, BRED’s Chief Technology Officer and a member of Bitcoin Foundation and the Blockchain Association of Canada.

How do DeFi and Blockchain work together?

Think of the blockchain as the internet, and a DeFi applications as a destination, like a website, on the internet.  In order to use the blockchain you need a way to get there. For the internet you need a browser. On the blockchain you use a wallet. In other words, a digital wallet is the gateway to your blockchain DeFi app.

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So why is DeFi so important?

Historically, the global financial markets have been out of reach for many people. Unless you have the appropriate wealth, location and connections, investing for the general population can be difficult and expensive. With DeFi, many of today’s financial services, including saving, loans, and trading will be accessible to anyone in the world with a smartphone and internet connection.

“It's one thing to have digitized self-custody of currency or securities, but we already know that financial instruments are a needed layer on top of base currencies to facilitate transactions in society,” Nanthakumaran says.

“DeFi tackles this and is definitely one of the killer use cases of blockchain technology and specifically smart contracts.”

What is an example of DeFi in use?

In our humble opinion, BRED is an excellent example of DeFi and the Blockchain.

BRED is a tokenized real estate fund, powered by the blockchain, working to provide liquidity in an illiquid real estate space. Thanks to digital technology, BRED uses security tokens which allow for digital flexibility.  

It would be virtually impossible for the average middle-class investor to buy into real estate. But,  by using the process of tokenization BRED slices real estate into fractions which are sold as digital shares, or tokens. The process of tokenization was not possible before blockchain was introdocued.

Soon, anyone with a smart phone will be able to purchase pieces of real estate … using their smart phone. And this can be done anywhere in the world where you can access the internet.

Indeed, DeFi is providing an alternate future for the traditional finance sector. 

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