New York University

DeFi or Decentralized Finance is financial infrastructure built on blockchain. It is based on open protocols and decentralized applications. Smart contracts serve as the backbone of DeFi. Overall, it is much more open and transparent than traditional financial services. DeFi offers financial instruments without relying on central financial institutions such as banks and brokerages.

DeFi

- Settlement layer
- Asset layer
- Protocol layer
- Application layer
- Aggregation layer

5 Layers of DeFi architecture (The DeFi Stack)

- Asset tokenization
- Decentralized exchange protocols
- Decentralized lending platforms
- Decentralized derivatives
- On-chain asset management 

Key DeFi Terms

The principal risks DeFi faces today are smart contract, governance, oracle, scaling, exchange, custodial, DEX, and regulatory risks. DeFi allows developers to create new types of financial products and services, expanding the possibilities of financial technology. While DeFi can eliminate counterparty risk, cutting out middlemen and allowing financial assets to be exchanged in a trustless way, as with any innovative technology, the innovations introduce a new set of risks.

Defi Risks

DeFi References

- Centralized financial system

- Inefficiency

- Lack of interoperability

- Opacity 

- Limited access


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