This layer stores ownership information and ensures state changes adhere to the blockchain's ruleset

DeFi Settlement Layer

Contains all assets that are issued on top of the settlement layer such as the native protocol asset and tokens

DeFi Asset Layer

Provides standards for use cases. The standards are implemented through smart contracts.

DeFi Protocol Layer

This layer contains the applications that connect to individual protocols such as front-end browser-based applications.

DeFi Application Layer

Includes user-centric platforms that allow users to connect to multiple applications or protocols. It can be seen as an extension to the application layer.

DeFi Aggregation Layer

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

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

Schär, Fabian, Decentralized Finance: On Blockchain- and Smart Contract-based Financial Markets (March 8, 2020). Available at SSRN: https://ssrn.com/abstract=3571335 or http://dx.doi.org/10.2139/ssrn.3571335 



Decentralized Finance: On Blockchain and Smart Contract-based Financial Markets

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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