What Is DeFi?

Last updated August 30, 2021

DeFi, as you probably already know by now, is the short name for “decentralized finance.” This covers a wide variety of financial applications and services that use distributed ledger technology and smart contracts to remove centralized parties from all transactions.

You can think of DeFi as an alternative financial system to the legacy system of banks, exchanges, insurance companies, mortgage providers, etc., but reimagined from the ground up with no intermediaries in the middle. Unlike traditional finance, with no gatekeepers to turn down your application, DeFi lowers the barrier to entry, allowing more people to access financial services, take out a collateralized loan, or earn a yield on their assets.

DeFi has grown so quickly as it greatly expands on the initial use case of cryptocurrency of simply transferring value to accommodate complex financial interactions as well. DeFi enables everyday people to make their assets work for them and be in control of their financial decisions. Rather than having to be at the mercy of a large company to approve your application, using DeFi, you can secure a loan, participate in derivatives trades, or lock up your funds for high yields with no one in the middle.

Most DeFi applications today are built on top of Ethereum, which has become the backbone of decentralized finance. However, decentralized applications on Ethereum are subject to the same growing pains as the layer one protocol they're built on. This means that, as traffic surges and the price of ETH rises, so do network congestion and high fees.

DeFi may have started out as a way to democratize financial services, but it's gradually pricing out retail traders and becoming a place for whale traders only. In fact, on Ethereum-based decentralized exchanges like Uniswap, it's widely considered unviable to place a trade worth less than $1,000 because of the painful fees.

Cosmos aims to democratize DeFi once again and allow for its sustainable development through Emeris integrated with the Gravity DEX and the upcoming Gravity Bridge that will connect to Ethereum and allow for batched transactions and liquidity to flow back and forth from Ethereum to Cosmos.

This will slash gas costs and enrich the DeFi ecosystem on both sides of the bridge, turning Gravity DEX into a vast marketplace of digital assets, and enabling retail traders to place small transactions with Emeris and manage all their assets cross-chain with minimal fees.