Blockchain-based finance, more commonly referred to as decentralized finance (“DeFi”), is a topic of increasing interest among businesses and investors alike. This interest is fueled by the efficiency, growing array of financial products offered, and user friendliness DeFi brings to digital finance.
DeFi relies on blockchain technology, which maintains a ledger of transactions that is trustless (does not require its users to trust one another), public, and decentralized. Transactions recorded in a blockchain’s blocks represent, among other things, the transfer of value (e.g., cryptocurrency) from one user to another. Blocks in a blockchain can be thought of as the pages of a book, where each page is bound in the book as it is created. On each page, transactions are recorded, along with information about the previous page (the prior block), binding each page to its predecessor.