Definition

Decentralized finance (DeFi) is a system of financial services relying on blockchain infrastructure rather than traditional intermediaries.

Discussion

Overview

DeFi involves peer-to-peer transactions and often uses smart contracts which do not require any permission from a centralized third party.

DeFi and the Legal Principle

The Legal Principle to not aggress is often broken in traditional finance. Traditional finance relies on intermediaries who often aggress, usually with the protection of government.

DeFi is an alternative to traditional finance. Its infrastructure is, by default, based on voluntary, peer-to-peer exchange. No single third party has the capability to coercively intervene in the transaction.

For instance, when people want to save or take out a loan, DeFi allows them to do so without the say so of a third party. The only permission required is the other party to the transaction. This infrastructure reduces the potential for aggressing as it allows two parties to a transaction to mutually benefit without depending on the rules of a third party.

DeFi’s structural frameworks are inherently aligned with the Legal Principle. Or, in other words, the Legal Principle is a core component in DeFi transactions.

Implementation

DeFi frameworks incorporate the following:

• smart contracts
• governance tokens
• token standards
• consensus algorithms.