Context:
The DeFi boom has raised national security concerns, with experts warning about potential misuse for terror financing and money laundering.
About Decentralised Finance (DeFi)
- What it is: A blockchain-based financial system enabling saving, borrowing, investing, and transacting without traditional banks.
- Origin:
- Rooted in Bitcoin (2009) philosophy of decentralisation and transparency.
- Expanded with Ethereum (2015) and DAOs (Decentralised Autonomous Organisations).
- Aim:
- Democratise financial access by removing intermediaries.
- Offer inclusive, low-cost, borderless financial services.
How it Works?
- Users create crypto wallets (no KYC needed).
- Transactions occur via smart contracts on the blockchain.
- Services include:
- Decentralised exchanges (DEXs)
- Lending & borrowing
- Payments & derivatives
- Insurance & stablecoins creation
- Governance is managed by token holders in DAOs, not central authorities.
Key Features:
- Disintermediation: Direct peer-to-peer transactions without banks.
- Transparency: Transactions recorded on a public ledger.
- Anonymity: No identity verification required.
- Interoperability: Works across multiple blockchain applications.
- Low-cost & Fast: Avoids interbank or international fees.
