Decentralised Finance (DeFi)

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.