Hello and welcome. You are listening to Patrick Boyle on Finance, a podcast exploring ideas from quantitative finance, examining events occurring in markets right now and financial history to see what lessons can be taken away, including interviews with some of the most interesting people in the world of finance. To learn more about the podcast, visit onfinance.org.

Defi is a term used to describe the part of the crypto universe that aims to build a new financial

system that's internet native and uses blockchains and smart contracts to replace

the traditional intermediaries and trust mechanisms that are used in traditional finance.

The term defy is short for decentralized finance.

In today's financial system, if you want to move money, borrower lend, buyer sell securities

or insurance-like products, you need to use an intermediary like a bank, a broker, an insurance

company or an exchange.

And that whole system relies on all parties trusting that the intermediaries will act with fairness, honesty and within

the law. In DFI, the idea is to do all of the same things, but in a peer-to-peer manner

where blockchain-based smart contracts replace the middlemen, but still ensure that the entire

process is fair and trustworthy.

Defi can be thought of as a blanket term for how crypto people are trying to build a new version

of Wall Street, where central counterparties are replaced with decentralized software that deals

exclusively in crypto assets, with crypto versions of many of the products

offered by traditional financial firms.

They aim to do this without a lot of the red tape and regulations that govern the existing

financial system.

Decentralizing finance, they argue, might fix the problems in our current financial

system, in part by erasing the power that big Wall Street banks have over our economy, markets

and the general financial system. While Defi has been generating a lot of press, it's not necessarily that big.

Its total value locked is around $40 billion or so, which would make the entire Defy Industry

...