DeFi represents a broad category of financial applications that are being developed on top of open, trust-minimized, programmable and censorship resistant networks to improve upon the legacy financial system or create entirely new use-cases. Today most of these new financial experiments are deployed on Ethereum.
DeFi vs. Fintech
The internet tremendously improved communication and trade execution speeds but was not able to transform finance at its most critical point: the creation of new instruments.
Ethereum enables anyone to programmatically control digital value through ‘smart contracts’. Smart contracts are essentially computer programs that escrow and then reallocate value based on certain conditions.
These conditions could effectively replicate swaps, options, futures, bonds, or other financial instruments which are executed and settled by Ethereum’s decentralized network with immutable records.
Why is this important?
What's interesting is that anyone is able to write smart contracts and create new financial instruments such as money markets, exchanges and asset management solutions. The internet disintermediated traditional media over the last twenty years by providing wealth building tools to content creators. Ethereum is doing to finance what the internet did to the media by democratizing the creation of new financial instruments.