To keep up with emerging technology, self-made billionaire Mark Cuban is always reading and learning new things. It’s a tactic he uses to understand artificial intelligence, and now he has set his sights on cryptocurrency and the technology that surrounds it, like blockchain and NFTs.
Decentralized finance, or DeFi, refers to a system of applications that aim to recreate traditional financial instruments with cryptocurrency.
For example, through DeFi lending, users can loan or borrow cryptocurrency, as you could with fiat currency at a bank, and earn interest as a lender. Interest fluctuates depending on demand at the time, and borrowers must provide collateral (with other crypto-assets), as the process is nearly anonymous. Unlike with a traditional bank, borrowers using DeFi apps cannot be held accountable with physical assets if unable to effectively pay back a loan.
DeFi applications are similar to smartphone applications, but they built with smart contracts. They typically run on the Ethereum blockchain, where ether, the second largest cryptocurrency after bitcoin, is its native currency.