Decentralized Finance

Abstract

Decentralized Finance is a segment of finance that enables financial transactions by the
execution of smart contacts, without the intermediation of financial institutions and central authorities. It
uses innovative technology to ensure the necessary transparency and autonomy of all the participants and
potential investors. Even though DeFi is in its early stages, based on the increasing market size and high
return yield of the assets, it is expected to contribute to a more innovative financial economy and the
development of traditional finance as well.
Through theoretical analysis of the existing literature and information, this study investigates the
importance of Decentralized Finance, its advantages, and disadvantages, the associated risks that arise from
decentralization, and the lack of central authorities. Decentralized Finance has several advantages,
including interoperability, borderless, openness, transparency, innovation, decentralization, efficiency, and
so forth. Because of its nature, DeFi has several disadvantages and risks as well, such as high volatility,
stablecoin run, unstoppability, irreversibility, lack of transparency, pseudonymity, and the risk of money
laundering.
As the growth of DeFi is mainly related to innovative and information technology, it is expected that its
fast-growing trend will continue in the future as well. Considering the limited research in Decentralized
Finance, this study contributes to enriching the related literature.