DeFi – what is it ?

What ? you haven’t heard or learned at all about DeFi! Please read on as it may change your mind about how the world will change with this evolutionary shift in the financial services industry.

DeFi or Decentralised Finance or finance, or financial products that are open for anyone and everyone to use. That means no banks, no real intermediaries or brokers and more transparency.

Back in 2017 you would have heard about ICO’s and maybe Bitconnect – ermmmmm not so funny as a lot of people lost a lot of money. Since 2018 the world has been every steadily recovering from then and turning its head towards Defi and its revolution.

To put this into some perspective, TVL OR Total Value of Crypto currencies “Locked” into DeFi projects at the beginning of 2019 was less than $5Bn, today it’s a staggering $99Bn. That is to say the market has grown 2,000% in value since the early days (it sounds like it’s a long time ago but its only 2 years).


Souce: defipulse.com

Originally called “Open Finance” DeFi is a combination of decentralized framework (or the blockchain network) and finance. It is a parallel financial system, that includes normal products like borrowing and lending that is open to everyone and anyone in the world. It now includes a plethora of blockhain applications built mainly on the Ethereum blockchain.

The industry, is still in flux and a steady growth path as more platforms using DApps (decentralized applications) are providing more and more ways to access a financial system fuelling exponential growth.

Applications are built based on Smart Contracts which are a set of automated rules that govern and enforce the outcome of series of facts e.g;

if party A lends X to party B for Y period at Interest rate of C, at the end of that period party B will repay X (the original amount lent) together with the interest calculated by the smart contract. The unusual thing here is the decentralized nature of the blockchain allows for party A’s “X’ asset to stay in his own wallet, but it gets locked and can’t be used anywhere else. Meaning party A never loses control or ownership of his asset.

This is a very simple explanation of a loan contract to describe a smart contract. The smart contract enforces the rules set at the beginning throughout the period of the contract.

It allows for a trustless set of rules to be applied in a peer to peer (P2P) transaction, without the need for any financial intermediary to take a large slice of fees. Some would argue this is the largest failure with the current financial system.

It also allows for anyone to have control over their money at all times. The traditional finance world (Centralised Finance or CeFi) one may think this is the same. This is an element of fiction; as soon as you make a transfer you no longer own your asset and rather than rely on a smart contract to determine the outcome of the “contract”, you are relying on a legal system and all intermediaries to apply the contract rules.

DeFi is also truly global, anyone from anywhere can access the system, any of the applications and put their money to work. This is certainly not the same in a traditional sense where borders, normally country specific, do not allow for the easy transmittance of money. If they do, they come with extraordinarily large fees.
As the system is truly decentralized, there are no personal information requirements so the whole ecosystem is permissionless. So no passport, ID verification everytime you want to use the system. Some would say that this open system without the need for brokers, banks and other intermediaries where you can transact with anyone in the world in seconds, with no verification verges on science fiction.

To finish the Wikipedia definition of DeFi is

“Decentralized finance (commonly referred to as DeFi) is a blockchain-based form of finance that does not rely on central financial intermediaries such as brokerages, exchanges, or banks to offer traditional financial instruments, and instead utilizes smart contracts on blockchains, the most common being Ethereum. DeFi platforms allow people to lend or borrow funds from others, speculate on price movements on a range of assets using derivatives, trade cryptocurrencies, insure against risks, and earn interest in savings-like accounts. DeFi uses a layered architecture and highly composable building blocks”

This may all seem a little daunting but to be honest it is complicated and getting even more so. However, don’t be put off. It is truly a change of significant proportions for the world of finance.

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Singapore Regulated entity

DexStar Services Pte Ltd (DSPL) is currently on an exempt Payment Services Act status, and undergoing the license (for a few payment license categories) review process with the Monetary Authority of Singapore. Whilst being exempted and legally able to issue DXST tokens in Singapore, DSPL recently (23rd April) submitted a revised business plan and organization chart reflecting the outline of Project DexStar. This was following the acquisition of the entity earlier in 2021.