An Analysis of Decentralized Finance and its Applications

Cryptocurrency and blockchain technology are relatively recent economic and technological trends. Within the cryptocurrency sphere a new form of decentralized peer-to-peer finance network has emerged. This is of course Decentralized Finance (DeFi). DeFi is a relatively quick and permissionless financial movement within the greater world of cryptocurrency and blockchain technology. DeFi is built on ideas of easy access, interoperability, transparency, and limited third-party meddling. As such, DeFi and its principles are in clear contrast to traditional financial institutions that value centralized control. The aim of the thesis is to further investigate the technological and financial properties of DeFi and disclose how these relate to the broader aspects of the financial world. The thesis answers key research questions of interest by performing a deep dive into the DeFi sphere. In this thesis the underlying protocols of DeFi is analyzed. This is supplemented by examining and comparing DeFi to traditional financial foundations and values. A comprehensive literature review is explored and summarized to point out the uniqueness of DeFi, in addition to advantages and disadvantages and finally what yet needs to be improved within the sphere. Based on the analysis in this thesis, several findings were made regarding the nature of the decentralized market today. Finally, concluding remarks are provided about DeFi and its greater implication on today’s world and what the future holds for alternative financial options. The research and results show DeFi as a growing movement with real life implications and use cases, but still in its infancy with legislative challenges yet to be properly addressed