DeFi is the abbreviation of "Decentralized Finance", which is a concept opposite to "Centralized Finance" or CeFi. It mainly refers to blockchain application projects built on programmable public blockchain networks such as Ethereum, with the functional goals of cryptocurrency value anchoring, lending, swaps and other financial activities, and composed of a series of smart contracts and applications.

Traditional financial activities are carried out with financial institutions as the core. Whether it is payment, lending, securities investment, foreign exchange trading, or derivative transactions such as futures, options, swaps, etc., they are all managed and controlled by the central financial institutions. On the one hand, investors need to fully trust the central financial institutions; on the other hand, financial institutions also need to review and screen compliance matters such as customer identity, source of funds, and use of funds. Therefore, traditional financial activities are called "centralized finance."

The so-called "decentralized finance" emphasizes getting rid of the control, intervention and credit dependence of financial intermediaries, eliminating user censorship and differential treatment, using blockchain technology to fix the content of smart contracts, transaction process records and encrypted asset status, and completely realizing financial disintermediation, so that participants in financial activities can directly complete transactions according to the established financial logic of smart contracts.

The value orientation of "decentralization" makes DeFi applications always reject the identity identification of users and node servers. There is a direct conflict with the financial regulatory rules of countries around the world in terms of anti-money laundering, anti-tax evasion, anti-terrorism, and anti-capital flight. Therefore, it is widely criticized and even banned.

However, it is precisely this "decentralized" value orientation that forces DeFi to establish transaction structure and financial logic on the assumption of a "stranger network", to completely divest itself of any credit or ability dependence on any subject, and to rely purely on logically self-consistent game models and code algorithms to solve financial problems such as maturity mismatch, insufficient liquidity, depreciation of collateral, exchange rate fluctuations, etc., hoping to fundamentally solve the moral hazard problems that may be caused by human factors such as misappropriation, embezzlement, fraud, corruption, default configuration, and interest transfer.

It does not rely on the management ability and credit level of any entity, but simply relies on game models such as speculative arbitrage, risk hedging, etc. to build the product's transaction structure and financial logic. This is the most fundamental difference between DeFi and traditional financial services, and also its core value.