Now that we know how to identify decentralized systems, what features they have, and what finance actually means, we can begin to discuss what "Decentralized Finance" is, and what we can make it mean together by virtue of how we choose to communicate value between one another. [[2. What Does Finance Mean?|Finance]] is fundamentally about what we put our faith in and how to act on that faith is to settle, pardon, or bring to an end this (ultimately moral) question of, "To whom is all our debt truly owed?". [[1. What is Decentralized?|Decentralized systems]] enable anyone who uses them to communicate simply and reliably. So, decentralized finance is a set of systems for communicating reliably about what and whom we have faith in, and who is able to settle, pardon, or otherwise forgive our debt. There is no single controller of these systems; they are resilient; and they are replicated in terms of both access and functionality. Given that our access to meaning, and the ability to make money representative of our values, has traditionally been regulated by other people who may not have our best interests at heart, this is an interesting topic to study. It does not mean it is necessarily good: that comes down to what you choose to put your faith in and how you choose to express that faith. In other words, what code will you adopt? ## Simple Machines, Meaningful Money Once we understand the goals and the stakes behind the choices we make, we can turn to the technological means. What kind of code constitutes DeFi? 1. Contracts with or via which anyone can transact, that establish 2. Clear and predictable rules of exchange that apply equally to all, deployed on 3. Shared ledgers which no single person or group can arbitrarily alter or stop. These general constraints have already led to the emergence of various "simple machines" which exhibit some or all of these properties. They often emerge from traditional financial practices, though they can differ in stark ways given the environment in which they operate. These are discussed one by one in the "Simple Mchines" section: [[1. Pools]] [[2. AMMs]] [[3. Expiring Synthetics]] [[4. Perpetual Synthetics]] [[5. Oracles]] Finance has always been about contracts, though traditionally only a few people have the power to transact with or via them, the rules of exchange are clearly not applied equally to all, and the use of separate books makes reconciliation complicated and difficult, rather than instantaneous by virtue of *how the medium itself functions*. Recognising this, we can turn to the [Ethereum Foundation](https://ethereum.org/en/defi/#what-is-defi), who describe what DeFi could mean by pointing to the problems created by the current practice of financing (i.e. generating faith in specific methods, tools, or people): - Some **people aren't granted access to set up a bank account or use financial services.** - Financial services can **block you from getting paid**. - A hidden charge of financial services is **your personal data.** - Governments and **centralized institutions can close down markets at will.** - **Trading hours are often limited** to business hours of a specific time zone. - **Money transfers can take days** due to internal human processes. - There's a premium to financial services because intermediary **institutions need their cut.** If you would like to keep exploring these ideas in the context of real world DeFi work, we highly recommend that you [take the blue pill](https://thebluepill.eth.link/). "All that matters is that we sail." Authors: Danny Gattas and cryptowanderer