Features of Decentralized Finance

Today, Decentralized Finance is evolving rapidly and diversely, making it difficult to classify types of Decentralized Finance and Traditional Finance. However, a decentralized financial system can be categorized based on some basic characteristics:

Financial service or financial product

It involves the exchange/transfer of value between users. This feature differentiates Decentralized Finance from Information Services, which focus entirely on supporting financial services.

If this condition is not met, it is considered to be an information service.

Operations and settlement based on trust-minimized environment

Transactions will be executed and recorded in accordance with some predetermined rules in a permissionless environment. A decentralized settlement system allows all operations to be conducted without centralized support.

If this condition is not met, it is considered to be traditional finance.

Non-custodial

Assets are issued and managed on the decentralized finance system. Such assets cannot be seized or altered by any person who is not the account owner. Additionally, asset change or transfer requires rules or explicit logic on the smart contract.

If this condition is not met, it is considered to be a custodial service, such as fiat-backed stablecoin.

Open, Composable, Programable

It is an open-source system that can be used similarly to open banking which is a type of traditional finance. It works with the Application Programming Interface and allows users to browse or verify the integrity automatically and without any permission.

The system also has composable and programmable features. These two features allow the system to be modified, separated and combined to create different financial tools or more sophisticated financial services, such as using stablecoin as collateral for decentralized lending platforms, etc.

If this condition is not met, it is considered to be a private service or a stand-alone digital asset.