When you use a DeFi application, it’s powered by hardcoded rules. The idea is that these rules provide users with the ability to do powerful but predictable things with their money–like borrow, lend, trade, and earn interest. In order for users to coordinate such activities and engage with their money peer-to-peer, it means trusting the protocol (the code) to do what it’s designed to do.
Otherwise, it’d be pretty tough to trust anonymous DeFi users like 🍍SillyPony2345 on Uniswap to sell me some SNX for my ETH. Now i’m sure 🍍SillyPony2345 is an upstanding citizen, but in DeFi we can leverage trust-minimized applications without having to know someone personally or trust them. What minimizes the trust is removing intermediaries while also providing all those involved with an adequate economic incentive to cooperate with the rules of the protocol.
- 🍍SillyPony2345 wants to safely sell SNX for ETH
- I want to safely buy SNX with my ETH.
- Uniswap LPs want to earn trading fees for providing SNX and ETH to the liquidity pool where we trade.
- And Uniswap developers want a bug-free protocol that works for users so they can grow the network and benefit from holding the UNI.
Lastly, there’s a real end goal of censorship-resistance for this peer-to-peer network. It’s to prevent anyone, no matter how powerful, from owning, corrupting, or blocking access to the DeFi application. Top tier DeFi teams are working to ensure anyone, anywhere in the world, regardless of nationality or oppression of an authoritarian–can access their DeFi app as long as they have an internet connection and a compatible Ethereum wallet. That’s a real revolution worth fighting for!
The key takeaway is minimizing trust, removing intermediaries, and empowering a censorship-resistant peer-to-peer application may well be as hard as it sounds. It’s quite difficult to pull off and this is precisely why you as a user need to understand the difference between something that portrays itself to be DeFi versus what’s actually DeFi.
The only thing you should trust is the code!