 DeFi stands for decentralized finance. It's a new term. How do you define decentralized finance? De-decentralized. Fi-finance. De-fi-de-fi-de-fi-de-fi-de-fi-de-fi-de-fi-de-fi. De-centralized finance. Does that answer your question? Probably not. All right, so let's start in the beginning. What is finance? And I think that's where we should start this conversation. Finance, in my opinion, and I'm not an economist, but this is how I try to think of this question. Finance is all of the layers of abstraction that we stack on top of money. And these layers of abstraction allow us to handle change. What do I mean by that? Well, money as a communication medium of value itself is a useful abstraction, but the characteristics of money change over time and the interactions that we use them for change over time. That change is what we try to manage with finance. So change can also be called risk or if you're on the other side of it yield. Change is a negative thing if it's a change that you didn't want and a positive thing if it's a change you did want. So a change in price which reflects a change in supply and demand is something that represents a risk if you were hoping for the price to go up or down and it went the other way. Or it's an opportunity for yield if you were hoping for the price to go up or down and it went the way you were hoping. That's the kind of change that we deal with with abstractions on top of money. So when there is a change in value we might want to manage that change. I think of it in the terms of physics. So in physics for example we have a physical effect such as velocity and velocity is change of distance over time and then we might have another abstraction layered on top of that which is acceleration. That's known as the first derivative. So that's change in velocity over time over time. That's acceleration. So we can do the same thing with financial things and of course the word derivative is used there too. But derivative is a more specific aspect of finance and you can apply these things more broadly. Let's say you're an oil producer. Well if the price of oil goes down that's going to hurt your finances. But if you're an airline and the price of oil goes down that's going to help your finances. So the same change is perceived as risk on one side and yield on the other. Well what if we could have a marketplace that allows us to arbitrage that change to trade that change and that's the classic marketplace for oil futures. So in that case essentially an oil producer hedges the possibility of oil dropping while an airline hedges the possibility of oil prices increasing and that way they can cancel out each other's risk. So these are the kinds of things that finance is used for at maybe an industry level but for an individual as well. You know you use a retirement fund to get yield in order to make sure that your change in your ability to earn in the future doesn't affect your ability to have quality of life. So all of these things are finance. They're layers of abstractions on top of money and in most cases those layers of abstraction of money are somewhat decentralized. I mean think about it this way. Let's say you wanted to handle the difference in risk between an oil producer and an airline who are both affected by a change in price of oil. Well one way you could fix that is with a very centralized solution. You could have a government step in and say if the price goes up and the oil producers make more money we're going to tax them more heavily and then we're going to use that tax revenue to subsidize the airlines to help them absorb the cost of oil and vice versa. And you could have a government try to step in and do that or a cartel or bilateral trade agreements. These are centralized solutions to solve that problem. So finance itself is somewhat decentralized because we have markets to do that. But it's not decentralized enough and it's not decentralized enough because there are intermediaries and brokers and these intermediaries and brokers introduce counterparty risk. Also there are possibilities of repudiation. That means that you enter into a contract and then they don't deliver. They fail to deliver and enforcing that contract is very expensive. Again a centralized aspect of this especially in world trade. And finally these markets are also very closed. Getting access to these markets requires authorization and vetting by third parties. And so all of these things are the same types of problems that we solve with cryptocurrencies. So cryptocurrencies give us neutrality and openness and access and transparency and auditability and censorship persistence for money. Well decentralized finance is about achieving those same objectives in abstractions above money. I think that's one of the ways I could explain decentralized finance. Hi thanks for watching the video. I'm Andreas Antonopoulos. I'm the author of Mastering Bitcoin, Mastering Ethereum, and the Internet of Money series. If you'd like to support my mission of bringing education about Bitcoin and open blockchains to as many people as possible under open free Creative Commons licenses, please consider subscribing to my channel and supporting me on patreon.com slash a-a-n-t-o-n-o-p. Thank you!