Decentralized Finance (DeFi)

Last updated on
February 17, 2022

Decentralized finance is an emerging digital financial infrastructure that conceivably erases the need for financial transactions to be approved by a central bank or government agency. Many consider DeFi to be an overarching concept for a new generation of financial services innovation. It is inextricably linked with blockchain, the decentralized, immutable, public ledger on which Bitcoin and other cryptocurrencies are based, which allows all computers (or nodes) on a network to keep a copy of the history of transactions. The concept is that no single organization or individual has control over or can alter the transaction ledger.

Nigerian Context

Decentralized finance products based on blockchain technology enable users to gain access to finance because they are not restricted by location or credit history. . In addition, unlike traditional financial institutions, which are subject to regulatory limits, there are no limits on the value that may be available to users. The Banks and Other Financial Institutions Act 2020, for comparison purposes, states that a commercial bank may not grant to any person any loan or credit facility if the total value of the liability in respect of that person exceeds 20% of the bank's shareholders' funds unimpaired by losses without the prior written approval of the Central Bank of Nigeria (CBN)

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