The Role of Blockchain in Decentralized Finance

Blockchain technology can reduce transaction costs, generate distributed trust, and empower decentralized platforms, potentially becoming a new foundation for decentralized business models. In the financial industry, blockchain technology allows for the rise of decentralized financial services, which tend to be more decentralized, innovative, interoperable, borderless, and transparent. Empowered by blockchain technology, decentralized financial services have the potential to broaden financial inclusion, facilitate open access, encourage permission-less innovation, and create new opportunities for entrepreneurs and innovators. Decentralized Finance (DeFi) has emerged as a revolutionary real-world application of blockchain technology, disrupting traditional financial systems by eliminating intermediaries. This paper explores the pivotal role of blockchain in DeFi, focusing on its potential to democratize finance, enhance transparency, and improve financial inclusivity. It delves into the mechanisms of smart contracts, decentralized exchanges, and stablecoins, elucidating how blockchain underpins these DeFi components. The paper also addresses the challenges posed by scalability, privacy, and regulatory concerns, and proposes potential blockchain-based solutions. The study concludes with an optimistic outlook on the future of DeFi, underpinned by continuous advancements in blockchain technology.