Decentralized Finance or DeFi is a collective term for the entire range of financial applications based on blockchain networks. The main aim of this methodology is to promote a financial system that is distributed and decentralized, with any central authority figure. This is in-line with the core concept of cryptocurrencies - open-source and permissionless means of transacting on a peer-to-peer basis.
DeFi protocols, similar to the cryptocurrencies they are inspired from, constitute anonymous and peer-to-peer blockchain networks, which allows unrestricted access to all apps on a DeFi system for anyone with a connection to the internet. An open-source code-base allows for public auditing and verification of the DeFi’s security measures, as well as transparency and accountability.
While Bitcoin is one of the first instances of a widely used DeFi application, current DeFi systems use Ethereum, due to its support for a multitude of peer-to-peer based applications instead of a simple transaction-based model like Bitcoin. Decentralized exchanges, or DEXs, a host of protocols that enable a system of credit (akin to loans) and even peer-to-peer insurance protocols are some major applications of DeFi methodologies.