> For the complete documentation index, see [llms.txt](https://bmv.gitbook.io/mundi-token-whitepaper/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://bmv.gitbook.io/mundi-token-whitepaper/economic-model/defi-strategy.md).
# DeFi Strategy
### **What is DeFi?**
If you need to borrow money for a house, obtain insurance for your car or send money to your family overseas, you generally have to do so through one of a relatively small number of intermediaries — be it a bank, money remittance company or insurance broker. These intermediaries provide efficiency and convenience, but they also stifle innovation and restrict access to those who need financial services the most. Bitcoin was originally conceived in 2008 as a solution to this problem. It provides a means of payment that is accessible to anyone, without the need to go through an intermediary such as a bank or remittance company. However Bitcoin has struggled as a payments system due to the volatility of its unit of account, and because of its limited functionality — payments are just one small component of a financial system. Services such as Bitcoin exchange and lending remained intermediated by centralized service providers, just as in the traditional financial system.
Enter Ethereum in 2015. Ethereum combines the open, permissionless financial infrastructure of Bitcoin, with much richer, flexible functionality that is enabled through the concept of smart contracts. These allow complex financial services to operate as software, directly integrated into the settlement infrastructure.
Decentralized Finance (DeFI) refers to the use of platforms such as Ethereum to offer an alternative financial system that is open for anyone to use, and which allows centralized intermediaries to be replaced by decentralized applications (DApps).
Over the past two years the DeFi ecosystem has flourished, with DApps offering decentralized lending, exchange, asset management and derivatives gaining significant traction. The “total value locked” (TVL), a measure of the liquidity of DeFi services, has increased from $500 million in November 2019 to just over $247 billion today.
### **Benefits of DeFi**
Decentralized financial services are offered through decentralized applications (DApps) operating on blockchains such as Polygon, which was chosen by BMV. Each DApp is itself made up of one or more smart contracts. This architecture offers the following benefits.
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Otherwise known as the “money lego” concept. DApps are open for anyone to use, and are interoperable on the same settlement layer. This means that existing DApps can be combined in new ways to create new, increasingly sophisticated financial services. For example asset management DApps combine multiple stablecoin, decentralized exchange and lending DApps to provide a new service.
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Users retain full control of assets, rather than entrusting them with a third party service provider. User assets can only be moved according to rules encoded within smart contracts, visible to the user. This reduces the risk of fraud or other loss of assets by centralized custodians.
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Enabled by the open, programmable settlement infrastructure. Anyone can build a DApp, and instantly offer financial services to anyone with an internet connection, including many “unbanked” with no current access to such offerings. The use of open source code also allows the “forking” of projects so developers can build on existing work, rather than starting from a blank sheet.
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### **BMV DeFi Strategy**
BVM understands the great potential to operate **MDTCoins** (see [Tokenomics](/mundi-token-whitepaper/economic-model/tokenomics.md)) within this environment offering the followin services.
#### **Credit**
The credit markets underpin the global economy. Banks themselves earn more than half their revenues by acting as intermediaries in these markets — taking assets from those willing to lend and giving them to those wanting to borrow them.
DeFi lending and borrowing allows centralized intermediaries such as banks to be replaced with automated, decentralized, non-custodial DApps. Credit DApps match specific lenders to buyers, whereas others operate through liquidity pools. Loans are generally collateralized with cryptoassets that are stored in smart contracts and which are only released on repayment of loans.
BMV stragegy considers collateralized and uncollateralized loans for enterprise credit that are taken out and repaid (with interest). This loans may operate as traditional loans contracts or over the course of a single blockchain transaction for flash loans. In the case of flash loans (uncollateralized), the risk is low for the lender because if they aren’t repaid, the conditions of the flash loan smart contract are not met and the transaction is reversed — with the funds returned to the lender as if nothing ever happened.
This service will be available for **MDTCoins** holders in the near future.
#### **Derivatives**
Derivatives are contracts that derive their value from the performance of an underlying asset, group of assets, or benchmark. Common financial derivatives include futures and options, which pay out based on the value of an asset at some time in the future or deliver the underlying asset.
**MDTCoins** can be used to create decentralized derivatives that follow the price movements of the commodities or other digital assets (even NFT certifications) according to their smart contract code.
Where the asset or benchmark is off-chain, oracles are used to bring this information onto the blockchain to be used by smart contracts.
Importantly, this brings non-blockchain-based asset exposure to the crypto ecosystem like Carbon Credits, helping to create a more mature financial market within DeFi.