Banks make money on fractional reserve banking / net interest margins.
They pay for infra managing costs and then distributes profits to shareholders.
Create better products
Allow for new products to be built on top - This is now called embedded finance
You deposit assets / lend into a liquidity pool
Essentially earn interest as the algorithm / DeFi protocol lends those assets to borrowers (quite often very suspiciously)
What it pays to deposit wallets - borrow wallets = what you get
Almost no fixed costs and no profits as it distributes most of it to depositors and returns some to a treasury
Treasury funds are used to fund contributors and maintain / upgrade the protocol
Protocol has no shareholders but rather has token holders.
DeFi protocols do NOT hold the funds themselves like a bank.
They set the price based on perceived risk of borrowers / depositors aka lenders.
P2P lending at its finest.
No middleman
Collect this post as an NFT.