All you need to know about DeFi, Decentralized Finance…
DeFi… The ultimate killer app in the crypto world!
What is DeFi???
If you are new to the crypto and blockchain world, you might be wondering what DeFi is. You might also have heard about it randomly or from your research. Now, what really is DeFi?
DeFi, short for Decentralized Finance is aimed at creating a new financial system that is accessible to everyone and still has no intermediary. It relies heavily on cryptography, blockchain, and smart contracts. Smart contracts are the main building block of decentralized finance. All DeFi projects are built on blockchain. you might be wondering why… This is because solidity is used in writing smart contracts and logic for the DeFi apps. MAKER was one of the first DeFi projects founded in 2015; Initially conceived in 2015 and fully launched in December 2017. Maker is a platform where users can lock in collateral and generate DAI. It can also be used for saving. This is the replacement of “lending and borrowing” in the regular bank.
There are other attributes of DeFi aside from lending and borrowing. Others include decentralized exchanges, stable coins, Derivatives, Margin trading, and insurance… We will be taking a brief look at these attributes.
Decentralized Exchanges (DEXES)
This allows the exchange of crypto assets in a decentralized way without needing permission from an intermediary or giving up custody of the coin.
Types of DEXES include:
Liquidity pool-based Dex like UNISWAP, balancer, Rigel protocol, and bancor
order book-based Dex like IDEX and Loopring.
Stable coin
DAI is an algorithmic stable coin. Stable coins are created with smart contracts and other incentives. USDT and USDC are non-algorithmic stable coins. They are centralized while DAI is decentralized.
Derivatives
Contracts that derive value from the performance of the underlined assets are called derivatives. Synthetix is one of the major apps in this space. It is a decentralized platform that provides exposure to different assets using on-chain.
Margin Trading
The art of using borrowed funds to increase a position in a certain asset is called margin trading. dy/dx, 1inch, and Rigel protocol are major applications in margin trading. Fulcrum is another major app too in this space.
Insurance
Insurance guarantees compensation in return for payment of a premium. One main app here is Nexus.
With all these, you can now see that DeFi is a complete working ecosystem of apps and protocols. DeFi applications aim to recreate traditional financial systems.
I guess you now have an idea of what DeFi is. What do you think about it? Do you see it becoming stronger in the future?
Don’t forget to add your thoughts in the comment section and share too…
