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Understanding the DeFi: The DeFi Pulse.

Observing the home page of DeFi pulse. Majorly, we can see the following categories:

  • LENDING
  • DEXES and PAYMENTS
  • DERIVATIVES
  • ASSETS

To get a better understanding of this classification. We will cover some basic keywords and examples of organizations with it.

LENDING

Lending is quite self-explanatory. You can take advantage of services like borrowing and lending in the form of coins that are backed with some cryptocurrency. The factor which differentiates it from the traditional bank system is the reduced time and decentralization. You can get a loan within minutes or even seconds. The owner of the money you get is directly contacted with you, not any trusted third party(bank) is included.

But there is a problem with lending:

Suppose if you acquired a loan in some form but in that meantime after getting a loan the rate of that cryptocurrency increased. Now, It would seem unfair and anybody will not like to more for the loan they received.

The solution to these uncertainties is stablecoins.
Stablecoins are specially developed to remain stable. Stablecoins have an exchange rate of 1 unit per coin fiat. Stable can also be further categorized.

Decentralized fiat-collateralized stablecoins are backed with 1:1 by fiat in bank account. This reduces the risk factor included in generating coins as there is a trusted entity.

Decentralized crypto-collateralized stablecoins are permissionless. It means they do not have a consolidated operator or authority. These are not backed directly with back accounts else certain amount of these coins are backed with the exact amount of cryptocurrency. For example, 10$ of coins are backed with 10$ of cryptocurrency.

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MAKER, the leading brand in lending space. The maker platform is built on top of Ethereum blockchain and produces a stalecoin named DAI.

Dai is a stable, decentralized currency that does not discriminate. Any individual or business can realize the advantages of digital money.
Each DAI is pegged at 1.00 USD. While using maker services. Anyone can use this my simply locking up some crypto as collateral and taking loan in form of DAI. The collateral provided needs to greater than the amount of loan.

DEXES

DEXES are usually known as Decentralized Exchanges. It is a non-custodial service, which means ownership of underlying asset is never cancelled. Most of the Exchanges don't require any login or signups. Therefore, no counterparty risks.
All the transactions here are pseudonymous. That means more privacy.
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UNISWAP is the leading DAO in exchanges, which recently launched its version 2.0. Other following DAOs are BANCOR and KYBER

The reason behind Defi payments is, to create an open finance ecosystem to facilitate institutions and provide secured transactions powered by smart contracts.

All the platforms are DAOs(Decentralized Autonomous Organizations) which means they require no intermediaries as it definitely satisfies the core principles of Blockchain.

DERIVATIVES

Derivative can be understood as a financial contract between various parties that derives its value from the performance of an underlying entity. This entity can be an asset, interest rate, as well as bonds, commodities, etc.

Derivatives in DeFi offers massive flexibility across multiple assets. Smart contracts can issue tokenized derivative contracts which are executed automatically and are permissionless. It can be used for various purposes but here are some major:

  • To get protection from price fluctuation in the future by signing a contract to buy an asset for a fixed price
  • Predicting how the price of that entity is going to change in the future

These are further divided into 4 categories-

  • Option: A space in which a buyer has the right to purchase or sell the underlying asset at a specific price, but certainly not required to.

  • Swap: These contracts allow two parties to exchange one type of cash flow for another. This swap is between interest rates and crypto coins.

  • Future: A buyer must purchase an asset at an agreed rate and on a fixed date in the future. Which are traded on exchanges.

  • Forward: Future and Forward are alike but Forward is more customizable to suit both parties.

SYNTHETIX is the leading brand in derivate space.
It allows infinite liquidity, peer to peer trading and distributed collateral pool as mentioned on running website.
The Dapps are:

ASSETS

Defi has created a new suite of assets within the larger cryptocurrency ecosystem. Virtually all these assets are trustless with no underlying wage on a popular Defi protocol.

Token flavours: Native tokens which are created by supplying assets to Defi Protocol. There price is largely influenced by dynamic gates and length of time held.

Defi Tokens: Native tokens which fuel an underlying product or service. The price of those tokens are largely tied to the project success.

WBTC is leading token here and followers are: DForce and Melon.

So, This was the complete eco-system of defi pulse.

Further, We will discuss about future possibilities and events when Defi actually got noticed.

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