Ever heard the term DeFi(Decentralized Finance)?
Let's go over what it means now!
What is DeFi?
DeFi refers to financial applications that use blockchains instead of banks.
The main idea is that anyone can lend, borrow, and bank without using middlemen.
More advanced applications cover
- Derivatives trading
- Asset swaps
- Decentralized exchanges
Who invented DeFi?
There's no one single innovator, however DeFi tools first started appearing on Ethereum.
Now DeFi spans a variety of networks, such as
- Binance Smart Chain
3 Big Features of DeFi
- It's 'Open' - you can use the applications with only a digital-wallet
- You can move funds near-instantaneously
- Rates are currently much better than trad banks
- "money legos" - composability allows for apps to be built on top of apps
3 basic uses for DeFi are:
We'll go through into those now
Certain protocols allow you to loan them crypto for rewards/interest, or borrow assets (useful for trading)
"yield farming" is the process of profiting off rewards earned through locking up funds(loaning) in a variety of assets
Decentralized exchanges(DEXes) allow for people to trade with one another, with using middlemen who take custody of your assets.
Some DEXes like Uniswap or PancakeSwap allow you to list new tokens for sale (a popular option to crowdfund projects)
The ability to take out leveraged positions also exists in the DeFi space!
You can also create 'synthetic' assets that mimic trad stocks and commodities
How to make DeFi Dapps?
If you can write smart contracts, you can start building in DeFi.
For testing/deploying you have truffle hardhat, and waffle.
- ERC20 on Ethereum
- SPL on Solana
- BEP20 on Binance Smart chain
Defining a token allows your protocol to interact directly with a Layer-1 blockchain.
You can use these tokens to promote your ecosystem and push decentralization
You can use most DeFi apps by visiting their website and connecting with a crypto-wallet for the appropriate blockchain.
Also for most interactions, you have to pay some sort of transaction fee (gas in Ethereum) using the token of the network.
However, there are still security and regulatory challenges to overcome.
It's estimated that users lost ~$10.5billion over the last 2 years.
Headlines like the above are why many financial institutions want to pass regulations on crypto.
I hope I got your interest in DeFi piqued with this thread. Thanks for reading along.
This thread is my personal notes on the concepts discussed in this article https://decrypt.co/resources/defi-decentralized-finance-explained-guide-learn
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