Decentralized Finance (DeFi)

Decentralized Finance (DeFi)

Check the latest news about Decentralized Finance (DeFi) – feel the pulse of the major innovations, stay up to date on the industry’s key players, and explore expert technology insights.

DeFi is a short way of writing Decentralized Finance. Generally, DeFi encompasses cryptocurrencies and financial smart contracts, protocols, and decentralized applications (dApps) that are built on the Ethereum blockchain. To break it down further, DeFi is simply a blockchain-based financial software that can be joined together piece by piece like Legos.

The Key Components of DeFi

The key components of DeFi include digital assets, smart contracts, protocols, and decentralized applications. A good example of DeFi is Bitcoin and stablecoins, the likes of Paxos Standard, USDT, and Dai. DeFi applications do not need arbitrators or intermediaries to be functional. At all times, every user has total control over their funds, and the code is used to specify the resolution of any dispute that might arise.

What are Some Common Functionalities of DeFi?

DeFi currently has three main functions and they are:

  •     For creating monetary banking services. An example of this is the issuance of stablecoins.
  •     For providing platforms that can be used for peer-to-peer borrowing or pooled lending.
  •     For making advanced financial instruments a reality such as prediction markets, tokenization platforms, DEX, and derivatives.

Decentralized Exchanges vs. Decentralized Applications

A decentralized exchange (DEX) is a cryptocurrency exchange whose mode of operation is decentralized in nature. Meaning that no central authority has the final say over its working. At Decentralized exchanges, peer-to-peer cryptocurrency trading is allowed. Like the decentralized exchanges, Decentralized applications (dApps) aren’t under the control of any single authority. They are digital applications or programs that operate on a blockchain or peer-to-peer computer network, rather than a single computer.

Popular DeFi Apps

Some popular DeFi apps include the following:

  •     Chainlink is a decentralized network protocol that enables the transfer of data through smart contracts between blockchain sources. To carry out this process via an oracle, the network uses its LINK token as a means of payment. Chainlink is also used to power the growth of DeFi applications.
  •     Uniswap is a decentralized finance (DeFi) protocol on the Ethereum blockchain that enables swapping of ETH and other ERC20 tokens. UNI is Uniswap’s network governance token and is used to fuel the system operations.
  •     Balancer is a decentralized finance protocol that serves as an automated maker for the market that lowers the cost difference between two or more ERC 20 tokens on the Ethereum blockchain network. BAL is the Balancer’s official token used as a means of payment on the network.
  •     0x is a decentralized protocol built on the Ethereum blockchain network to enable peer to peer exchange of ERC20 tokens. 0x is also referred to as decentralized exchange (DEX). Its token, ZRX, is used to pay for services on the protocol.

So What’s Next for the DeFi?

The future holds a lot in store for DeFi. The financial industry is fast moving towards a future of digital money. Hence, the need to explore DeFi the more. As at the time of writing, the market worth of Decentralized finance is over $4 billion. For many companies, the Ethereum blockchain has become the favorite go-to for their financial products. These companies make use of the Ethereum blockchain to build every one of their financial-related products. As time passes, the world can expect more DeFi products.

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FAQ on Decentralized Finance (DeFi)

Why is DeFi the hottest topic in cryptocurrencies in 2020?

Remember the promise of cryptocurrency to make money and payments accessible to everyone, regardless of where they are located? Well, Decentralized Finance (DeFi) is taking that a step further. DeFi was initiated to bring about a global, open alternative to the financial services of today. This includes services like insurance, loans, trading, savings, and a host of others. Because of DeFi, they will become more accessible to anyone who has a smartphone and an Internet connection, no matter their geographical location in the world.

What are dApps (Decentralized Applications)?

DApps are applications built on the most popular programmable blockchain in the world, Ethereum. These Ethereum-based applications can create, store, and manage cryptocurrencies on the blockchain. Also known as smart contracts, DApps are agreements or contracts that are enforced by the Ethereum blockchain. These agreements are irreversible and you can create such complex contracts without needing a middle man. A good example is Ocean Protocol, a project built to bridge the gap between data providers and organizations that need data to make the world a better place.

What is the relation between DeFi and blockchain?

Enter the answer in DeFi and blockchain are interwoven. DeFi cannot exist without blockchain. Decentralized Finance is built upon blockchain networks. This ecosystem of financial applications allows users to have complete control over their assets. Users can interact with the ecosystem using peer-to-peer decentralized applications (DApps). 

What is the relationship between DeFi and Staking?

Staking is not just one aspect of the DeFi ecosystem that is growing very rapidly, it is also among the latest trending topics in the crypto industry. Staking is exclusive to the crypto community and has to do with crypto owners locking their assets to receive rewards. This debt mechanism depends on DeFi to excel. Similar to conventional banks, DeFi makes it possible for people to borrow by using their crypto assets as collateral.

Who is Investing in DeFi?

Just about anyone can invest in DeFi and for different reasons. Using the blockchain technology, DeFi will allow you to enjoy all the regular financial services, only this time no third party is involved. DeFi technology makes possible the creation of smart contracts with codes that facilitate managing and accepting deposits, liquidating collateral assets, handling collateralized loans and so much more under the contract terms should there be a fluctuation in their values.