descentralized finance

Decentralized finance

Decentralized Finance (DeFi) plays a significant role within the advancement of the monetary division and a fast growing sector of the cryptocurrency industry.  DeFi refers as scheme of monetary applications that are built on the highest block chain networks which stimulates decentralized networks. It creates an open source of software which provides products and services into trustless and transparent protocols that run without intermediaries unlike traditional finance.

Yield farming in decentralized finance

Yield farming has become popular and has arisen from the decentralized finance sector. It includes lending funds to others through the help of computer programs called smart contracts. Whilst, staking tokens is the method used by your wallet to verify transactions and award you with tokens. If most of the online wallets agree that a transaction is legitimate, then the network accepts it.

DeFi aims to expand the value that cryptocurrency has brought over the past few years to the entire financial sector – e.g. money lending. One such example is “flash loans”; a unique type of loan that has to be taken out and paid back within a single transaction.  It allows user to borrow funds or trade them across different platforms; and pay back the amount borrowed, altogether – less hassle in acquiring loans compare to traditional finance.

There are Top 10 DeFi platform ranked by the dollar amount locked in each smart contract (Finivi, 2020):

Maker – does not hold dollars in a bank, instead uses smart contracts and collateral in the form of ETH to maintain the price peg.

Synthetix – investment platform that allows users to create and trade so-called “Synths”; which provide on-chain exposure to tokenized, synthetic versions of real-world assets.

Compound – decentralized, algorithmic money markets protocol that allows digital asset holders to borrow  loan crypto against collateral.

InstaDApp – an application that allows users to “effortlessly manage and use assets to get the finest returns”.

And Uniswap appeared in decentralized finance

Uniswap – allows users to convert Ethereum-based ERC20 tokens on-chain in a private and non-custodial manner via an extremely easy-to-use user interface.

dYdX – non-custodial trading platform that allows crypto traders to play along digital assets on margin.

bZx – an open finance protocol built on top of the Ethereum blockchain that allows users to borrow, lend, and exchange digital assets.

Bancor Network – an exchange protocol that allows users to convert digital tokens; between each other without the need of a centralized trading platform.

Wrapped Bitcoin – tokenized version of Bitcoin on the Ethereum blockchain token that is backed 1:1 by bitcoin.

Set Protocol – allows crypto investors to create and/or buy Strategy Enabled Tokens; based on a series of criteria, strategies, parameters, and asset weightings. 

A whole world of possibilities for personal and professional finance

Envision a nation that replaces culture with coding system. Instead of cash, it has computerized tokens unregulated by any government or central bank. Instead, financial institution is replaced by a smart contract.  Traditional banking depends on institutions such as banks to act as middle person. DeFi users can borrow, loan, exchange, and etc. without the need of monetary institution as mediator. It is a few of the basic contrasts between traditional banking and decentralized finance.

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