Smart Money Making

What is DeFi?

DeFi refers to a system in which buyers, sellers, lenders, and borrowers connect peer to peer or with a strictly software-based middleman rather than a firm or organization conducting a transaction using software developed on blockchains.

To achieve the goal of decentralization, a variety of technologies and protocols are employed. A decentralized system, for example, might be made up of open-source technologies, blockchain, and proprietary software. These financial products are made possible by smart contracts, which automate agreement terms between buyers and sellers or lenders and borrowers. DeFi solutions are designed to eliminate intermediaries between transacting parties, regardless of the technology or platform used.

Despite the fact that the amount of trading tokens and money trapped in smart contracts in its ecosystem has been continuously increasing, DeFi is still a young business with a young infrastructure. DeFi is subject to little or no regulation or control.

What is unique about DeFi?

The majority of "DeFi" applications are developed on Ethereum, the world's second-largest cryptocurrency platform, which differs from Bitcoin in that it is easier to use to build different types of decentralized applications beyond basic transactions. These more complex financial use cases were originally mentioned in the first Ethereum white paper by Ethereum founder Vitalik Buterin back in 2013.

That's because Ethereum's smart contract technology – which executes transactions automatically if specific criteria are satisfied – provides a lot more freedom. Solidity, an Ethereum programming language, is specifically built for generating and deploying smart contracts.

Let's imagine a user wants their money delivered to a pal next Tuesday, but only if the temperature rises beyond 90 degrees Fahrenheit, as predicted by weather.com. In a smart contract, such rules can be written.

Hundreds of DeFi applications run on Ethereum, with smart contracts at their core, some of which are highlighted here. Ethereum 2.0, a planned upgrade to Ethereum's underlying network, could help these apps by addressing Ethereum's scalability problems.

Lending markets are a prominent type of DeFi that connects borrowers with cryptocurrency lenders. Users can borrow cryptocurrency or provide their own loans on Compound, a popular website. Users can earn money by lending out their money and earning interest. Compound uses an algorithm to establish interest rates, so if there is a stronger demand for a cryptocurrency, the interest rates will rise.

DeFi lending is collateral-based, which means that in order to get a loan, a user must put up collateral, which is frequently ether, the Ethereum token. That means users don't have to reveal their identity or credit score in order to get a loan, which is how traditional, non-DeFi loans work.

The stablecoin is another type of DeFi. Cryptocurrencies have more volatile prices than fiat currencies, which isn't ideal for people who want to know how much their money is worth in a week's time. Stablecoins are cryptocurrencies that are pegged to non-cryptocurrencies, such as the US dollar, in order to maintain the price stable. Stablecoins, as their name suggests, attempt to create price "stability."

Why is DeFi important?

All of this is made possible by DeFi protocols, which use Blockchain technology (mostly Ethereum), therefore it's worth looking at some of the primary benefits of utilizing DeFi and learning more about the process behind them.

These decentralized programs must be open source and run independently of any central authority. Changes are done only after the participants achieve a consensus. Protocols and data are recorded on the blockchain, which is encrypted and available to everyone in the decentralized network.

Tokens, a type of virtual card with a predetermined value, are issued to grant users access to the network as well as to reward them. Tokens are generated using a process that encourages network participants to contribute.

True, DeFi has to do loans – in fact, DeFi loan platforms are the most well-known in the industry. Only three systems have over 4 billion dollars in Value Locked (assets frozen to carry out DeFi activities), accounting for about half of the market, however there are many other uses.

Imagine not having to pay trading fees to brokers (such as Binance) and not having to worry about custody risk, since you would own your assets.

As a result of this option, various platforms for this purpose were quite popular this year, and it is now the second-largest category among DeFi.

Curve Finance and Uniswap are two of the most important platforms to be aware of. In fact, the latter has already surpassed the daily volume traded on Coinbase Pro and has become one of the most important portals for the listing of new coins and protocols, as well as one of DeFi users' favorite tools.

DeFi opens the door to a new dynamic financial market that is more decentralized, has fewer intermediaries, and can be very profitable for its users. It has the potential to have a significant impact on the entire market in the near future.

But be wary of the hoopla surrounding these assets; despite their revolutionary nature, they are still in the early stages of development.

Currently, there are various decentralized applications in trading that provide access to a wide range of functionality based on the available possibilities.

The decentralized financial environment is undeniably new; nonetheless, its progress is apparent. There are, however, certain gaps to be filled. This invention, like traditional bank cards and fiat currencies, is progressively approaching the point where it will be used on a regular basis.