Decentralized Finance (abbreviated DeFi, translated as decentralized finance) has recently caused a huge FOMO in the global crypto community.
DeFi allows users to borrow, borrow or transact without being dependent on a centralized entity.
Currently, most DeFi App are deployed on the ETH network.
To operate DeFi, a number of assets must be locked into a smart contract. According to DeFi Pulse, there were 275 million dollars locked in 2019, but by February 2020, the amount had surpassed the 1.2 billion dollar threshold.
So, how is DeFi decentralized?
For simplicity, we divide into 3 levels as follows:
It’s weird that we have to focus on decentralization, right? Features of centralized DeFi system are:
- custodial (basically, a user cannot hold a private key, does not actually own the property)
- price is determined by centralized system
- Interest rate is also determined by the system
- Liquidity is supported by the system
Typical representatives: Salt, BlockFi, Nexo, Celsius
2, (semi) partially decentralized. (has one of the following characteristics)
- Non-custodial: user owns property, keeps private key
- Prices are decentralized
- Automatic margin-margin liquidity
- The interest rate is determined by the decentralized system
- decentralized development platform.
For example: Compound, MakerDAO, bZx
3, complete decentralization: MUST include all of the above decentralized characteristics
But so far, no DeFi method has achieved complete decentralization.
The main categories in DeFi:
There are eight main categories that DeFi developers are looking forward to today, which will solve many of the centralized financial systems we live in.
such as Tether, DAI, … These are not really DeFi applications but it motivates users to easily interact with DeFi systems.
2, Borrow-borrow system
DeFi lending-borrowing system eliminates barriers such as credit scores, collaterals, etc. allowing anyone to manipulate loans and borrowings.
is DEX, where users have full ownership of the property, avoiding being hacked, actively in every situation when trading.
4, Derivatives (derivative contracts)
A derivative contract, its value will be taken from another asset such as stocks, currencies or goods …
Currently, Derivatives are mostly traded at centralized exchanges, but many projects have begun to plan to put Derivatives on DeFi platforms.
5, Fund management.
This is a very popular model today, when you deposit money into the fund, they will be responsible for management and investment to bring you profit. However, the barrier here is the lack of transparency, the risk of an incident, …
In DeFi, when you delegate assets to funds, everything is done in a decentralized way. This means you can easily keep track of how your money has been managed and understand what the expenses actually cost.
With the development of DeFi, will developing a simple and transparent dialing application be able to replace traditional lottery in the near future?
7, Payment method
An important role of cryptocurrencies is to allow for decentralized and reliable money transfer between the two parties. With the development of DeFi, we can expect many new payment methods to be born, facilitating the growing popularity of cryptocurrencies.
Insurance, we all too well know, he must have bought insurance for home, car, health, life. So is there any legal insurance for DeFi?
Everyone who knows the name of the project, follow the category DeFi, comment below the article for discussion.
Found useful, do not forget to like, share so that more people know.
If the interest is great, the next section I will translate more specifically about DeFi, how the operation of each of the above-mentioned DeFi categories and analyze a few more typical DeFi projects for people to easily refer, comparative.
In today’s article, hope you have the most basic understanding of DeFi. These insights may not immediately help people in terms of investing, but hopefully can help people get their first hints about DeFi, about cryptocurrency and decentralized technology.
When things are very vague in black and white, the opportunities are many but the risks are also great. There are many clear and potential investment opportunities like ETH investment, in early 2015 2016 but many fraudulent projects hide behind Blockchain and DeFi.
Hope you awake and choose for themselves a good project, reaping many profits.
Source: collect from “How to Defi” book**