DeFi is the new thing in crypto. But what is it?

Decentralized finance is at the heart of the crypto revolution. Or so the hype says.

The year the world woke up to the reality of cryptocurrency as something other than a combination of tech toy and tool of criminals, DeFi stood out.

With $ 100 billion invested, that’s far too big for mainstream finance to ignore. DeFi is, in many ways, a cryptocurrency on its purist: a financial tool that doesn’t need a banker or bank, broker or brokerage.

It’s a completely peer-to-peer way of doing what financial institutions have done for centuries – providing a trusted source – without paying the tithe demanded by a trusted third party.

This is why it has attracted so much attention. But the theory is usually more complicated than the facts, and that’s certainly the case with DeFi.

Decentralized exchanges (DEX) can offer cheaper and faster transactions and derivatives than even “centralized” crypto. And lending and borrowing platforms can offer lenders and borrowers much better rates than any bank.

However, like any financial offer, DeFi comes with risks: the same old frauds and the new technological wrinkles of a technology without correction or redesign. And there are also new products to understand: yield farming and liquidity pools, for example.

Over the course of these 10 articles, we’re going to break it all down in clear, consistent language for people new to crypto and DeFi. By the end of it, you’ll have a solid basic understanding of how DeFi works, the potential risks and rewards, and what people are talking about when they sing its praises. You will know how to separate the high-powered chaff from the wheat to invest.

What is DeFi

DeFi is hot. This is the most promising – and problematic – part of FinTech cryptocurrency. It’s a $ 100 billion juggernaut that “everyone” says will be the downfall of big business, replacing commission-hungry bankers with smart contracts that allow DeFi projects to operate without any central authority. The hype says DeFi is capitalism in its purest form. The end of Wall Street. The cynic says, “Let’s look under the hood.”

See here: What is DeFi?

What are the best DeFi platforms?

DeFi is the most rewarding and risky part of the blockchain revolution, which is perhaps why $ 3.7 billion was invested in a project called “SushiSwap”. The number of DeFi projects is growing exponentially and causes a lot of frauds and failures with its success. Here’s a look at some of the biggest and most successful.

See here: What are the best DeFi platforms?

What is a smart contract?

Smart contracts are the building blocks of DeFi. Of course, this is true for any blockchain project that is not a pure cash replacement, from NFTs to supply chain management tools. Self-executing contracts are immutable. Once accepted and the funds blocked, the contract will be paid without the need for a trusted intermediary and cannot be modified or canceled. Smart contracts can be complex enough to build decentralized apps and dumb enough to do what you said, not what you meant – Warning given form.

See here: What is a smart contract?

What is Yield Farming and Cash Extraction?

Yield farming and cash mining are ways to put your crypto to work for you. DeFi lending platforms and DEXs use pools of liquidity to make loans and transactions rather than matching a borrower with a lender or a buyer with the seller. Crypto locked in these pools generates interest and fees. There are many variations on this simple theme, some much more complex and lucrative – or damaging.

See here: What is Yield Farming and Cash Extraction?

What is staking?

Staking is new mining, a way to validate transactions and add them to a blockchain that is much faster and more energy efficient than slow and polluting Bitcoin. Far more scalable than mining, staking is what is needed to allow blockchain to compete with Visa as a transaction processor. It is also a good way to earn passive income with your crypto.

See here: What is staking?

The 10 Best Uses of DeFi

What is DeFi used for? Well, there are a lot of uses starting with decentralized exchanges and lending platforms. Besides trading and borrowing with human interference, DeFi is a good way to enter into derivative contracts, create markets, and can be used in the game and metaverse worlds, among others.

See here: What are the top 10 uses of DeFi?

Governing the Ungoverned: Unzip DeFi and DAO

DeFi platforms operate without any central control or human interference. So how do you make changes – for example, fix a bug, change an interest rate, or add a cryptocurrency trading pair? By voting, of course. Thus, the decentralized autonomous organization, or DAO, which is a governance system controlled by smart contract.

See here: Unpacking DeFi and DAO

The very real risks of DeFi

The idea of ​​DeFi is that there is no central control – no human interference, no trusted third parties of any kind. So what do you do when something goes wrong, from fraud to a costly typo in a hastily drafted smart contract? Nothing. And that’s not the worst risk: fraud, market manipulation, frequent and quick margin calls. DeFi has a lot of risks.

See here: The very real risks of DeFi

What are the best DeFi blockchains?

DeFi is built on Ethereum, and Ethereum cannot handle its success. Blockchain # 2 is blocked by the number of transactions DeFi sends to it, which slows it down and the transaction fees are very high. So what are you doing? Build a better blockchain. Here are some of the top contenders to be Ethereum Killers – a nickname that may be too ambitious but gives some idea of ​​the goal: to steal his plans.

See here: What are the best DeFi blockchains?

DeFi: what is hyped, what is real and what matters

We’ve walked through the what and how of DeFi, so it’s time to take a step back and take a look at its reality. There is a lot of hype, but there is also a lot of value and opportunity. Here’s a look back.

See here: What is real, what is hyped, what matters

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