What's DeFi? decentralized finance explained
PREFACE
- Introduction
- DEFI (Decentralized Finance)
- DEXI'S / DECENTRALIZE EXCHANGE
- STABLE COIN
- STAKING
- LENDING
- LIQUIDITY PROVIDING
- CONCLUSION
- FAQ
In this article I'm going to explain to you what is defi or decentralized
finance. I'm going to attempt to explain it all to you. What is it, how does it work
and how can you actually make money with decentralized finance?
Some of its main functions that you will find in the preface, in simple words, it is
related to DeFi crypto based marketing. So let's dive in first things.
so without wasting more time let's get started!!!
DEFI (Decentralized Finance)-:
What is definition of defi?
the definition is it's basically just short for decentralized finance. Defi is an
umbrella term used for peer-to-peer financial services, generally on public
blockchains, like Ethereum with defi or decentralized finance, you can do most of
the things that normal banks can do, like earn interest,borrow, lend, buy
insurance, trade all of these things, but you can do it a lot. Faster with a lot less
people. Work generally because with defi, we're doing it peer to peer,
all in a decentralized. Anonymous, open to all sort of method.
Now to better understand defi or decentralized finance, let's take a look at C5 or
centralized finance or the traditional legacy system
show you the differences. So in the traditional financial system where centralized
finance, if you'd like to send your money to somebody else, you're likely going to
use some sort of app like Venmo or PayPal, or you're going to use like a credit
card, like visa or MasterCard right now, in order to do this, it has to go first to your
bank. Then it goes through the third party app, and then it goes to the bank of the
receiver and then the receiver finally receives this money So it relies on third-party
centralized intermediaries in order to conduct a transaction. Now with
decentralized finance or defi, you basically send your money directly
to the person with no centralized authority. Now with centralized finance,
it requires trusted centralized intermediaries like the banks or the third party apps.
Also they have batch clearing and settlement, and generally there's higher fees and
a costly infrastructure attached to a centralized financial system with
decentralized finance.
For example,
" this is all built on a blockchain protocol. There's no intermediaries required.
So this allows for faster processing and management, and also allows us to have
lower fees and a reduced infrastructure costs. The main benefits to default
are, is that it's open, it's anonymous, it's flexible, fast and transparent. "
So let's take a look at each one of these first off it's open.You don't need to apply for an account.
"
- You can just create a wallet in the matter of like a couple
- Secondly,it's anonymous, which basically means you don't have to provide any personal information in order to set up an account.
- The third thing is it's flexible. You can move your assets anywhere at anytime without asking for permission or
"
waiting, you know, on the phone or paying expensive fees. The next thing is that it's
fast, unlike traditional banking systems, where you're going to have to call
somebody on the phone and you know, maybe you're going to have to apply for a
loan and, you know, go through all this paperwork and headache with decentralized
finance.
WHAT ARE THE BENEFITS ?
" It allows you to do things like getting a loan or borrowing money really, really
simply, and really fast. And the last thing that is completely 100% transparent,
meaning that everyone involved can see the full set of transactions.
Now that sounds great. "
how does decentralized finance actually work?
example
the internet was this big, massive platform that allowed things to build on top of it,
We built websites, we built businesses. We built applications all on top of the
internet.
working function
Now, in order to understand defi, you have to understand Ethereum,
which is the underlying platform that's most widely used in the decentralized
financial world. Essentially Ethereum is like the financial internet. It's this
platform that allows all of these things called dApps or decentralized applications
in order to build on top of Ethereum. So we have things like stable coins. We have
different services, we have different asset management tool and we have exchanges
all built on top of this Ethereum platform or what we call the financial
internet. Now out of these decentralized applications,
DEXI'S / DECENTRALIZE EXCHANGE -:
the most popular ones are things called Dexis or decentralized exchanges. An
example of one is something like Eunice swap. And basically what this allows
us to do is buy and sell or swap cryptocurrencies anonymously for very low fees
really quickly. So for example, I could swap my Ethereum into USB-C just for an
example, outside of decentralized applications, it also allows us to have something
called stable coins
STABLE COIN -:
stable coins are cryptocurrencies that are basically pegged one-to-one to the U S
dollars. So they equal one us dollar. Some examples are like the USD coin,
Gemini Paxos, true U S dollar tether. And there's a whole bunch of other
stable coins that are actually pegged one-to-one to the U S dollars. This allows you
to get into the crypto ecosystem without the wild volatility. "Another decentralized
application built in the defi ecosystem is something called lending,"
LENDING
So defi allows us to very easily get access to loans. And it also allows us to become a
lender in earn interest this way. So it's peer to peer lending system instead of going
to a bank or any sort of financial institution where you have to apply and you have
to get qualified and all that sort of stuff. This allows you to get a loan from
other people in a decentralized manner. One lending platform, for example, is
something called yearn.finance.
Another application built in the defi ecosystem is decentralized insurance.
DECENTRALIZED INSURANCE
So they're able to do this because there's something called smart contracts, which
are basically think of like a normal contract between two parties. We have this
written contract, well, it's basically just written into the computer code. So it allows
you to get things like insurance in a very quick pace and not have to go through all
the hoopla that you would with normal centralized finance. Now,
how do you actually make money with decentralized finance?
There's three main ways that you can make money with defi.
One is crypto staking.
The second is lending
and the third is liquidity providing.
So let's go ahead and talk about each one of these.
STAKING
The first thing is crypto staking. And if you're not familiar with that, it's basically when a
user locks or holds their funds in a wallet to participate in maintaining the operations of a
proof of stake based blockchain system. It's kind of similar to crypto mining in the sense
that it helps a network achieve consensus well, you, while rewarding users who participate.
So basically you can stake your cryptocurrency. You're. In fact, when you do that, you're
helping validate transactions. At the same time, you're able to earn rewards like passive
income. One of my favorite happens to be something called anchor protocol, which
basically allows you to stake a stable coin like UST and earn up to 19.5% per year, which
is crazy compared to most banks. If you have your money in a bank account, just for an
example,
maybe you get 0.1% per year. So the reason that I like this so much is allows you to
operate in a stable coin, which is more stable and also allows you to earn awesome interest.
LENDING
The next way that you can earn money in defI is by lending your money. So you can lend
your money to other people that would like to borrow money. And in return, you're going to
get paid a percentage return. Now don't worry. You don't have to go and find the people
that's all done through these decentralized platforms where basically they handle
everything.You basically go put your money in there. You agree to whatever the terms are,
say it's a seven or 14 or 28 day loan. And people are able to access that money in order to
facilitate trading.
LIQUIDITY PROVIDING
And the last way that you can earn money is through something called liquidity providing,
and essentially what a liquidity provider is. Is it somebody who funds a liquidity pool with
crypto assets and earned passive income? So for example, liquidity provide for a pool like
Ethereum, you S D you'd provide $5,000 worth of a theory of and $5,000 worth of like
some sort of stable coin. Like we've been talking about in this case die, which is a certain
type of stable coin pegged one-to-one to the dollar. And every time a trade of eith di is
executed, the liquidity provider will actually get compensation for providing the liquidity.
So the best way, ways to do this is actually through pancake swap. And you can see the
different liquidity pools here. and you can see the different APRs that you could earn.
So as you can see, you can earn some crazy APR, but obviously with these crazier, APRs becomes a lot more risky in that sense, also, by the way,
CONCLUSION
so, i hope you guys understand defi and its type definition centralized finance
how does defi works benefits dexi's stable coin and its types some where in my
article i told about dapp and other addtional words if you want to know what is this
link is given below click on the link and you will get it that's it now we discuss some
general question asked by some people regarding defi
FAQ
- WHAT DEFI MEAN?
ANS-:Decentralized finance (commonly referred to as DeFi) is a blockchain-
based form of finance
- WHAT IS DEFI PROTOCAL?
- HOW TO PARTICIPATE IN DEFI?
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