×

DeFi: What You Need To Know

In collaboration with our friends from CryptoCue, we would like to introduce DeFi, which provides the same financial solutions without any traditional intermediaries. Simply put, DeFi is every financial smart contract, protocol, and, apps executed on Ethereum.

Developers can create DeFi Dapps for the purpose of managing, and storing crypto assets. Smart-contracts bind the irreversible agreements between two sides without the need for an intermediary, making the whole financial system transparent.

Without the middleman, DeFi platforms lower or eliminate the requirements when it comes to lending or other financial solutions. This will entice adoption by targetting the unbanked sector.

DeFi’s most interesting projects

DeFi confines a plethora of sectors, everything from DEX to Insurance solutions, and the most promising ones are borrowing and lending.

With this kind of p2p lending platform, getting a loan would be straightforward and timesaving. Individuals that maybe can’t easily apply for a loan in the current banking system can access a wider pool of lenders and get a loan without complicated steps. At the same time, lenders can make passive income, or at least not making any lose, because most crypto lending so far is over-collateralized.

The most popular platforms are:

MakerDAO

MakerDAO is a decentralized application that runs on the Ethereum blockchain and automated smart contracts. At its core, it allows users to lock Ethereum (ETH) into a smart contract as collateral to secure loans in its unique stable coin called DAI.

Part of its charm is that DAI’s value is pegged to the U.S. dollar.

BlockFi

Offers financial products like crypto-asset loans and interest accounts. Basically lets you lock your crypto and earn monthly interest payments in the asset-type that you deposit with BlockFi.

Synthetix

Synthetix is a decentralized Ethereum platform for the creation of Synths: on-chain synthetic assets that track the value of real-world assets.

It has a native token called SNX. Holders can lock SNX as collateral to mint Synths, which are freely tradeable ERC20 tokens. Transaction fees from Synths exchanged on Synthetix’s non-custodial DEX (Synthetix.Exchange) go to SNX holders/Synth minters, incentivizing Synth creation and giving value to the underlying collateral (i.e., the SNX token).

Compound

Compound is an algorithmic money market protocol on Ethereum that lets users earn interest or borrow assets against collateral. Anyone can supply assets to Compound’s liquidity pool and immediately begin earning continuously-compounding interest. Rates adjust automatically based on supply and demand.

cTokens represents the value of the supplied assets. Users can borrow up to 50-75% of their cTokens’ value, depending on the quality of the underlying asset. Users can add or remove funds at any time, but if their debt becomes undercollateralized, anyone can liquidate; a 5% discount on liquidated assets serves as an incentive for liquidators.

Conclusion

We have concluded that DeFi is a topic that is of immense importance to the future of automatization and blockchain technology. We have already witnessed the power of this technology, for instance, with projects like MakerDAO and Compound. 

DeFi keeps growing every day with even more projects standing by, and it will certainly change the way we currently live.

But with that comes the question, if this is actually good for society in certain aspects. For instance, imagine an insurance company, how many jobs are going to be eliminated. As no one is going to have to review most cases, it’s just gonna be smart contracts doing their thing. Therefore, many people are gonna lose their jobs.

This, and many more things are to be taken into account when technology keeps advancing at alarming rates, and automatization becomes a subject of if we should, not if we can.