If we told you that DeFi is one of the most popular trends in the current crypto world, would you believe us?
Read below to discover all you need to know about DeFi.
The meaning of DeFi explained
DeFi is an umbrella term that includes a variety of decentralized financial applications such as, for example, insurance companies, money markets, centralized exchange. It derives from blockchain’s core concept of remomving intermediaries in order to allow users to have direct control over their funds. The absence of a central authority encourages the foundation of multiple decentralized services.
Types of DeFi applications
The most popular DeFi applications typically include:
Decentralized exchanges (DEXs): these exchanges allow users to trade currencies for other currencies, be they U.S. dollars for Bitcoin or TRX for ECN. Each user can exchange coins without having to trust a middleman with his money.
Prediction markets: these markets are places for betting on the outcome of future events. The only difference between DeFi prediction markets and traditional ones is that the formers, while offering the same services and features, do not have intermediaries.
Lending platforms: these decentralized platforms manage lending through smart contracts, allowing for automatically-driven processes.
Stablecoins: a stablecoin is any cryptocurrency that’s tied to an asset that is not a cryptocurrency (for example, euros), in order to stabilize the price.
Yield farming: this is the practice of staking crypto assets in order to earn rewards in the form of cryptocurrency. Yield farming is risky and volatile, but its popularity has literally skyrocketed in recent times.
Most DeFi services run on Ethereum
One of the most popular platforms to run DeFi services is Ethereum, which allows you to write decentralized programs, also known as Dapps. On Ethereum you can write automated code, called smart contracts, whose job is to manage the financial services according to the rules you determine. Remember that, once you write the rules, you will no longer have control over them, as they are immutable.
Find a stable currency
Once you have your financial infrastructure, you need a currency to operate in it. Beware that not all currencies are compatible with a certain platform. And if you choose Ether or Bitcoin, you have to keep in mind they are quite volatile currencies. You may prefer finding a stablecoin. These currencies are pegged to the value of a fiat currency, like Euros or the US dollar. They are decentralized, trustless and cannot be shut down. A famous stablecoin is DAI.
In the future
Many experts agree that DeFi is the future of finance. It is indeed a young industry that has miles to go before being considered fully developed. That means that regulation of DeFi is minimal.
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