What Is DeFi?

The conventional financial market is centralized with authorities issuing currency and driving the economy. This puts power and control in their hands, but it also results in individuals staking a lot through such centralized control. DeFi presents one way to overcome this problem. Things like Tezos and Bitcoin continue to explode in popularity.

What is DeFi (decentralized finance)?

DeFi merges conventional banking services with decentralized technologies like blockchain. It makes use of decentralized networks as well as open source software so that several financial services and products may be created. It utilizes an overlapping network of smart contracts and Dapps built on Ethereum and focuses on trading, borrowing, exchanges, and derivatives.  These Dapps join other popular crypto tools like Lolli.

While there is no single creator of DeFi, applications are built on Ethereum, which was developed by Vitalik Buterin. Rune Christensen is the founder of the 1^st and currently largest DeFi application, MakerDAO.   

Some key DeFi components and benefits:

• DeFi is an open source platform with anyone being able to audit and validate its capabilities.
• It offers transparency as blockchain activity is made public.
• There are no gatekeepers which means that anyone can create and participate in DeFi applications TBH.
• It is accessible to a global audience, whether it’s used to yield farming results or anything else. All that’s needed is a smartphone with internet connectivity.
• It offers flexible user experience and applications are interoperable.
• It allows for quick and low cost transactions.

What companies and coins are involved?

The most popular DeFi applications are Ethereum and Bitcoin. Most DeFi projects today are built on Ethereum, the default blockchain being used for most Dapps. Apart from these 2, there’s also Dai, a digital token similar to bitcoin with its value being pegged to the US dollar. With Compound, users can benefit from interest as it’s a crypto version of a money market fund. Dharma can be used to issue as well as underwrite debt for the purpose of gaining investment returns.    

MakerDAO currently dominates the main market applications followed by:

• Synthetix
• Compound
• InstaDapp
• Uniswap
• dYdX

Staking and Baking

There is a major gold rush underway related to “yield farming” and staking and baking. Tezos is the premiere coin for baking and staking currently, but the movement towards providing yield to holders is picking up steam especially with interest rates hovering near record low levels and even negative (NIRP) in some parts of the world. This movement is sweeping across the entire world to include Peru, Thailand, Mexico, Australia, Canada, Japan, South Korea, Russia, China, and beyond.

You can check out the full list of companies and coins involved here or track all DeFi projects on the DeFi list.

FAQ

Additional Resources:

CBDC

Federal Reserve Analysis of Cryptocurrency