Cryptocurrency emergence has been taunted by proponents as futuristic and a possible cause of change…
Decentralized Finance (DeFi) Projects
When bitcoin entered the currency space in 2009, so many were caught unawares about how exactly a virtual currency would affect the fiat currency dominance. Fast forward, cryptocurrencies have proliferated and today so many altcoins have emerged alongside the pioneer, bitcoin.
At the core of the blockchain technology which anchors cryptocurrencies was a decentralization of financial management. You must have noted that bitcoin just like the altcoins premised their selling point on a departure from a fiat controlled system to one in which the owners would be in full charge. The whole concept of decentralization whereby cryptocurrency management is done on distributed network has been taunted to open space for all who want to trade in or own crypto.
As you can already relate, decentralisation is the word which describes the deliberate elimination of fiat agencies from management of finances in crypto. So, Decentralized Finance (DeFi) becomes a good to understand concept for anyone who seriously considers engaging in cryptocurrency.
Frontline on Decentralized Finance
DeFi refers to the movement leveraging decentralized networks in transforming the old financial products into transparent and trustless protocols running with no intermediaries. It is believed to be the next big thing in the blockchain technology and cryptocurrency arenas. The DeFi projects offer traditional financial services. They include asset exchanges, savings accounts, and loans. However, in their case, a third-party intermediary is not required.
In cryptocurrency, decentralization financial apps give users the chance of exercising full ownership and control of their assets. They also get to interact within the financial system through a peer-to-peer model. DeFi is different from the other cryptos as it just focuses on decentralization while utilizing lucrative incentive structures. The main aim of the approach is to encourage investors.
The Way DeFi Projects Works
The DeFi verse utilizes smart contracts in making things happen. It does not involve brokerages as well as banks. The projects also makes the system to be open to every person anywhere. All you need is crypto, an internet connection, and some knowledge.
DeFi is custodial meaning that the system does not control or even manage the crypto assets of the users. As a trader, it gives you the chance of being in control of your crypto assets. Moreover, as an owner of a project, you can cede or devolve all your power in executing transactions to use smart contracts.
The Popular DeFi Projects You May Invest In
Some of the projects one may invest in include Maker, Colony, Uniswap, Curve Finance, and BENQI DeFi Project.
MakerDAO is the oldest DeFi project. Besides, it is among the biggest considering the value tied in smart contracts. As a trader, when you go to the bank trying to borrow money, they will ask for collateral. If you show crypto as your collateral, then they will laugh at you and offer no assistance.
At Maker, you can borrow money and use crypto as collateral. With this application, your credit score does not matter. Using the Maker Oasis App, you deposit different tokens and borrow about 2/3 of the total given in form of DAI tokens. Just like the regular loans, you will have to pay interest on them.
The DAI which you borrow is developed and added to the supply of tokens while borrowing. The same concept is used after paying back where the DAI is removed. Also, the firm adjusts a trader’s interest rates. The main aim of doing this is to influence the behavior of the borrower.
A colony is one of the top DeFi projects. It is a community-driven fund. Also, it has received investment and support from Avalanche Foundation. The colony is also a backup of smart contracts offering a framework for the important functions of an organization.
If you want to be part of the project, you will need tokens. This is because the application runs on a network with native tokens. If you want to identify the tokens you can do so through the exchanges’ ticker symbol.
Uniswap is a decentralized exchange and it enables any individual to deposit a token in a trading pool and then become one. It is different from decentralized exchanges. This is because most of the liquidity is offered by just a few large market makers.
In return, you will earn trading fees. Also, you may choose and pick the liquidity you supply based on the things that you believe may bring returns. Uniswap can be used in trading some volatile digital investments. Before tokens trade on centralized exchanges, they do list them on Uniswap. Additionally, having a Uniswap token gives people holding the tokens the right of voting in case of any changes in a project.
BENQI DeFi Project
BENQI is the native lending platform. It is Avalanche’s decentralized non-custodial liquidity market protocol. The aim of the project is to bridge traditional finance and DeFi. This is done by onboarding the DeFi products suite to the subnets of Avalanche offering enhanced regulatory compliance features.
Curve Finance (CRV)
Curve Finance refers to decentralized exchange. It is mainly focused on providing the users with the platform for exchanging stablecoins. The platform is highly governed by mathematical features. In addition, it is designed in letting stablecoins trade for another at a high rate.
The Things that DeFi Does
The purpose of DeFi is to solve problems that are in the financial service industry. One of them is decentralizing exchanges for exchanging crypto assets. The others are derivatives, lending, and borrowing.
A derivative refers to a market in which the sellers and buyers interact. The interaction entails exchanging a contract of underlying assets based on the asset’s future value. The underlying assets include bonds, stocks, and cryptocurrencies. Some of the DeFi projects are Gnosis, Augur, and Synthetix.
Borrowing and Lending
The DeFi projects put focus on borrowing and lending. They give users the chance of lending and take loans using software without engaging a third party. The projects do not use paper contracts. Instead, they use code in automating processes like maintaining margins needed in lending and computing interest rates.
An example is that if you want to lend some of your cryptos, then you will send the amount you wish as coins or tokens. You will send it to the address that the protocol controls. As a result, you will get interest and it all depends on the amount you lent. Some of the top lending and borrowing DeFi projects are yEarn, Aave, and Compound.
The decentralized exchanges (DEXs) give users the chance to allow users to exchange crypto assets. The participants do not need to have a centralized exchange. DEXs operate as peer-to-peer exchanges. These exchanges are turning out to be more popular since users can instantly convert cryptos, privacy, high-security funds, and access to trading pairs.