Learn How To Defi Part 3

By xuanling11 | Crypto Learning | 16 Feb 2022

Let’s continue learning Defi in part 3 and also reference my Notion page here for more details. 



One of the most popular blockchain applications is the cryptocurrency

Smart Contract

Ether Gas Fee

Ethereum Request for Comments (ERC)



Decentralized Applications (Dapps)

Decentralized Autonomous Organization (DAO)

How DeFi provide service?


One of the most popular blockchain applications is the cryptocurrency

According to Eric Schmidt, the former CEO of Google made a statement in 2014 about Bitcoin that “is a remarkable cryptographic achievement and the ability to create something that is not duplicable in the digital world has enormous value.”

Cryptocurrency is an asymmetric key cryptography technology to prevent duplicates on the internet and solve the “double-spend” problem.


So, the more duplication internet can easily produce, the lower the value cryptocurrency will have and the lower the credibility cryptocurrency will have.

Smart Contract

Another crucial ingredient of DeFi is a smart contract platform.

When money flows within the contract with conditions pre-proposed, with an interest rate adjustment, money can become more valuable with a longer period of time of such contract is enforceable!

The smart contract makes cryptocurrency an enforceable contract with code and data that further pushes the possibility of the blockchain.

Many traditional business agreements with clauses now can enforce under algorithmically codified clauses to prevent breaching of contract agreements.

Ether Gas Fee

Remember blockchain was invented to fight Junk Mail by increasing the cost of massive distributing spam to receivers? Ether gas is a unit of computation power that costs money while letting miners validate each transaction. That is the nature of a decentralized trustless-based environment.

However, it leads to poor user experience, leads to worry about overpay/underpay or slow processing time of such transactions.

Because of the high gas fees, there are solutions to provide less gas fees such as Polygon, Cardano, or Litecoin. Or projects to provide gasless transactions such as Moralis.

Worth mentioning that even everyone hates high gas fees, the primary reason for gas is to prevent system attacks that generate an infinite loop of code. Similar to a car that depends on gas to reach a limited distance, Ether gas prohibits attackers to push the system to run exhaust without costing themselves more spending on attacking. This is commonly known as the halting problem.

Gas fee is a part of the decentralized solution since no one will shut down the system to identify malicious code yet incentivize highly efficient smart contract code with fewer resources and reduce the probability of failures that are beyond the benefits of the marketplace.


Ethereum Request for Comments (ERC)

ERC is Ethereum standard. They are proposals that officially adopt and implement into Ethereum Virtual Machine (EVM) to become one of their functionality/features (More technical background here).

One of the most important ERC that makes DeFi possible is ERC-20 TOKEN STANDARD. It is the standard for fungible tokens and defines an interface for tokens whose units are identical in utility and functionality (further reading here). 

Another important ERC is EIP-721: Non-Fungible Token Standard. It makes cryptocurrency unique and often used for collectibles or assets such as peer-to-peer loans (further reading here).


Unlike the word meaning itself, the oracle problem in crypto means completely different!

It refers to a problem of the blockchain that has limitations containing applications to Ethereum native contracts and tokens and to reduce the utility of the smart contract platform.

Simply, blockchain is an isolation system that separates itself from the real world (source).

Oracle acts as an authoritative data feeder (some degree of centralization) and provides blockchain or in smart contract cases, using data to help smart contracts to perform more closed to the real-time marketplace.

There are many ways oracles can implement and provide various DeFi applications and one of the well-known Oracle is Chainlink by using an aggregation of data sources with a reputation-based system. We will explore more on the Oracle-specific section.


Stablecoin is to solve the cryptocurrency’s volatility problem. It is a bridge between cryptocurrency and fiat currency (source). The largest market cap of stablecoin is Tether (source).

It intends to figure out a way to maintain price parity with some target asset like USD, gold, some proportional crypto assets or artificial algorithms.

There are 4 types of stablecoins:


  • Fiat backed or fiat-collateralized stablecoins: 1:1 ratio as 1 stablecoin to 1 unit of currency. (i.e. Tether - USDT)
  • Commodity backed or commodity-collateralized stablecoins: commodities include gold, oil, real state, and various precious metals. (i.e. Digix Gold (DGX) - Singapore suspended the operation since Jan 24th, 2022 under the Singapore Payment Services Act )
  • Crypto backed or crypto-collateralized stablecoins: their value either hard or soft pegged depends on the mechanism. (i.e. DAI from MarkerDAO)
  • Non-collateralized stablecoins: they purely operate under algorithm to determine its valuation (i.e. AMPL)
  • Bonus: CBDCs or Central Bank Digital Currencies: are issued, controlled, and regulated by a country’s central bank or monetary authority, they are exchangeable on a 1:1 ratio with their equivalent fiat and are likely to be considered as legal tender.

Decentralized Applications (Dapps)

Similar to Apps in your Apple iPhone, Dapps just like an App except live on a decentralized smart contract platform.

Two primary benefits of Dapps are permissionlessness and censorship resistance (further reading here).

Decentralized Autonomous Organization (DAO)

An organization is a fully autonomous and is not governed by a single person but through codes that based on smart contracts and governance token which gives an owner some percentage of vote on future outcomes. (source)

How DeFi provide service?

Financial services are provided through Decentralized Applications (Dapps)

DeFi works as money LEGOs to add up layers with features for users to achieve their desired financial goals.

Layer 0 → Bitcoin → consensus, prevent double spending

Layer 1 → Ethereum → Smart Contract to implement rules

Layer 2 → ERC -20 & ERC - 721 → Token, NFTs, Stablecoins, Governance Tokens

Layer 3 → Dapps → DEX, Lending & Borrowing, Derivatives, Governance, Insurance and more

Stay tuned for the next cheatsheet!

Photo by Michael Dziedzic on Unsplash
Note: the post was shared on multiple platforms here.

You can refer my previous article lists here
Digital Commodities- the Unlimited Resources of Commodities Has Born
Universal Income in Crypto Way
DeFi 1.0 is Officially Dead - Welcome to DeFi 2.0
NFT Has a New Purpose
How Many Ads Are Too Much - Floki Inu Ads Got Backfire
Metaverse - Second Life Era
Bitcoin ATM Adoption and Its Potential Security Vulnerabilities
When Corporations Are Running By Everyone
The Fundamental Value Is Irrelevant
Coinbase At Huge Reputation Crisis
CBDCs' Flaw Design
Regulations Start Hitting Crypto Exchanges
From Bitcoin Standard To Zero-Knowledge Proofs - Decentralization 2.0
Shiba Hits 1 Million Users (Army) Milestone: What is Next?
How To Avoid Crypto Scammers
Crypto Philanthropy
Shiba Game - When Meme Meets Metaverse
Twitter CEO Steps Down - A Full-Time Bitcoiner
Change of Macroeconomy Landscape
CBDC Is Losing The Game
Crypto AWS
Doge The Future
El Salvador's Bitcoin
Market Sentiment Has Changed
Brief History of Ethereum and How Ethereum 2.0 May Over Promise
Crypto Is Getting Real
Who Cares If Craig Wright Is The Real Satoshi
Institutional Investors vs. Whales
What Happened In BadgerDao
A Proposal To Move Bitcoin Mining PoW Away
IMF Keep Crying Out, Crypto Adoption Keep Accelerating
Dogecoin Is Back to Top 10 But The Moon Shot Is Looming
How to Avoid The New Wallet Scam
Defi Enters To Crypto Bond Phase
What Types of Metaverse You Want
Global Regulations Are Coming Or Can They
IMF Did Have A Plan to Run Global Regulations
Doge Starts Moving
A New Malware Will Steal From Telegram
Smart Money Is Out, Institutional Money Is In
Wait, Web3 or Web 3.0 or web3
Airdrop?! Not So Lucky Anymore!
2022 Prediction #1: L1 Scalability
2022 Prediction #2: L2 Bridges
2022 Prediction #3: Zero-Knowledge Proofs or ZKPs
2022 Prediction #4: Regulated Defi On-Chain KYC
2022 Prediction #5: Institutional Crypto Adoption
2022 Prediction #6: Defi Insurance
2022 Prediction #7: NFTs-Based Communities - DAO 1.5
2022 Prediction #8: Metaverse and NFTs
2022 Prediction #9: Web2 Companies’ FOMO
2022 Prediction #10: Time for DAO 2.0
Craig vs People
Polygon Enters ZKPs - Plonky2
Crypto.com Backfire - When Centralized Crypto Service Panic
Coinbase NFT Marketplace
Crypto Paycheck
Coinbase Customer Service Alive
When Meta Patented Metaverse
When You Want Someone Forget About What You Did, Just Change You Name
When YouTube Enters Into NFTs
Facebook Just Did the Rug Pull
Bridging Between Web2 to Web3 Through NFTs
DAO The Way Part 1
DAO The Way Part 2
Who Is The Winner of The Crypto Adoption
Phishing Attacks
DAO The Way Part 3
What You May Expect NFTs After 6 Months and Beyond
DAO The Way Part 4
Licensed NFT vs. IP Law
Wormhole Hack - It May Not Be a Bad Thing
Preventing Rug Pulls
DAO The Way Part 5
Lessons Learned From Wonderland DAO
DAO The Way Part 6
Learn How To Defi Part 1
DAO The Way Part 7
Discord Scams
DAO The Way Part 8
Learn How To Defi Part 2
Disclosure: The article was written by a delusional author who is possibly a nut job without any questions whatsoever about expertise in the subject matters. You should not believe any words this author wrote or you may experience similar symptoms or even possibly become a nut job.

How do you rate this article?




A delusional author who is possibly a nut job without any questions whatsoever about expertise in the subject matters to write with a freestyle.

Crypto Learning
Crypto Learning

All article was written by a delusional author who is possibly a nut job without any questions whatsoever about expertise in the subject matters.

Send a $0.01 microtip in crypto to the author, and earn yourself as you read!

20% to author / 80% to me.
We pay the tips from our rewards pool.