In my previous article i had talked about DAI stable coin. If you haven't read about please take you time reading it. In this article i am going to talk about DeFi( Decentralised finance) which is one the hotest crypto project and also the talk of the town right now.Before we dive into DeFi enviornment it is necessary to understand what is Ethereum and smart contract.
Ethereum is a cryptocurrency powered by an open- source blockchain based network which allows the development of many decentralised project like Decentralised Application(DAAPs), Decentralised finance(DeFi) ,Decentralised exchange(DEX) etc. With the launching of Ethereum 2.0 mannet its current proof of work(POW) mechanism will be changed into proof of stake(POS). This upcoming project help people in earning passive income by staking Ethereum.
A smart contract is a program which is developed in order to excute the contract between the buyers and seller automatically as per the line of code. One of the most important and unique feature of Smart contracts is it perform the contract without the involvement of any third party. Thus making the project fully decentralised.
what is DeFi
Decentralised Finance (DeFi) is an upcoming virtual banking system which workd under an open source, transaparent and smart contract blockchain network. It aims in replacing the third party and middle main in atraditional banking system with a smart contract. Hence this will make the banking system fully decentralised without the need of depending on any centralised authority or third party. Ethereum is the biggest smart contract platform in the crypto space.
DeFi is playing the same role as of the traditional banking system. But this time on top of the blockchain technology. This blockchain technology allows people to participate in taking loan , fund raising etc same as in traditional banking. But without the need of any KYC and third party involvement.
Defi as a replacement of traditional banking
In Defi the method of taking and supplying loan is done on a smart contract. Here users have to locked up their crypto asset in a smart contract called Collateral Dept position(CDP). The best thing about Defi is that if the value of the locked crypto asset falls drastically then users can covers their loan by liquidating the CDP. And At the same time users do not need to apply for any KYC inorder to approve the loan.
In order to study the latat analysis, tracking and ranking of Defi protocol defipulse.com is a much needed website in Defi ecosystem. More than 1 billion dollar wort of crypto assets mostly in ETH, DAI BTC is locked up in this platform . Among them DAI is the most important asset in DeFi pulse with more than 50% of asset locked up.
Types of protocol in Defi ecosystem
Just like earning interest in traditional banking by depositing money. DeFi also have a landing platform called compound.finance. It is one of the most popular landing platform on the Defi ecosystem where users have to store their crypto asset in this platform and earn interest as per their protocol.
Uniswap.io is an open source protocol launched in 2018 under an Ethereum Blockchain. It provides a free exchange facilities of crypto assets and also swapping of ERC20 token
Synthetix.io is A decentralised synthetic asset platform that provides on-chain exposure to real-world financial products
Tokenset.io is a protocol that automates the profolio management of crypro and bundles crypto-assets into tokenized baskets
Kyber.Network is an on-chain liquidity protocol that aggregates liquidity from a wide range of reserves.
Dydx.exchange is a popular trading platform in Defi ecosystem which offer non-custodian margin trade of crypto assets like ETH, DAI, ETH USDC and DAI USDC.
Types of Defi explorer tools
Defistats.io is an independent source for exploring the decentralized finance use-case on the Ethereum blockchain
Defiwatch.io is a tool used to Monitor Ethereum addresses and help in mamaging manage DeFi transaction for DDEX, Compound, DyDx and Maker.
Loanscan.io is a tool used to Compare the different interest rate on DeFi platform
Type of service in Defi
Nexusmutual.io is an insurance project for DeFi products and services
Defizaps.io is an Automated investing service with DeFi products and protocols
Dharma.io is an app in Defi ecosystem which is used for saving and earning interest.
Advantage of Defi over traditional banking
Unlike traditional banking borrowing loan in DeFi doesn't require credit score or KYC in order to request the loan approval.Instead it opens up the financial opportunity to all the people worldwide. This platform also give an opportunity to those people who don't have any bank account to acess the banking service from their own mobile devices. In short Defi project will remove all the problem which are facing in the traditional banking system.
Disadvantage of Defi
Even though Defi has lots of useful area there is one big drawback of this project. Which is users friendly. Since most of Defi project is quite complicated to understand and handle. It will be a big problem for any common people. Hence there is lack of users friendly background. Above all since the project is devloped under smart contract which includes computer programming there can be an issue of bugs within the project. Which could sometime leads to lost of funds and various cyber attacks.
Conclusion
With the introduction of Defi we are withnessing a new revolution in finance and banking sectors. Above all Defi could be a weapon for Ethereum to boost their market popularity in days to come.
Check out my previous article
