The massive adoption of Ethereum and its smart-contracts allowed the adoption of a new trend 'open finance' in other words finance open to all. Today thanks to the Ethereum blockchain (and others but it is on this one that there is the most adoption and applications that work), you can borrow money, lend it And generate compound interest. All this automatically and securely!
You must use protocols attached to the Ethereum Blockchain to have access to these financial tools. Like for example Compound which allows you to lend (by generating interest) or borrow cryptocurrency. That's, you have in front of you a financial tool that does not require a bank or third party to vouch. It's peer to peer. Obviously through a platform, but it's just the springboard and the connection interface, by no means this valid platform that can make loans, it also does not store any cryptocurrency. Everything's governed by smart-contracts and if two players respect the rules governed by the smart-contract, nothing can prevent a transaction from taking place.
The process is simple: you want to lend money. You have some Ethereum sleeping on your cold wallet (ex: Ledger) or mobile phone wallet (ex: Trust Wallet) and you want them to earn you interest. Thanks to DeFi (Decentralized Finance known as DeFi), in a few minutes, you can start earning daily interest, which automatically arrives on your wallet. You link your wallet to the compound finance interface, you send the Ethereum to a smart-contract and you will earn interest.
Now let's get to a topic that interests you, what guarantees that the person borrowing your ETH will return it and not leave with it? It's very simple, so that the borrower can recover your funds, he must block on the same smart-contract 3 times more Ethereum than he borrows, so it's certain that he will not leave. With your ETH because if it does that, you will get more Ethereum back than you initially loaned.
To start and earn your first interests you have a Celsius Network mobile application which is very easy to use and which does not require you to link your physical wallet. Security is weaker, but it allows you to take your first steps in finance that is open to all.
The harmony of this decentralized system is therefore governed by smart-contracts which define the rules of these protocols.
From the site https://defipulse.com/ you can observe the number of Ethereum blocked in the different protocols, the number of transactions and money loaned on a daily basis. This total sum of ETH value stuck in DeFi exceeded $ 2 trillion in early 2020.
DeFi's a way to diversify your portfolio and especially to take advantage of most of it which's dormant (because ETH or BTC in the long term).
There are also centralized protocols like https://nexo.io/, which's part of cloud finance rather than decentralized. They are a company, supervised by financial authorities and guarantee the profits and the security of your cryptos. Some large whales or institutions will prefer to deal with centralized protocols because it's more reassuring for them.
On the Maker protocol (https://makerdao.com/en/), you can in particular have access to decentralized stablecoins. They address a trust issue with centralized stablecoins, their value being based only on maintaining a business. These stablecoins are created thanks to Decentralized Autonomous Organizations (DAO). Decentralized stablecoins are backed by over-collateralization. That is, for $ 1 in stablecoin there is $ 3 in ETH blocked on a smart-contract supporting the value of the stablecoin. This allows access to a decentralized store of value.
