If you live in the crypto space for a day, the acronym ‘DeFi’ comes your way almost twice per hour. No doubt, my statistics is right…or very close to it. The crypto space is a very dynamic environment and everything moves so fast, but you must be living under a rock if you’ve only got to hear about DeFi a few times. You’re unlikely to discover this article if you live under a rock anyways. So, the most probable case is that you’re yet to fully grasp the concept of DeFi.
Swaps, farms, pools, and ‘connect wallet’ lol. Like a ‘plug and play’ system, connecting your wallet to a website is all you need to experience a whole world of fun …and risk. Yeah, accidents on DeFi platforms could get very popular and your first encounter might be through an exploitation report. But DeFi is way more positive than this.
DeFi is an acronym for Decentralized Finance. Decentralized financial systems comprises applications built on top of blockchains which facilitates ‘permissionless’ financial services and provides seamless options for running financial activities. DeFi hopes to introduce the core virtues of blockchain technology to the financial system. Bitcoin introduced the concept of ‘decentralized means of payment’ which runs on a distributed ledger system, the blockchain.
DeFi is a blockchain notion. It encompasses every attempt by blockchain and cryptocurrency projects to create a decentralized replacement or alternative to real life financial activities.
From bitcoin blockchain itself and its lightning network to decentralized exchanges and financial institutions built on the blockchain; blockchain technology have dived deep into the economic sector and is making attempts to create a new and better way of handling financial activities.
Contemporary and emerging DeFi projects are, expanding the scope of decentralized financial system. They are shifting the paradigm from ‘portable means’ of payments to smart contract applications running independently on a parent blockchain and offering advanced financial services such as insurance, lending, wealth management and an array of other financial management using blockchain resources and exhibiting desired blockchain features such immutability, security, privacy, speed and interoperability.
Smart contract blockchains are hence home to DeFi projects, ethereum particularly is housing majority of DeFi projects. Augur, one of the earliest smart contract projects on the ethereum blockchain and a popular DeFi project offers a decentralized alternative to advanced financial instruments such as index trackers and futures. Aave (LEND) runs on ethereum blockchain and provides decentralized lending and borrowing service. Binance Smart Chain (BSC) and TRON blockchain smart contract layers also facilitate DeFi and provides resources which allows DeFi projects to thrive.
Amongst the numerous enticing features of decentralized finance projects, ‘liquidity farming’ has gained its place as the most exciting exercise on decentralized financial systems. The idea of leveraging DeFi protocols to generate annualized interest returns of up to 30% of your initial investment and a couple of other benefits will surely impress any investor. Due to this, DeFi presents enticing opportunities to cryptocurrency investors to dive into the crypto space—a major cause of the recent boom in DeFi projects.
DeFi has benefited highly from incentivization. Flexible staking opportunities, high-interest loans on lending platforms and high APR liquidity farm rewards…you might want to give up your agriculture career and join crypto. Well, you can do both.
DeFi isn’t without some shortcomings anyways. DeFi space marks a huge resemblance to early crypto space. Emergence of new projects which are mostly a copy of already existing projects with just very little differences; bogus promises, pump and dumps, naive and gullible investors, shady project teams and ‘get rich quick’ schemes. It has become a hotspot for ‘decentralized accidents’.
Nevertheless, it is still a brilliant invention and is developing to fix these major issues. Mainstream firms are also impressed by the potentials of decentralized financial systems.
WOX exchange is the first decentralized reserve currency protocol available on the TRON Network based on the WOX token. Learn more about WOXDEFI