To get started in this world of decentralized finance we need to understand some basic fundamentals about economics and traditional finance, such as the basic interest rates charged by central banks around the world, different financial instruments, such as banks being the great centralizing part of power and being able to exploit people around the world with their inefficient and backward system, charging very high fees with government endorsement to make their clients simple intermediaries of transactions or loans in general.
We know that in the traditional financial world we have several products available in our hands. What DeFi (protocols focused on decentralized finance) are doing is creating these instruments that were previously only available in CeFi (centralized finance, traditional finance), within the blockchains and the main one that contains the most credibility and liquidity is Ethereum. Today we have several financial products available with easy access and without KYC (know your costumer, identification requirements with documents) so that we have more privacy and freedom with our capital.
Financial instruments such as brokers, loans, synthetic assets, options / derivatives, decentralized stable currency (DAI), lotteries, market making, among others, are now available for use with full liquidity and an arrangement of protocols that connect through a fundamental concept that is discussed here called Money Legos.
Money Legos concept comes from this toy that we had as a child to connect pieces to form new formats. In this sense, we can imagine that when we have a protocol created and established in the ecosystem, it can easily interact with other protocols that already exist or are going to be created because they all use the same ERC-20 token standard (standard model used in the blockchain of the ethereum) and with that we can create more and more new features and connect the legos to open new opportunities.
DeFi ecosystem today is increasingly growing and reaching new levels of constant evolution. In the picture above, we have several of these protocols where each one of them has its specific function. Today we are going to tell you a little about the history of the main protocols and how this new format of society's organization will be increasingly present in its financial life in the coming years.
At the base of the ecosystem, we have MakerDAO, a decentralized autonomous organization, and through this protocol we can create the DAI, the first decentralized stable coin paired with the US dollar 1 to 1 (1 DAI = 1USD) in which this blog is the official channel in Brazil for the dissemination of tutorials and news about it.
With its decentralized governance system, the Maker (MKR token) is able to vote on important decisions for the entire decentralized financial ecosystem such as the DAI basic interest rate and the total currency that can be issued through secured loans.
In another tutorial we have as a step by step for you to be able to make the loan in DAI from your cryptocurrencies that are stuck in your wallets, but in order not to be out of context, to issue new DAI in the market, it is necessary give cryptocurrencies as guarantee for the payment of your debt, if you do not pay back, your guarantee will be locked and running the risk of settlement to pay off your debt and with that we can understand that each DAI issued in the market has a ballast and the system maintains solvency with settlement mechanisms.
So we are talking about you who are in your home, in the comfort of your home, being able to issue currency and control the system's basic interest rate, something that was never possible for ordinary people, such acts were defined by central banks around the world , manipulating interest rates, making time no longer valuable, and printing money to devalue the currency and “fight deflation”.
With DeFi we have an environment that integrates global liquidity horizontally, so it doesn't matter the geography and that in itself is a great advantage compared to traditional markets, where most of the liquidity is stuck in a few developed countries and developing countries end up staying back by nature.
Uniswap is one of the main decentralized brokers when creating this content. There is where you can make your trades and exchange ETH> DAI for example and thus dollarize your investment. It is also possible to provide liquidity for the pools (liquidity pools) to act as Market Maker, that is, the counterparty, if the market is falling, you buy, if the market goes up, you will be selling and earning part of the fees generated in these trades.
Compound is a money market where people go to lend or borrow money. It works exactly like this, if you have crypto in your wallet and want to borrow to start to monetize your hold positions (cryptocurrency held in the wallet for the long term), it is possible through this protocol in a safe, simple and transparent way.
Synthetix brokerage provides the possibility to trade real assets from traditional finance such as Gold, Silver, stocks, Indices and ETFs globally known OnChain (term given to assets within blockchains) through the creation of synthetic assets that are also very common in CeFi.
PoolTogether is a decentralized lottery where nobody loses money, that's right, nobody loses! But how is that possible? This protocol gathers the DAI deposited by all participants and deposits in Compound. As a result, interest on this amount is generated and this interest is distributed to a single winner of the draw during the week.
These above are just a few examples of financial instruments that we only had access to in the centralized world and that are now available in a more open, horizontal, transparent way, totally without intermediaries and without complications.
As you can see, we have a new environment of total transparency to help us that is being created to improve the lives of all people around the world, just as the internet has done in the past. It is the total disruption of the global financial system, where we will have total control over our assets in our portfolios and therefore be able to make decisions about our assets.
But now that you know how some of these protocols work, you will need a gateway to connect and enjoy these protocols, and this port in today's example will be Metamask.
Bonus: How do I check my DAI transactions?
Through the EtherScan portal we can check the transactions that took place on the Ethereum blockchain at any time, including yours.
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In the image above we have several data to keep an eye on when checking our transaction, such as whether the transaction is confirmed, the number of the block that was added, the number of confirmations, the return address, the recipient's address, the amount of the transaction and the amount paid miners to validate the transaction.
I hope that with this content, they can have more access and understand a little more about the DeFi protocols and know that this is a trend that is here to stay.