Since the launching of bitcoin in 2009, a lot has happened in the cryptocurrency market. In case you have been a trader for a long time, you probably know what I mean by this. If not so, you might have heard about the booming trading industry in recent times. For instance, if you have had time to check crypto-twitter recently, you might have come across DeFi talks and terms such as ‘yearn’, ‘YAM’, and ‘yield-farming’.
They argue that DeFi might be the next bitcoin to take the cryptocurrency industry by storm. In case you have not yet heard about this currency, you need not worry. You will get the full information in this detailed article.
What is DeFi?
To get started, DeFi is a short form for Decentralized Finance. The currency aims at recreating the old financial system with few to no middlemen. A decentralized open-source system could now handle most old-fashioned things like security buying and selling, borrowing, and organizing derivative products. You can enjoy all these applications on Ethereum as of now. However, other platforms capable of the smart contract can operate as well.
DeFi Common Functionalities
First of all, you need to know is that stablecoins must be present for DeFi to exist. You probably know how volatile cryptocurrencies such as Bitcoin are. Given the impossibilities in recreating financial products in volatile assets, DeFi decides to use stablecoins to ensure functionality. Stablecoins will be attached to fiat currencies like the Chinese Yuan or USD in this case. Paxos, Dai, USDT, TrueUSD, and USDC are some of the stablecoins you can find in the market.
What You Need to Know About DeFi
Lending and Borrowing
The good thing about DeFi is that it allows its users to get loans with no hurdles. You do not need a bank account or application review to borrow a loan in this cryptocurrency. Also, you can get DeFi applications offering access to loans without going out to find lenders. Instead, the smart contract acts as the lender. Another thing is that DeFi algorithmically uses demand and supply to calculate interest rates. Other applications will issue fixed interest rates where you will exchange your loaning coins with the contract acting as a guarantee.
With DeFi, you can stake your digital assets as security. A smart contract will then apply to lock the guarantee until you payback. Due to space nascence, security requirements may be extremely high, making the whole thing impractical. You can access DeFi lending services in platforms like Maker, Compound, and Aave.
Cryptocurrencies and securities trading typically takes place through third-party platforms. What if you get fair exchange via smart contracts? If this will interest you, DeFi exchanges allow you to enjoy your trading activities with no middlemen. You can as well use it as a security for digital assets and funds in peer-to-peer exchanges. Synthetix, Kyber, Bancor, Uniswap, and Curve are some of the decentralized exchanges you can access.
Asset Management Policies
The latest DeFi product category allows consumers to pool investment funds similar to asset aggregators, Robo advisors, and automated funds. Examples of these protocols include Zapper.fi, Insta,dapp, Set protocol, Melon, and Yearn. Finance.
Who are DeFi Investors?
Besides fanatics and gamers showing much interest in this currency, multiple organizations are making institutional savings into DeFi as well. If that is what you are looking to gain interest in this platform, you have the answer now. Some of the DeFi investors include ParaFi Capital, 3Arrows, Coinfund, Mechanism, Framework Ventures, DG lab, and expert cryptocurrency investors Multicoin Capital, Pantera, and Polychain.
Although you might have witnessed many investors earning millions through cryptocurrency trading, you need to act responsibly. Do you remember the 2017-2018 ICO-mania? DeFi’s higher profits translate to higher risks. Keep in mind that most of these ventures are speculative using smart contracts, volatility, and collateralization risks. But, who knows? You might be lucky and become an overnight millionaire. Play it safe and enjoy your cryptocurrency trading.
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