This is a breakdown of the DeFi 101 session by Siddharth Verma on The Product House web3 Community. Siddharth is a co-founder of Onjuno, which enables payment of Salary in Crypto among wonderful other things. This post is written in a Twitter-friendly way, Enjoy.
Let’s understand some jargon before we start:
💡 Smart Contract: The Magic Sauce that enables programmable movement of funds without manual intervention. This is a game-changer that empowers web3 and enables De-Fi to exist.
In Non-tech terms, L2 Network combines multiple transactions into a single block on L1, thereby providing high speed and low gas fees.
👛 Non-Custodian Wallet: The user owns the private keys of the web3 Wallet (MetaMask) #NotYourKeysNotYourCoins
📱 Dapp: Decentralized Application is an interface for Smart Contracts running on the blockchain. (Uniswap)
🏊 Liquidity Pool: A collection of tokens stored in a Smart Contract that is used for trading.
🔐 TVL: Total Value Locked is the overall value of crypto assets deposited in a DeFi protocol.
The Hype in Numbers! $1.8Trillion worth of Crypto is in circulation, out of which $800Billion is BTC. 10 Thousand Tokens are in the Market. In the last 24h, $100Billion worth of Crypto was exchanged. 21Million Monthly Active Users in Metamask. Also, El Salvador has accepted BTC as legal tender. #totheMoon
“What the smartest people do on the weekends is what everyone else will do during the week in ten years.” — cdixon
The smartest people around were working on the blockchain five years ago.
Now that we know a bunch of basics, let’s tackle DeFi.
DeFi is an open and global financial system built for the internet age. It works on Smart Contracts running on the Blockchain. The TVL is $80Billion.
Think of the slow, Traditional Financial Institutions running Banking Services in a Centralized Way with Manual Interventions. DeFi is the exact opposite!
Properties of DeFi:
🔒 Permissionless: Anyone can access/build
♾️Composability: Can be built on top of another Protocol
🔍Transparency: All data is accessible on the blockchain
💪Immutability: Built on the blockchain
What can you do with DeFi? Earn Sweet Crypto right?
You can also do the following:
📑Swap: Trade One Token with another on the blockchain without the need for a central entity (Uniswap)
💸Lending & Borrowing: Lenders create a Liquidity Pool and Borrowers can use this Pool to borrow. This loan is backed by collateral. (Aave)
🤑 Yield Farming: Incentivize users to put funds in the Liquidity Pool by giving them tokens as a reward.
🆕Emerging Use Cases are Credit Score and Insurance. Since DeFi is relatively young, new use cases are being built right now!
What are some Growth Strategies in DeFi?
Growth in DeFi equals getting more users and tokens into your DeFi Protocol.
📈L1: Anchor Protocol in Terra is a marketplace offering 19% APY on stable coins by incentivizing Borrowers. TVL: $15Billion
👨🔧 L2: Polygon built on Ethereum Chain which incentivized developers to build dapps.
🎡Protocols like Uniswap incentivized users with Airdrops.
😈Vampire Attacks like Sushi on Uniswap. Here an existing project is targetted and users are incentivized to leave that project and join another by offering more rewards/tokens.
Is it time for your haircut? Check out the DeFi Mullet: Traditional FinTech at the Front and DeFi at the back. This is a great way for Products to launch and grow today. (Don’t tell this to your barber😅)
This is a wrap on DeFi 101. Hope you learnt something new. Cheers!
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