Jun 23
HOW TO UNDERSTAND DEFI LIKE A PRO
INTRODUCTION
Traditional finance platforms rely on institutions such as banks to act as intermediaries for their transactions while decentralized finance is an ecosystem of financial applications built on the blockchain network. This platform allows users total control of their assets. They are not under the control of a single authority. And so, do not make use of, intermediaries or arbitrators. However, we cannot begin to talk about DEFI without making reference to decentralized apps because they interact with this ecosystem through peer-to-peer and other decentralized applications (DAPPS). So, what are decentralized apps?
Decentralized applications (DApps) are digital applications that run on a blockchain network of computers using smart contracts. Once these contracts are launched, it will take a consensus to alter. Click here to learn more about smart contracts.
Decentralized applications (DApps), are more like the world wide web (www) of the blockchain, and DeFi are built on Dapps. They can sometimes be used interchangeably but, they are not the same. However, since all the processes are absolutely automated, it runs almost an uninterrupted and uncompromisable system unit.
Categorization of DeFi
Just like we have various types of banking transactions in centralized finance, there are also various types of decentralized finance applications in existence. The choice of the user depends on what the user wants. Generally, we have the following category of defi:
- Borrowing and Lending DeFi Apps
- Insurance DeFi
- Payment DApps
- Derivative DeFi
- Prediction Market DeFi
- Wallet DApps etc.
Now that we have outlined some of the most important Defi applications, it is necessary to explain briefly, their uses and other important characteristics we should know at this stage.
USES AND CHARACTERISTICS OF DEFI APPS
- Borrowing and Lending DeFi
Decentralized lending platforms give one opportunity to share and borrow with the requisite of an Ethereum wallet. DeFi lending allows investors and lenders to issue loans or deposit for interest through a decentralized application system. The unique thing about this platform is that the identity of the parties remains protected.
Some of these platforms are Aave, MakerDAO, Compound, PhoenixDAO, Venus etc.
- Insurance DeFi
In DeFi, protocols can fail, smart contracts get breached and the system can get hacked. In other to forestall this possible economic loss, users can get insurance.
Some of the notable insurance DApps are Unslashed Finance, Risk Harbor, Nexus Mutual etc. Their ultimate goal is to indemnify the blockchain users should they encounter losses in the course of their investment or activities on the blockchain ecosystem.
- Payment Dapps
Cryptocurrency payment gateways allow transactions of cryptocurrencies as payment from customers in exchange for goods or services. These systems permit users to do business and pay with cryptocurrencies no matter where they are. Examples of payment DApps are Coinbase Commerce, Electroneum, BitPayCircle, Coinomi, CoinGate, Cryptopay etc.
- Derivative DeFi
Derivative defi apps are financial applications that enable hedging against future possibility of price changes. Examples are hegic, dYdX, UMA, Mirror Protocol, OPYN etc.
- Prediction Market DeFi
Prediction market defi apps permit users to monetize their ability to accurately predict future events. These Prediction markets defi give users the opportunity to bet directly on information that they believe is valuable. They allow traders to trade the outcome of events irrespective of their locations. Examples are TotemFi, Augur, finance.vote, OprionRoom etc.
- Wallet Dapps
Wallet DApps are software programs that hold public and private keys and successfully work on different blockchains which allow users to exchange currencies between each other and to keep track of the balance of currency they own.
A digital wallet can store, send and receive different digital currencies. Examples are Coinbase Wallet, Metamask, ZenGo, Exodus, Trezor Wallet, Trust Wallet, Ambire Wallet, StakedWallet. Click here to learn more about how to select the best crypto wallets.
CONCLUSION
As we have seen above, decentralized finance otherwise known as DeFi is an ecosystem of financial applications built on the blockchain network. This platform allows users total control of their assets. This platform carries all the traits of the centralized finance module however, DeFi is faster, easier to manage, and above all, the users have the ultimate control of the economy as it is totally decentralized. The identity of the user is unknown hence absolutely confidential but very safe.
DeFi is all that is needed in the modern financial world and it has come to stay. So, which DeFi project are you getting on, today?
About the Author
Igwe Ihuoma Patience is a self-taught creative and industry-specific content writer, and cryptocurrency enthusiast with 2years plus experience and knowledge of the constantly evolving blockchain space.
I am skilled in content creation, copywriting, curating captions, video editing & graphic designing with mobile phones and I teach others how to get started in the cryptocurrency and blockchain space and My goal is to make blockchain learning and updates easy for anyone to understand.
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