Breaking Down DeFi with Covalent
Whether you’re a crypto veteran, a gamification enthusiast or you’re utterly confused by this sentence, chances are you're aware of the buzz surrounding DeFi lately. In this article, you will learn the basics of DeFi, its different components, and how Covalent can help you navigate it.
What is DeFi:
Decentralized Finance (DeFi) is a digital form of finance that is built on blockchain technology and doesn’t rely on traditional banking infrastructure. Blockchain is a type of distributed ledger technology (DLT) that was originally invented by “pseudonym” Satoshi Nakamoto in order to record Bitcoin transactions on a public and immutable ledger. On the blockchain, data is stored in blocks that are linked together across a distributed network. Each time a new transaction occurs, it must be verified across all the blocks in the chain, and if the information isn’t valid, the transaction cannot occur, making the blockchain secure. Many people closely associate blockchain with Bitcoin, however, since its inception, many blockchains have been built with a diverse set of use-cases.
In the case of DeFi, demand for the trade of cryptocurrencies and other digital assets fueled the creation of decentralized exchanges, which allow participants to partake in financial protocols without traditional intermediaries like banks and brokers. Again, this is made possible through blockchain and its ability to store transactional data securely and immutably. The majority of exchanges function on the Ethereum blockchain, which is essentially the backbone of DeFi.
The Ethereum Ecosystem:
This graphic showcases the current major players in the Ethereum ecosystem, which is helpful to visualize the different components of DeFi. Under “infrastructure” you will see Covalent — your guide for today.
“The data powering the DeFi economy.” — Covalent
Covalent provides a unified API that allows users to work with blockchain data in order to obtain information on assets across all blockchain networks. Below, you can see some of our ecosystem partners which can also be found in the Ethereum Ecosystem graphic.
The purpose of Covalent is to exist as a valuable resource for participants in the DeFi economy, by providing the tools to access information. This is critical because although there are many benefits of decentralization, one setback is the lack of perceived security that comes with centralized entities. In the DeFi community, users have complete agency, which is only advantageous when there is enough information available to understand the market. To read more on this topic, click here.
So let’s examine a few categories in the Ethereum Ecosystem, and how Covalent interacts with these areas.
1. DeFi:
This is the largest section of the ecosystem, and it’s where you see the layout of Decentralized Applications (DApps) that function as exchanges for synthetic assets/tokens. Users of these exchanges can convert cryptocurrency from their digital wallets into tradeable tokens, and then take similar actions to those you would see on the NYSE. With Covalent, users can analyze data on the blockchain in order to make informed decisions regarding their investments, liabilities, or the development of new DApps! Covalent also supports the function of wallets built on Ethereum, by providing the necessary data for different DeFi protocols.
2. NFTs:
NFTs or non-fungible tokens are used to represent ownership of unique digital assets stored on the blockchain. No two NFTs are the same, and their proof of ownership is secure on the blockchain. Common examples of NFTs include digital collectibles and digital artwork. Click here to see Paris Hilton’s NFT: “Kitty”.*Loves it*! In the art world, NFTs are exciting for content creators for the same reasons that DeFi is popular— to cut out the middle man. With Covalent, users can explore the NFT market by extracting price data and visualizing the digital artwork! Check out our alchemist tutorials here and here for a walkthrough.
3. Data/Analytics:
Let's take CoinGecko (one of our partners) for an example. You might be curious as to why Covalent falls under the infrastructure category vs. data/analytics. What CoinGecko does is provide a fundamental analysis of the market for consumers. They provide digestible insights that are easy to act upon, hence, they fall into the data category. Covalent is different because it is not an organization providing metrics, but rather an infrastructure that allows users to consume the data they choose. It’s essentially the building blocks, versus the packaged product, for those who want to explore freely. To continue this mission, Covalent is launching a Software Development Kit (SDK) that will allow developers to build new APIs and augment the Covalent infrastructure.
“Built for the Enterprise. Available for All.” — Covalent.
Review:
In summary, DeFi means “decentralized finance”, which is a financial system that is built upon blockchains (mostly Ethereum), and DeFi enthusiasts can use Covalent to extract all sorts of data from assets across different blockchains (Ethereum, Polygon/Matic, Binance & Avalanche). Additionally, developers can build DApps on Covalent, which expands the DeFi ecosystem. NFTs are unique digital assets that the art world is quickly adopting in order to index ownership and value, and Covalent users can access this information. Lastly, Covalent isn’t a data publication, but rather an infrastructure that powers the DeFi economy and encourages people to get involved with blockchain data analytics!
To learn more about Covalent, visit covalenthq.com
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