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Understanding Defi and How to invest in the Defi Space

At some point, most of us have heard of Defi being used in conversations about blockchain and crypto. Some of us have an idea of what it is while the rest of us don’t.

Photo Credit by Crypto

So what is Defi and how does it affect the operations and processes of the financial services industry?
Defi is an emerging financial technology sector that has the potential to change or disrupt the traditional financial industry with applications and services based on blockchain technology. It is basically a system that strips away the control banks and other financial institutions have on financial products, money, and other financial services.
The Defi space has seen significant growth in the past three years with many more Defi alternatives to the traditional financial services and processes emerging rapidly.
Defi uses one-of-a-kind blockchain technology to remove third parties in the financial services industries. It uses components such as hardware, software, and stable coins that help to create and develop applications.

Photo Credit by Jeremy Bazenger

What is Defi?
Decentralized Finance (also known as Defi) refers to a sector or set of financial applications and protocols that are built on top of blockchain technology and controlled smart contracts. It uses emerging technology used by cryptocurrencies to provide financial services with transparency and operate without any central authority.
Smart contracts are computer programs and digital-based contracts that contain the terms and agreements of the technology. This feature enables anonymous parties to create irreversible transactions that are tracked.
The main purpose of Defi apps is to replace the traditional financial services industry as we know it with a decentralized authority, similar to that of blockchain technology. Decentralization takes place when the developers of these apps hand over the control of the smart contract to their users and access to assets.
Anyone can have access to Defi as long as they have basic prerequisites similar to crypto. That is, to create a crypto wallet and have some cryptocurrencies. It’s also important to note that most Defi protocols or apps have coins of their own that are used under their own blockchain network.
Defi Coins
Defi coins are digital coins that have similar characteristics to fiat coins — it transfers financial value during digital transactions. They are built on native blockchain technology and represent a class of cryptocurrencies that use smart contracts. Defi coins give its users easy access to financial services and assets built on the native blockchain network. Each coin in the ecosystem has its own unique utility in the network. Some of these coins, for example, give voting rights and power management to users who possess them.
Last year has seen the rise of popular Defi coins such as Uniswap, Ankr, Maker, Chainlink, Compound, and Aave, among others.

Photo Credit by Tezos

What is Defi used for?
There are so many reasons why people join and engage with the Defi ecosystem today. Here is some of the most popular reason:
1. Asset Management: Most protocols in the Defi ecosystem gives tools that help users to manage their digital assets. For that, most holders can stake their assets to earn rewards and interest.
2. Savings: People are now able to manage their savings due to the increasing popularity of the Defi platforms. With the help of lending protocols such as Compound, users can begin earning interest on their crypto assets. It has also brought the existence of saving apps to the Defi ecosystem taking advantage of different lending protocols to enable their users to maximize interest and savings.
3. Borrowing and Lending: Open-sourced Defi lending protocols make it possible for more people to carry out borrowing and lending transactions faster and cheaper. Its decentralized nature also comes with many perks, such as settling transactions almost immediately with no credit checks.
4. Stablecoins: These are some sort of cryptocurrency that is attached to a stable asset or bunch of assets. To put it simply, stablecoins are linked to fiat currencies like the United States Dollar. However, some stablecoins are attached to commodity assets or cryptocurrency tokens. Their main purpose is to reduce the price volatility of crypto-based tokens and increase the need for using blockchains as payment solutions.
5. Games of Blockchain: Digital gaming or decentralized gaming has become one of the most attention-grabbing applications in the blockchain sector. Popular decentralized apps like Axie Infinity are the perfect example of play-to-earn gaming that rewards players with digital tokens or incentives for iconic gameplay. Thus, making online games a revenue stream.
6. Decentralized Exchanges (DEX): As of today, Defi platforms allow people to trade or exchange their digital assets without needing a third party to hold their funds. One of the main perks of DEX is complete control over digital assets and much lower processing fees.

Photo Credit by Behnam Norouzi

What Are the Benefits of Defi?
1. Transparent:
With its network on Blockchain technology, Defi is secure and can be audited completely. The decentralized nature of Defi makes it easy for users to see and verify every single transaction on the network.
2. Control over Assets:
Users have complete control over the management of their assets 24/7 within the network through the use of smart-based contracts. All this is possible because Defi apps don’t need third parties or intermediaries to manage funds in the ecosystem.
3. Easy Access:
One of the most important perks of Defi is the ease of access to financial services in the ecosystem. You can access Defi services as long as you have a crypto wallet and an internet connection.
4. Flexible:
Anyone can take part in trading activities and easily move funds anywhere they want without needing bank transfers or paying the traditional bank or processing fees. Financial transactions also occur in real time, and interest rates change every now and then which comes in handy for savings.
Defi coins provide people with easy access to a range of financial services built on blockchain technology. So for those of you that are considering adding those to your crypto portfolio, here are the top 10 Defi coins in the market.
Top 10 Most Popular Defi Coins
Be sure to know that the list provided here is ranked by market cap. Also, the Defi crypto market cap is $109.25B, with a 32.67% decrease in the last 24 hours.

1. Terra LUNA at a market price of $73.53 and an 8.01% decrease in the last 24 hours. It has a market cap of $25,094,980,326 and is traded at a 24h volume of $2,225,684,482.
2. Avalanche AVAX at a market price of $57.16 and a 1.28% increase in the last 24h. It has a market cap of $15,302,116,053 and is traded at a 24h volume of $551,730,902.
3. Wrapped Bitcoin WBTC at a market price of $36,010.59 and a 0.12% decrease in the last 24h. It has a market cap of $10,194,594,505 and is traded at a 24h volume of $175,741,661
4. Dai (DAI) at a market price of $0.9999 and a 0.05% increase in the last 24h. It has a market cap of $8,452,560,333 and is traded at a 24-h volume of $259,632,473.
5. Uniswap (UNI) at a market price of $7.50 and a 2.40% increase in the last 24 hours. It has a market cap of $5,165,198,589 and is traded at a 24-h volume of $264,332,355.
6. Chainlink LINK at a market price of $10.73 and a 0.41% increase in the last 24 hours. It has a market cap of $5,012,270,150 and is traded at a 24-h volume of $341,121,432.
7. Tezos XTZ at a market price of $2.61 and a 6.41% increase in the last 24 hours. It has a market cap of $2,324,258,692 and is traded at a 24-h volume of $109,494,546.
8. PancakeSwap CAKE at a market price of $7.46 and a 0.01% decrease in the last 24-h. It has a market cap of $2,206,089,447 and is traded at a 24-h volume of $115,037,961.
9. Theta Network THETA at a market price of $2.19 and a 0.63% decrease in the last 24-h. It has a market cap of $2,198,282,125 and is traded at a 24-h volume of $175,382,961.
10. THORChain RUNE at a market price of $6.19 and a 2.49% decrease in the last 24-h. It has a market cap of $2,050,915,738 and is traded at a 24-h volume of $116,808,600

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Abdullah Idris

I’m a freelance writer/content marketer for start-up companies offering financial services. I love to write about interesting subjects that educates readers.