What is DeFi?
Just another crypto phrase? NO.
Decentralized Finance (DeFi) is one of the hottest segments of Crypto at the moment. A way to measure growth in DeFi is total value locked (TVL). Over the last twelve months, the industry grew from $1B in TVL to over $86B in August 2021. If you have heard of DeFi, then you probably are aware of the insane yield opportunities offered. Before discussing how to make money in DeFi, it’s essential to learn more about the space. Welcome to the Wild West of Finance.
Here are some terms you should be aware of:
• Bitcoin (BTC)- BTC was the first blockchain created using cryptography. The importance of BTC for DeFi is that it represents blockchain technology. However, BTC blockchain is challenging to build on. Read the original white paper here:
• Ethereum- Ethereum is the rails on which DeFi is built. Ethereum was first thought of in 2013 when Vitalki Buterin released a white paper and launched it in 2015.
• Smart Contracts: Smart contracts are code that sits on top of Ethereum (not precisely but the easiest way to imagine them). These contracts are created to facilitate transactions without the need for human intervention.
• Protocols: Think of these as companies. You will see the term quite a bit in DeFi.
• Decentralized Exchange (DEX): Protocols where you can exchange crypto assets. DEXs are similar to Central Exchanges (CEXs) but with a critical difference. There is no middle man.
• Gas Fees: Anytime you make a transaction in DeFi, there is a gas fee. The transaction is recorded in the blockchain. Gas is a way to pay someone to record the transaction
• Automated Money Makers (AMM): In traditional finance, a trade is made between a buyer and seller. An intermediary will facilitate the trade when he sees a price both parties match. In DeFi, AMMs are pools of liquidity in which individuals can borrow and lend tokens (we will unpack this a bit later on).
This is an excellent place to start for now. Once we get the basics down, we will begin to go deeper about individual protocols and entire sectors. We will now begin to participate in DeFi. You will need a credit card if you have not created a wallet before. If you have cryptoassets through a central exchange like Binance, you can transfer them directly. Let’s get ready
