Popular DeFi Platforms
By CoinJoy on The Capital
Apparently, the most famous project in the sphere of decentralized finance is MakerDAO — the decentralized lending protocol. The project has quite a lot of functionality, but the main advantage is the usage of a special type of smart contract called “Collateral Debt Positions.”
Every user can send a certain amount of Ether to a smart contract and issue a token, that will be secured by the second most popular cryptocurrency. Meanwhile, the created DAI tokens are, actually, a debt secured by a pledge to MakerDAO. The platform performs all the functions of a bank; however, any user can take a loan from this bank. Borrowed funds are often used by customers of DeFi-services to fill the liquidity gap, as an alternative to expensive money of banks.
Other well-known lendings and deposit platforms are InstaDApp, BlockFi, Compound. The latter allows also investing cryptocurrency at 6% per annum as well as taking loans. BlockFi clients can borrow digital assets according to the usual credit schemes: credit checks or intermediaries.
Decentralized Finance also includes:
- Platforms for issuing tokens-shares, for example, Polymath and Harbor;
- Exchange protocols — Uniswap or Bancor, which allows converting one cryptocurrency to another;
- Forecasting services such as Augur;
- Digital asset management platforms such as Melonport and others.
Advantages and disadvantages of DeFi applications
Even though the sector of decentralized applications is only developing, there alreadу are some advantages. The main advantage of DeFi is that any user can get one or another financial service, for example, lending, bypassing the bank. Decentralized lending protocols minimize risks and provide access to borrowed funds 24/7. New products are especially relevant for borrowers from countries with expensive bank loans.
The advantages of DeFi products include:
- High availability of the service: it is available 24/7 from anywhere in the world, is not prone to failure due to problems in data centers;
- High operational speed: the absence of loan officers and the process of evaluating the reliability allow faster operations;
- Lack of influence of socio-demographic factors and credit ratings: loans are issued against collateral, so even a borrower unreliable from the point of view of classical banks can get it;
- Lack of a minimum term of ownership of the deposit — funds can be withdrawn at any time.
For developers, the simplicity of creating applications due to transparency and open source becomes a clear advantage; also, projects in the decentralized finance sector can be developed on any platform that interacts with smart contracts.
However, it is possible that at times of strong volatility, DeFi users will have to pay higher commissions so that they can timely fulfill the necessary obligations to services, which in return can lead to a sharp commission increase in the Ethereum network. Thus, at the late November 2019, the size of Ethereum commissions in some blocks exceeded $30. This happened against the backdrop of the activation of the “ difficulty bomb “ in the blockchain. Then, analysts that a similar situation could be caused by products in the field of decentralized finance (DeFi). A sharp drop in the cryptocurrency exchange rate from $185 to $145 led to the liquidation of credit positions.
Thereby, despite the rapid development of a relatively new field in the digital industry and the emergence of an increasing number of decentralized finance services, one should not forget about factors such as volatility and high credit risk.
Decentralized finance was created as an analog of usual financial services, but without intermediaries that increase the cost of these services at times. It’s obvious that DeFi will take the palm from large centralized organizations and transfer it to the hands of the decentralized community.
Originally published at https://coinjoy.io.