What is DeFi – Cryptonium


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What is DeFi

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What exactly is DeFi?

  • DeFi (or Decentralized Money) – is a movement that aims to revolutionize the traditional economic system using blockchain technology and cryptocurrency The goal of DeFi is to create an economic system that is open, fantastic, and accessible to everyone DeFi is an open source protocol and implemented in a decentralized network that allows users to access monetary offerings without having to rely on a third party. These offerings include borrowing and lending, trading, insurance, and pretty much everything else DeFi is rapidly gaining popularity and there are many plans in the pipeline.
  • The DeFi protocol – is a special, independent program designed to solve the economic problems of traditional industries. These programs are based on a set of codes that run on the blockchain network and are used to manage digital assets. They automate money transactions and processes using smart contracts and typically support a number of online marketplaces that allow users to exchange products and offers through a peer-to-peer network. They can also create interest rate mechanisms that facilitate the creation of new monetary goods.
  • Blockchain – is a decentralized, distributed public ledger that allows digital data and assets to be securely stored and transferred. It is an untrusted system that does not rely on third parties for authentication or testing and ensures a non-secure, trusted, and colorless way to track and transfer digital assets. Blockchain development is often associated with cryptocurrencies, but it can be applied to many other applications, including identity management, digital voting, and distributed computing.
  • Smart contracts – are self-executing computer programs that are stored in the blockchain network and used to automate certain processes and transactions. These contracts are written in code and are generated when certain criteria are met. Smart contracts can be used for a variety of purposes, including financial transactions, data savings, and identity verification. Smart contracts are commonly used in decentralized finance (DeFi) protocols to simplify transactions and automate processes such as interest rate setting, collateral management, and clearing. Cannot read all totals.

Where DeFi is used, or what creates the DeFi ecosystem ?

  • Stablecoins – are cryptocurrencies that, like legal tender and gold, attempt to maintain a measured price over time by pegging the market price to an external reference. They are intended as a way to exchange and store prices and are commonly used in decentralized finance (DeFi) applications. Stablecoins can be issued by a central authority, such as a company or government, or they can be decentralized with prices maintained by a network of users. Stablecoins are used for a variety of purposes, including payments, currency transfers, savings, and investments.
  • Cryptocurrency Farming – is the application of computing power to test transactions in the blockchain network in exchange for a reward. This process, also known as mining, is considered the primary method of creating and distributing new coins. Farming cryptocurrencies requires large amounts of energy and computing power, and miners must compete with each other to prove the maximum number of transactions and receive the highest rewards. Miners’ earnings are usually associated with the cryptocurrency they have earned and can be used to purchase products or offers or exchanged for other currencies.
  • Tokenized shares – are digital tokens that represent ownership of a company promotion on a blockchain or distributed ledger. These tokens provide a convenient and innocuous way to trade and transfer ownership of promotions without the need for an intermediary. Tokenized promotions are even more accessible to a wider range of traders and can be traded 24/7 on decentralized exchanges. However, tokenized promotions carry the same risks as traditional promotions, including market volatility and the potential for fraud and theft. In addition, the legal status of tokenized promotions may vary from jurisdiction to jurisdiction.
  • Decentralized Exchanges (DEXs) – are cryptocurrency exchanges that operate without a central authority. They use smart contracts to compare customers and sellers and ensure that tokens are exchanged safely and securely; DEXs offer superior security and confidentiality, as well as reduced risk of tampering and fraud. However, DEXs have drawbacks, including limited liquidity, slow trading hours, and unavailability of customer support. In addition, the legal status of decentralized exchanges may vary from jurisdiction to jurisdiction. Could not load all totals.
  •  Virtual currency loans – are loans secured by virtual currency. They are typically provided by specialized lending services through an app or decentralized financial protocol (DeFi). Borrowers can use these loans to access cash without having to sell their own cryptocurrency, thus taking advantage of the potential for price appreciation. Interest rates on virtual currency loans depend on the amount borrowed and the borrower’s risk profile. Apart from that, there are many risks associated with taking out a virtual currency loan, including the risk of price volatility, lender closure, and security breaches.
  • Synthetic assets – are digital tokens backed by other assets such as legal tender or cryptocurrency. These tokens can be used to represent ownership of the underlying asset, allowing users to trade and transfer ownership of the asset without owning the asset itself. Synthetic assets can be created on any type of blockchain, including Ethereum, EOS, and Tron. They are typically used for decentralized finance (DeFi) applications such as trading, lending, and crop care. Synthetic assets offer these superior qualities, such as higher liquidity and faster transaction times, as well as greater security and privacy. However, they are subject to the same risks as the underlying underlying assets, and the legal status of synthetic assets may vary from jurisdiction to jurisdiction.
  • Prediction Markets – is a market where members have every opportunity to acquire and dispose of contracts, depending on their final action. These contracts are paid on a final action basis. In other words, if the final action is correctly predicted, the member has every opportunity to profit. Surveillance markets are a decentralized financial (DeFi) construct because they allow users to trade without the need for a centralized intermediary. They are typically used to predict upcoming events, such as the stock market, elections, or sports game results. Surveillance markets can also be used to create derivatives and other financial instruments based on final actions.

How DeFi Makes Money ?

DeFi investors – are a special class of virtual currency users who speak a language not well understood by mere mortals and devise difficult schemes to maximize profits.

For example, they place crypto in a liquidity pool in a decentralized crypto exchange to obtain liquidity tokens, use it in another pool to obtain free tokens through a profitable breeding program, and seize it by placing it as a guarantee in a lending protocol. A third picture of the token and so on.

Understanding these subtleties takes a lot of time and intensive practice, but the main ways to invest in DeFi can be summarized as follows Could not read all results.
 1. Transaction fees
Investors place liquidity (virtual currency) on decentralized virtual currency exchanges and receive a portion of the transaction fees. The commission is typically 0.25-0.30% and is split among liquidity providers according to their share in the pool.
The more active the trading activity, the more commission income the protocol receives and the higher the return, but for many pools it can be negative. For example, the monthly returns for the 10 largest pools by pool would look like this 
Source : Pools.fyi

Maximum significance – 13% over 30 days, which is within 156% of a year . Smaller volume pools can generate more revenue, but the risk is also much greater.
2. Cryptolending (borrowing)
Investors deposit liquidity into pools of loan protocols and these are issued as loans. This service is especially popular with leveraged traders who do not want to borrow money from a centralized crypto exchange. Borrowers are required to make a down payment in excess of 100% (sometimes 150%, sometimes 200%) of the loan amount. In the event of nonpayment of the debt, this down payment is mechanically liquidated (sold) and the creditor gets his money back anyway.
The yield depends on the unit of the loan and changes daily. The highest rates are usually USDT, USDC, and DAI (up to 10%) on stabelcoins.
Source: DeFi Rate 


3. Profitable agriculture or liquidity mining.
This is the most difficult, but also the most well-known means used by plans to disseminate their own tokens. The usual schedule is as follows
Investors buy tokens and put them into a liquidity pool in some trading or lending protocol (usually Uniswap).
Traders receive a special LP token as proof of their role in the pool.
The LP token is credited to a special smart contract.
Investors receive systematic payments in plan tokens. Investors “plant” LPs, from which they “grow” new charity tokens.
Immediately after launch, plans often pay huge produce prices. For example, nominal yields can be as high as 1000%. The number of tokens distributed each week gradually decreases, but the yield remains exactly the same, 50-100%. Note that this profit is small, but the actual income depends on the value of the tokens.

Most famous DeFi protocols

MakerDAO (TVL max – $19 billion) is a loan protocol that allows you to get loans in stabelcoins DAI by depositing in other cryptocurrencies. These loans are typically used by margin traders and therefore do not require borrowing money from a centralized cryptocurrency exchange.
Aave (TVL max – $18.5 billion) is another lending protocol that allows Uniswap and Balancer liquidity providers to use LP tokens as collateral.
Compound (TVL max – $11.6 billion) is a lending protocol managed by the owners of COMP tokens through distributed voting.
Curve (TVL max  – $24 billion) is a decentralized exchange for trading stablecoins.
Uniswap (TVL max – $10.2 billion) – A very well-known decentralized exchange with hundreds of pools, famous for its numerous scam projects.

Dangers of DeFi ?

1) Variability in token value. This is the biggest risk of profitable farming. When farmers begin to collectively lose the consideration for their purchases, their value often collapses and their income decreases. In fact, hyperinflation occurs. Tokens flood the bazaar.

2) High fees. If you want to place tokens in the protocol or withdraw revenue, you must pay a blockchain fee (mining fee). On the Ethereum network, this exceeds $20 (as of May 2021). This is outside the range of transaction volume. That way, the fee can “eat up” the entire profit. Candidates can choose the DeFi protocol on inexpensive blockchains such as Binance Smart Chain.

3) Fraud. The hi-fi industry attracts numerous fraudsters who issue dummy tokens and entice traders with very high farm returns. The usual scheme is to wait for trading in the pool to “heat up” and the value of the tokens to rise, then eliminate all liquidity and disappear with the funds.

4) Plans are worth less. the majority of DeFi projects are nothing more than hype. They are copies of well known protocols and do not contribute a bit to becoming an industry. These platforms do not last long and traders tend to lose money.

How to get into DeFi ?

If you decide to try DeFi, you will need a cryptocurrency that supports the DeFi protocol, regardless of risk. For this, it is Tether (USDT), the world’s top stackable coin in terms of market capitalization.
It is not possible to get USDT with a card dedicated to the DeFi platform. The most lucrative and at the same time easiest way is to buy USDT with a bank card from a regulated crypto exchange, such as the FREE2EX crypto exchange’s Instant Exchange service. This requires a short registration, but despite the above you can buy USDT, BTC, ETH, and other cryptocurrencies of any size in seconds. 

Cryptonium Editors