Decentralized finance, DeFi, is an umbrella term that includes Ethereum and blockchain-based applications aimed at disrupting financial intermediaries. The blockchain technology used by DeFi is inspired by bitcoin, which allows several entities to hold a copy of a history of transactions, so it cannot be controlled centrally. This is important because centralized systems and human gatekeepers may limit the speed and sophistication of transactions and allow users to have less direct control over their money. By extending the use of blockchain from simple value exchange to more complex financial transactions, DeFi is unique.
Ethereum applications
Almost all decentralized apps called DeFi are built using Ethereum, the world’s second-largest cryptocurrency platform. Ethereum differs from the Bitcoin platform in that it makes decentralized applications easier to build than simple transactions.
How much money does DeFi have?
The decentralized finance industry is booming, parallel to the growing interest in cryptocurrencies. Well, according to the analytics and rankings site DeFi Pulse, there’s around $90 billion locked up in DeFi at present.
Most significant DeFi coins?
Avalanche’s native coin is AVAX. It is used to pay transaction fees as well as stakes to secure the network. AVAX’s total supply is 720 million coins, with approximately 31% in circulation today. For staking AVAX as a validator, an annual interest rate of up to 11% can be earned.
Terra Luna: Luna is the Terra protocol’s staking token that absorbs the price volatility of Terra stablecoins, just as it is used for governance and mining. Luna users stake Luna tokens to Terra blockchain miners (called “validators”). These miners record and verify transactions on the blockchain and receive rewards from transaction fees.
Is investing in DeFi safe?
DeFi is considered the future of finance, and early investment could yield very large returns. However, newcomers have difficulty distinguishing good projects from bad ones. And, there have been plenty of bad ones. DeFi offers a wide variety of investment opportunities and continuous growth, making it an attractive and potentially very lucrative investment. However, there are risks, as with any investment, so market participants must be informed before investing.
The most popular types of DeFi applications include:
Decentralized exchanges (DEXs): Exchange sites allow users to sell their currencies for other currencies, whether it is U.S. dollars for bitcoin or ether for DAI. A DEX is a type of exchange that lets users trade cryptocurrencies directly between them without trusting an intermediary with their money.
Stablecoins: A cryptocurrency that’s tied to an asset outside of cryptocurrency (the dollar or euro, for example) to stabilize the price.
Lending platforms: The platforms replace intermediaries such as banks who manage lending in the middle with smart contracts.
Wrapped bitcoins (WBTC): WBTCs enable users to earn interest on the bitcoin they lend out via decentralized lending platforms such as Ethereum’s DeFi system. Users can send bitcoin to the Ethereum network to use directly in Ethereum’s DeFi system.
Prediction markets: Prediction markets are used to bet on future events, such as elections. The goal of DeFi versions of prediction markets is to provide the same functionality without intermediaries.
