Beginners Guide to Blockchain Part IV: What is DeFi?
So, if you’ve been following my “Beginners Guide to Blockchain” you already know what is bitcoin, what is the blockchain and what is Ethereum (if you haven’t I’d highly suggest you read all of the previous articles to gain a bit more context before reading this one).
Now, it’s time to talk about DeFi: What is DeFi exactly?
DeFi stands for Decentralized Finance, an umbrella term that covers a wide variety of web Dapps (decentralized applications) and apps focused on providing financial services like exchanging cryptocurrencies, lending cryptocurrencies, staking, yield farming, and more. Before the term DeFi was coined it was usually know as “Open Finance” but DeFi sounds way cooler apparently.
Basically, DeFi, is the crypto-world learning to provide every single service traditional centralized banks provide but faster, cheaper and easier to access for everyone around the world.
DeFi had a big breakthrough upon the creation of smart contracts in the Ethereum blockchain and a lot of the bigger DeFi dapps are built in that same ecosystem.
Here are some of the most popular typo of DeFi apps available:
- Decentralized Exchanges (DEXs): While regular exchange platforms like Coinbase or Binance allow users to exchange one type of cryptocurrency for another one or even convert them into FIAT money — DEXs allow users to do that same thing without an intermediary, no CEO, no fees, no BS. Some popular DEXs are Uniswap and Pancake Swap.
- Stablecoins: Cryptocurrencies that are attached to the value of FIAT currencies to remain “stable”. Some of the most popular stable coins are USDT and BUSD.
- Lending Platforms: Platforms where you will usually deposit or stake some type of cryptocurrency and receive a loan for it. Once you pay back the loan you get your staked coins back. Some popular lending platforms are AAVE and MakerDAO.
In addition to these apps, this new DeFi concepts have sprung up around them and you should probably take note of them. I’m literally copying and pasting this next part from this great article from CoinDesk so credit to them.
- Yield farming: For knowledgeable traders who are willing to take on risk, there’s yield farming, where users scan through various DeFi tokens in search of opportunities for larger returns.
- Liquidity mining: When DeFi applications entice users to their platform by giving them free tokens. This has been the buzziest form of yield farming yet.
- Composability: DeFi apps are open source, meaning the code behind them is public for anyone to view. As such, these apps can be used to “compose” new apps with the code as building blocks.
- Money legos: Putting the concept “composability” another way, DeFi apps are like Legos, the toy blocks children click together to construct buildings, vehicles and so on. DeFi apps can be similarly snapped together like “money legos” to build new financial products.
So that’s it. Now you know about the world of DeFi. As I’ve mentioned before these articles are supposed to give you a brief insight into each of the different branches that have sprung out of the “crypto-tree” in the last years, however each one of them deserves at least it’s good 20–40 hours of study.
As always, do your own research, stay safe in this crypto jungle and if you need more tips and up to date advice, follow me on social media @thechrispace pretty much everywhere.
Chris Pace.
