WTF is DeFi?
And why are people making so much money from it?
Here is how Decentralized Finance works in the crypto world.
This article was inspired by our friends at Whiteboard Crypto. Click here to check out their videos!
In centralized finance, banks and governments control the flow of money.
They can print more money, stop people from borrowing, and charge high interest rates.
Decentralized finance uses pieces of code to act as a bank.
Coins that are tied to real world assets (ie. Dai, Tether).
instead of buying and selling with US dollars, use stablecoins to avoid fees and complexities.
In crypto, people need to "overcollateralize" (give more than they're borrowing).
this allows people to use money without losing value of their original collateral.
Instead of going to a bank, decentralized exchanges (DEXs) allow people to exchange money from a pool of money gathered from individuals.
they are operated through code so there is no central authority and there are lower fees.
Smart contracts can automate insurance systems to verify conditions and pay people.
Margin trading involves using loans to buy and sell stocks.
In DeFi, margin trading is faster, open to anyone in the world, and safer.
MakerDao: creator of Dai (stablecoin)
Compound: DeFi lending platform
Aave: DeFi lending platform
Uniswap: Decentralized Exchange
PancakeSwap: Decentralized Exchange
SushiSwap: Decentralized Exchange
Matcha: DEX aggregator
Their videos are the best for learning about crypto. Click here to check them out!
Try buying a stablecoin. Contribute funds to a pool. Swap coins on Uniswap. Get familiar with these platforms by participating in them.
OlympusDAO spearheaded the way to DeFi 2.0 (we'll write about this soon). Others are claiming to have made DeFi 3.0. What other innovations are possible in Decentralized Finance?