DeFi: A Beginner’s Guide

Instead of going to banks and other financial intermediaries, DeFi brings peer-to-peer financial services to people and businesses. Anyone with a smartphone or access to a computer can use DeFi. A number of products are available today that include borrowing, lending, and exchanging cryptocurrencies, though the potential applications go way beyond existing examples and people are just beginning to explore how best to apply them.

Traditional financial institutions are being disrupted by decentralization every day. The decentralization of finance (DeFi) is leading the charge. DeFi platforms use blockchain and other technologies to save money, increase security & privacy for users, democratize finance for all, remove intermediaries, and introduce a wider range of products than what was previously offered by FI.

The Ethereum platform, along with its smart contract development language Solidity, is the most popular and widely utilized DeFi development platform without question. If you decide to learn how to code for DeFi, you’ll find learning and using Ethereum’s smart contract language Solidity easiest.

Use Cases:

Decentralized exchanges (DEXs):

Decentralized exchanges are the future of crypto trading. They connect buyers and sellers directly to each other, allowing them to trade digital assets in a peer-to-peer manner without relying on a third-party intermediary, such as a crypto exchange.

Stablecoins:

Stablecoins are a must-have for any serious crypto trader. They’re digital assets pegged to a fiat currency or a non-digital asset to stabilize the price (like gold), removing the volatility often associated with digital currencies. This makes them perfect for trading, sending funds, and making online purchases.

Lending platforms:

Blockchain lending platforms are revolutionizing the way we borrow and lend by creating a whole new realm of possibilities in decentralized, peer-to-peer lending. With a blockchain-powered loan, there is no need for any intermediary such as a bank or financial institution. Rather than paying fees to big banks, borrowers can access loans with more transparent terms, better interest rates, and receive their funds in minutes — all on the blockchain.

“Wrapped” bitcoins (WBTC):

The WBTC standard is a way to wrap Bitcoin as an ERC-20 token to make it compatible with the Ethereum DeFi ecosystem. In other words, it enables users to transfer Bitcoin (and use it on DeFi apps) on the same platform where they already use Ether. This allows users to earn interest on the bitcoin that they lend out via decentralized lending platforms.

Prediction markets:

Decentralized prediction markets are an interesting blockchain application. They are marketplaces for betting on the outcome of future events, such as elections. The goal of DeFi prediction markets is to offer the same functionality but without the middleman. The participants in these markets set their own terms and regulate the smart contracts.

Risks:

The magic of decentralized finance (DeFi) is a secret to no one these days. Collectively, the value locked in DeFi has eclipsed lofty expectations, with the digital ledger system known as Ethereum the winner thus far. DeFi users and fans are understandably excited about the potential for this technology and its growing foothold in modern financial ecosystems. However, it is important to highlight that Defi is still highly experimental and admittedly not for everyone. The DeFi space is evolving so rapidly that it is difficult for traditional investors to keep up. The speed at which new protocols are launched creates a risky investment environment, and many portals are scams. However, there are well-established Defi projects which greatly increase the potential for return.

All in all, we believe that Decentralized Finance is just getting started. As the industry expands and we see more and more organizations capitalize on the potential of our ecosystem, the financial lives of millions throughout the world will be improved forever. We hope you’ll join us at AscendEX in promoting DeFi and helping build our future.