What is “DeFi Crypto”? – Defying old global finance
After reading the title, you might have wondered what the term “DeFi crypto” means. It may seem like a strange buzzword, but it’s far bigger than that. It may soon realize the original objective behind bitcoin and cryptocurrencies!
We will start by breaking down what DeFi crypto is, from its components to its use-cases. Then, we will compare it to the world’s current financial system. More importantly, we will explain how it may change your life and our society.
Despite the growing crypto trend, many people still do not see the point of cryptocurrencies. If you look closely, it’s changing many aspects of our lives. The DeFi crypto trends are the biggest proof, though, because they may realize the goal behind cryptos!
What does “DeFi crypto” mean?
This all started with someone known as Satoshi Nakamoto. In 2009, he released the concept for a decentralized financial system. At the heart of it is the first-ever cryptocurrency, bitcoin (BTC).
It was going to operate without the need for financial institutions. Instead, it was going to rely on a crypto network or blockchain. It was made of numerous computers spread across the world.
The blockchain didn’t have one central hub, though. Those computers or “nodes” belonged to regular people, and their machines would confirm BTC transactions.
In return, those operators earned more bitcoin. They became known as miners, and their activity is called mining, which wouldn’t trend until more than 10 years.
In August 2018, the term “DeFi crypto” came out of a Telegram chat. Brendan Forster of Dharma, Inje Yeo of Set Protocol, and Blake Henderson of 0x were in it.
They were deciding what to call the financial applications that run on the Ethereum blockchain. That’s when they came up with the term “decentralized finance (DeFI).”
It refers to financial applications made with blockchain technology. Aside from being decentralized, it has other characteristics. Read more details below:
- Non-custodial – Banks or similar institutions won’t have custody of other peoples’ money. Instead, folks will have full control of their assets.
- Open – DeFi crypto goes beyond borders. No matter where you are, you can access it.
- Transparent – People may see where the money is going. The bitcoin network has a public ledger where everyone can see all the transactions.
- Composable – You may build on other DeFi applications to put your upgrades. Also, you may copy their codes and build a new DeFi project with those. In turn, the system keeps improving, and everyone shares in its development.
What makes up DeFi crypto?
It’s a new financial system for the world. This means DeFi crypto has a lot of parts. Let’s take a closer look at each one below:
- Decentralized exchanges (DEXs) – These let people trade digital assets while still holding them. Automated market makers are a major example, and it uses smart contracts and liquidity pools to make it easier to buy and sell crypto assets. Uniswap (UNI) provides a great example of these DeFi protocols at work.
- Aggregators – These are DeFi crypto platforms that let people move crypto assets between yield farming platforms. This allows users to earn as much interest as they can.
- Wallets – It comes in three forms: software, hardware, and exchange. The first includes browser extensions and smartphone apps like MetaMask. The second ones are also called hard wallets that offer the best security, and the third comes from crypto exchanges like Binance.
- Decentralized marketplaces – It lets people buy and sell without a central authority. You may look at the Binance NFT marketplace as a good example.
DeFi crypto vs. traditional finance
🎉 Today marks the 1st year since #DeFi was conceptualized
It's inspiring to see all of the progress that's been made by everyone in just a year
This was a brainstorming session including @brendan_dharma, @HendoVentures, and me when we were deciding what to call the movement
👇 pic.twitter.com/mkjaWeYYB4— Inje (@injeyeo) August 1, 2019
You might be wondering why you’d need this new system. What’s the problem with the current one? Well, let’s go through each one of its issues:
- You have to share sensitive details.
- It’s unfair to those who don’t have a bank account.
- The system may take down the markets and stop payments at any time.
- Processing transactions take days.
- Operating hours are limited. For example, banks are open only at certain hours, and if you need to use it outside that time slot, you’re out of luck. While apps allow 24/7 service, they’re limited and closed off to those who can’t use apps.
Meanwhile, DeFi crypto takes care of all these problems. Learn more about how it improves on the current system below:
- You don’t have to share personal info.
- You hold your funds, which means you don’t lose them if the system has problems.
- People don’t have to worry. The system will do what it says it will. It uses smart contracts that will work if and only if certain conditions are met.
- Finish transactions within seconds.
- The decentralized applications work 24 hours a day, 365 days a year.
Read More: Decentralization For Blockchain And Finance
What are the uses of “DeFi crypto”?
We’re clear about what this new system is. Now, let’s talk about how it’s used. If you look hard enough, you’ll see several examples, and let’s explore some of them below:
- Lending platforms – It allowed the rise of crypto lending. It’s a quick way of borrowing money with cryptocurrency as collateral, and you also get low-interest rates and no credit checks. What’s more, it enables flash loans that provide quick cash without collateral.
- Stablecoins – These are cryptos with their value tied to a physical asset. USDt (Tether) is the most well-known. Some people have issues with crypto due to their wild price movements, and they prefer these because of the consistent price.
- Tokenization – This involves representing physical assets with crypto, such as real estate. Or it may involve financial products like stocks. Tokenization makes them easier to buy and sell, and people won’t have to go through a long process.
How does this affect me?
Don’t defy DeFi
— Elon Musk (@elonmusk) March 25, 2021
As we said, DeFi crypto is changing your world even if you don’t realize it. Let’s take a closer look at how it is doing this below:
- New kind of money – Central banks responded to cryptocurrency by making Central Bank Digital Currencies or CBDCs. Your country might be making one too. Soon, you may say goodbye to leather wallets, paper bills, and metal coins. In a few years, everyone will keep their money in their phones.
- A new way of banking – You may find yourself borrowing and lending cryptos soon. The financial services we talked about, like flash loans, may enter the mainstream.
- New kinds of jobs – Because of the crypto trend, we now have blockchain jobs. They’re one of the hottest positions in the job market right now. Click here to see our picks.
- A new normal – Our world won’t be the same because of these trends. If you need clues on how post-COVID life will be like, this is one of them.
Final thoughts
Knowing about DeFi crypto trends is just a start. It would help if you learned even more about cryptocurrencies. After all, they’re at the center of this system.
This means reading about cryptos besides bitcoin. See how the DeFi tokens like Uniswap (UNI) work too. Then, learn related terms such as market capitalization and trading volume.
You may learn more about these from the other Inquirer USA articles. They provide an overview of various cryptos. What’s more, the articles show the latest issues regarding these assets.
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Learn more about DeFi crypto
How do you make money with DeFi?
You may earn from DeFi with yield farming, staking, and crypto lending. The first lets you earn by investing in crypto exchanges and staking by helping a crypto network run. If you know what you’re doing, you may earn from crypto lending.
Does DeFi have a future?
No matter what happens to the DeFi crypto trend, it has already left its mark. If the central banks take them down, they’ve caused the rise of CBDCs. If DeFi prevails, people around the world will benefit from its features. What matters is that you take part in that future.
What are the best DeFi investments?
Uniswap is one of the most popular DeFi investments right now. However, we suggest you look into the available options yourself. This article is not meant to share financial advice. And instead, it informs you about these assets, so you can plan investments on your own.
