DeFi, or Decentralized Finance, is a new way of doing finance. It’s built on top of blockchains like Ethereum and offers better interest rates, more use cases and more openness when compared to current centralized systems.
What is DeFi?
DeFi, or decentralized finance, is a term that refers to a class of software-based financial protocols and applications on the blockchain. These protocols are designed to allow users to interact with digital assets (such as cryptocurrencies) in more complex ways than just simple transactions.
For example, one DeFi project called Compound allows users to lend their cryptocurrency holdings for interest over time—essentially allowing them to make money by lending their coins and tokens when they’re not using them. You might find this useful if you have some spare ETH sitting in your wallet or on an exchange but don’t want to sell it just yet. By lending it out instead, you could earn interest while still keeping your crypto holdings safe from market downturns.
How Does DeFi Work?
- DeFi is a decentralized financial system.
- It’s built on top of blockchains like Ethereum, and it’s built on top of Ethereum itself.
- Because it’s decentralized, DeFi allows users to trade assets directly with one another without any middlemen taking a cut along the way.
How to invest in DeFi – 5 easy steps!
To get started investing in DeFi, you’ll need to pick a platform. A good place to start is the official website for any of the services listed below:
- Crypto.com – https://crypto.com/exchange/
- Defi Coins – https://deficoins.io/
- AQRu – https://aqru.io/
- YouHodler – https://www.youhodler.com/
Once you’ve chosen your platform, it’s time to choose a DeFi token that interests you! These can be broken down into three categories:
- Stablecoins (Tether, USDC) – These are cryptocurrencies that are pegged to fiat currencies like USD or EURO and as such do not experience price volatility as other cryptocurrencies do;
- Collateralized Debt Positions (CDPs) – These are Ethereum smart contracts backed by Ether collateral;
- Margin Loans – A loan where an investor borrows Ether from another investor on their platform at interest rates determined by supply and demand in order to short sell other assets or take long positions in others.
What are the advantages and disadvantages of DeFi?
There are many advantages to DeFi, such as:
- Decentralized. It is not controlled by any one entity or government; it’s open source and built on top of blockchain technology.
- Scalability. DeFi products can be used in ways that traditional financial instruments cannot (such as lending money to individuals or companies). Since they are digital, they’re able to scale easily without the limits imposed by physical assets like cash and gold.
- No middle man. Because there’s no central authority to process transactions, users don’t have to pay fees when they use DeFi products such as MakerDao (which allows users to lend their crypto assets in exchange for Dai tokens). This also means there will always be enough liquidity available so you can trade your assets at any time with no risk of defaulting on an agreement because someone else owes you money but won’t pay up until a deadline passes!
Decentralized Finance (DeFi), is a new financial system, built ontop of blockchains like Ethereum. It can offer better interest rates, use cases and openness.
In the old world of banking and finance, there are many middlemen in between you (the borrower) and the lender (the bank). These middlemen make a lot of money by taking a cut from each transaction. This includes credit card companies, payment processors like Stripe or PayPal and other service providers like exchanges where you buy or sell your bitcoin/ether etc.
DeFi removes all these middlemen by using smart contracts to connect borrowers directly with lenders who want to lend them money in exchange for interest payments every month or year until they’ve paid it off completely – just like how interest works when you deposit money in a savings account at your bank today!
This makes borrowing cheaper because there’s less overhead costs involved due to fewer transfers back-and-forth between parties involved before reaching consensus on whether something should happen or not.”
In conclusion, decentralized finance (DeFi) is here to stay. With its advantages over traditional finance, there is no doubt that it will continue to grow as a new financial system. This guide should have given you all the information you need on how DeFi works and how to get involved with it!