Decentralized finance, or “defi” in short, has taken World Crypto and Blockchain with a storm. However, the resurrection recently covered its roots in the era of the 2017 bubble. While all their people and dogs conduct “initial coins offer” or ICO, some companies see the potential blockchain far exceeding price increases. These pioneers imagine a world where financial applications from trading to savings to banks to insurance will all be possible only on blockchain without intermediaries.
To understand the potential of this revolution, imagine if you have access to a savings account that produces 10% per year in USD but without banks and practically there is no funding risk. Imagine you can trade plant insurance with a farmer in Ghana sitting in your office in Tokyo. Imagine being able to become a market market and get fees as a percentage desired by each fort. It sounds too good to be true? No. This future is already here.
Block Defi Building
There are several basic defi building blocks that you must know before we move forward:
The automatic market makes or exchanges an asset for others without hesitation without intermediaries or cleaninghouse.
Giving loans that are too high or able to “place your assets to use” for traders, speculators, and long-term holders.
Stablecoins or algorithmic assets that track the underlying price without being focused or supported by physical assets.
Understand how defi is made
Stablecoins are often used in defi because they mimic traditional fiat currencies like USD. This is an important development because the history of Crypto shows how volatile it is. Stablecoins like DAI designed to track USD values with small deviations even during strong bear markets, i.e. Even if the price of Crypto crashes like the 2018-2020 bear market.
The loan protocol is an interesting development that is usually built on Stablecoins. Imagine if you can lock your assets worth one million dollars and then borrow it at Stablecoins. The protocol will automatically sell your assets if you do not repay the loan when your guarantee is not enough.
Automatic market makers form the basis of all defi ecosystems. Without this, you are stuck with a heritage financial system where you need to trust your broker or clearing or exchange. Automatic market maker or brief AMMS allows you to trade one asset for another based on the reserve of assets in the pond. Price discoveries occur through an external arbitration. Liquidity is collected based on other people’s assets and they get access to trading costs.
You can now get exposure to all assets in the Ethereum ecosystem and without having to interact with the world of traditional finance. You can make money by lending an asset or become a market maker.