Decentralized Finance: An Overview

6 Dec 2021

DeFi, or decentralized finance, is currently the hottest discussion in the world of crypto. In this article, we will speak about DeFi and what makes it so powerful. 

The DeFi movement is a certain genre of financial product that puts decentralization above everything else. The world of decentralized finance revolves around the multitude of non-custodial financial products created on the basis of highly-lucrative and highly-experimental projects that have caught the attention of big companies and venture capitalists. 

The processes behind DeFi

As of today, the most successful DeFi projects are lending protocols Makes, Aave, and Compound. With these protocols, users can borrow crypto within seconds; the loans are often pretty large, especially if they can prove that they can pay the loan back in a sole transaction. It is also possible to earn interest from lending crypto. Two principles define DeFi protocols: they must be decentralized and non-custodial. 

Non-custodial implies that nobody manages your crypto but you. It is very different from depositing money in your bank account. When you deal with DeFi protocols, you are always in control of your crypto assets. 

Decentralized implies that the power over smart contracts was devolved to the community. The creators of these protocols allow users to vote on the future of the network. 

Getting started with DeFi

The first step is to get a wallet that supports Ethereum and allows connection to different DeFi protocols through a browser. Among the most popular options is MetaMask. The next step is to buy relevant coins for the DeFi protocol you would like to use. At the moment, most DeFi protocols exist on Ethereum, which means that you need to buy ETH or ERC-20 coins to use them. Now you are ready to play the DeFi game; there are many ways to do that. 

One way is to lend your crypto. The simplest way to get the best deal is through You can become a yield farmer and earn governance tokens by lending out your crypto assets. 

A second way to play is to place your assets in a decentralized exchange, like Uniswap, and earn fees by acting as a market maker. 

Third, you can choose to invest in experimental DeFi projects, like Based.Money, where token price rebases on a daily basis, or the popular collection of volatile meme tokens like $SHRIMP, $YAM, $KIMCHI, etc.

The potential of DeFi 

It is difficult to predict the future of DeFi. However, there are several directions where it may go.

DeFi might expand to more blockchains. Ethereum harbors all the major DeFi projects, while other blockchains build new projects. So these are the things that will likely take place. 

  • DeFi projects will be more interoperable. 
  • DeFi will extend its reach to other blockchains.
  • DeFi will interact with centralized finance. 

One thing is for certain, the DeFi space will continue to grow and offer more and more lucrative opportunities for crypto enthusiasts. Read our blog to stay informed about the crypto realm, and reach out if you have any ideas we can help you embody. 

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