Decentralized Finance (Defi)
We know that Bitcoin brought about the decentralized sending of money from peer to peer but then, there is more to decentralizing finance than sending money from one person to another without the need of a bank as an intermediary. The centralized financial system has more to do with finance such as lending, insurance, savings plans, and the stock market makes up the financial system but then how do we decentralize this? Decentralization is the answer and that is where Defi comes in.
Defi is a financial platform that uses smart contracts to handle financial processes such as loans, savings, and other financial activities. In this post, I will be writing on a few Defi platforms built on the Ethereum blockchain, they are;
Maker DAO is a decentralized financial platform that lends users money. Maker DAO lends users its native currency DAI which is a stable coin pegged to nearly a dollar. All though Maker DAO has two tokens; DAI and MKR. DAI is stable and used for getting loans when Ethereum is locked as collateral, MKR is staked for governance purposes. Maker DAO has over the years become one of the most populous Defi platforms on the Ethereum blockchain. DAI is created when Ether is staked but they can only lend up to 2/3 of the total ETH staked. When the DAI is returned, the DAI is burned and the user pays MKR as interest. Since DAI is backed by debt, there is no excess DAI in supply and the exact amount of DAI borrowed will be returned as principal while MKR is paid as interest thereby making the DAI coin stable.
While DAI is used for lending purposes, MKR is used for DAO (Decentralized Autonomous Organisation) governance. With this, there is autonomous voting where decisions of interest, number of DAI to be given as principal.
Compound Finance is a lending protocol Defi built on the ethereum blockchain. It allows for the borrowing of crypto assets as well as give interest on lending asset.
Compound Finance uses automate the storage and management of funds on the platform with smart contract. The platform supports the lending and borrowing of a tokens such as ETH, WBTC (Wrapped Bitcoin), USDC, DAI, USDT, ZRX, BAT, and REP.It can be accessed with Metamask, Coinbase, or any other Web 3.0 wallet.
Synthetix is a decentralized finance platform running on the Ethereum blockchain. It is a decentralized exchange (DEX ) and everything is done with a smart contract. The exchange also has its native stable asset known as Synths and it also serve as finacial instruments giving users to several assets in a decentralized manner like sAU, sBTC, sUSD and so on, they can also short the asset with assets known as inverse synths eg iBTC, iAU,iBNB, IETH etc.
With Synthetix, there is a staking mechanism that allows users to get rewarded for staking their coins in the protocol for liquidity and stability. Staking SNX token can serve as collateral to Mint Synths.
It is an exchange protocol built on the ethereum blockchain and integrated into the OX protocol. The protocol allows for decentralized lending, and margin trading services which includes shorting, leverage, lending, and borrowing. The idea of bZx was formed by Tom Bean and Kyle Kistner in 2017.
Uniswap, being one of the most populous Defi on the Ethereum blockchain. It is a a protocol built on the ethereum exchange where users can swap ERC-20 tokens amongst themselve. FOunded in November 2, 2018 by developer Hayden Adams. The protocol rewards people for staking into the liquidity pool solving the liquidity problem of centralized exchanges.