Homework Task: Write on a Decentralized Finance Ecosystem as well as a Project/Protocol in the Ecosystem.
I will discuss on the DeFi Lending Platform.
Decentralized Lending Platform
The decentralized Lending protocols unlike the traditional banking system provide loans borrowers with no intermediaries. These DeFi lending protocols allows everyone to collaterize their assets and earn interest on supplied stable coins and cryptocurrencies.
How does it work?
A lender may deposit his crypto-currency assets or even Fiat currency which he uses to buy crypto-currency in the lending platform say for example Aave, where he receives aTokens and receives interests on his digital assets. The lender may not want to sell his assets but needs a loan which is an approved percentage of his asset with the lending platform.
They may need the loan to execute as margin trading on the open market, acquire a token which they hitherto did not have for liquidity mining or even for emergencies in which they need cash.
Aave Lending Protocols
This booming protocol that was launched in 2020 and has Stani Kulechov as the founder and CEO, boast of about 20 employees, has its headquarters in London and is now rated as one of the top three lending protocols in the DeFi lending space.
This protocol issues Aave interest bearing tokens (aTokens) which is minted by a smart contract and gives an equivalent amount of tokens with the deposited asset. The aTokens are distributed to investors and held by the lender. These tokens can be transferred, stored or even traded while the underlying asset is loaned out.
The interest rates are algorithmically adjusted based on demand and supply which portends a higher interest rate based on the amount of aToken held. Aave also allows users to switch between variable and stable interest rates which puts the investor at an advantage.
A unique feature is that it re-uses locked assets within the ethereum ecosystem instead of only focusing on the sum total of the locked amount of assets.
Aave has flash loans which favours developers to borrow undercollaterized loans instantly without needing to submit any collateral as long as the liquidity is returned as a single transaction.
Is Aave Safe?
According to the founder Stani, Aave takes security seriously and did an audit throughout the whole development phase to prevent any loopholes in the code base.
In addition, Open Zeppelin did an audit of the lending protocol plus a security report is published bi-weekly to keep investors informed.
DeFi is here to stay and the lending platform is becoming readily adapted to since it is offering transparency with easy access to assets for money transfers without involving third parties.
I a member of steemalive and this is my introductory post