DeFi is short for Decentralized Finance. Its Financial software built on the Ethereum blockchain protocol which can be put together and apart like a puzzle. The idea is to simplify the way we bank and to a certain point, for anyone to become their own bank. There are more than 1.7 billion adults in the world that are unbanked. DeFi technology allows anyone to borrow, lend and do other financial activities without the need of a middle person.
Paypal was, perhaps the first application to be mass adopted with similar features. DeFi open access to millions of people around the world to be able to store and exchange money, but this is just the beginning. DeFi applications can be put together like lego pieces to create smart contracts and other more complex financial instruments. DeFi reached $12.38 billion in October of last year according to DeFi Pulse and the DeFi craze in September generated more than $16 million just in transaction fees alone on Ethereum.
The possibilities of DeFi currently are still in discovery mode, with new lending and borrowing platforms on the rise. Other platforms such as staking, yield farming, insurance and tokenized assets are made possible — paving way to an enormous potential for people to invest and earn like never before.
DeFi is code distributed across a decentralized network, they can never be shut down or denied to anyone with an internet connection and the need/desire to use it. The largest organization in DeFi at the moment is MakerDAO, a decentralized organization built on Ethereum to allow lending and borrowing of cryptocurrencies without the need for a middle man.
What can you do with DeFi:
- Borrow: You can permissionlessly borrow against your crypto in lending protocols like Maker and Compound, with no paperwork or brick-and-mortar appointments required!
- Lend: On the opposite side of borrowing, you can lend your crypto in order to earn interest. Perhaps not very profitable right now, but many other lending instruments and ideas are being added daily. The infrastructure is here to stay, sky is not a even the limit.
- Liquidity Provider: DeFi applications allows you to become a liquidity provider and earn fees of up to 20% in the process. The most popular LP protocols at the moment are Uniswap and Sushiswap.
- Yield Farming: It involves lending out cryptos via DeFi protocols in order to earn fixed or variable interest. The rewards can be greater than traditional investments, but in the crypto volatile market, the risks are enormous.
- Buy/Trade NFTs: Im sure by now, you have heard of the craze around NFTs. DeFi has made the minting of assets (i.e art, photos, sports moments) possible as well as the trading of these NFTs.
- Cash Out: If you decide to be out of the game, or need to turn some of your crypto into fiat. Then DeFi platforms can assist you very easily to cash out.
As we are aware, this technology moves so fast that every second there are new ideas being executed in the DeFi world and more money is entering the space. We are not providing investments advice and recommend reading and learning very well about any protocol that you are interested in before entering the market. This is an amazing opportunity for the underbanked and for those who wish to simplify transactions with mechanisms in place by which all parties in the system can reach a consensus on what the canonical truth is.