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What is DiFi? Introducing the Defi project, currency and tokens

 What is DiFi? Introducing the Defi project, currency and tokens


DeFi can be considered an emerging financial technology on the blockchain, which was created with the aim of removing middlemen in financial transactions.

Defi stands for "decentralized finance", an umbrella term for a variety of cryptocurrency or blockchain financial programs designed to cut out the hands of financial intermediaries. DiFi uses blockchain; The same advanced technology found in the Bitcoin digital currency allows multiple entities to keep a copy of the transaction history and is not controlled by any single, central source. This is an important feature because centralized systems and human intervention can limit the speed and complexity of transactions while giving users less direct control over their money. DeFi is a distinct financial system because it extends the use of blockchain from a simple transfer of value to more complex financial use cases. To learn more about this financial technology, read the rest of the article.

What is the DeFi platform?

DeFi platforms allow people to lend or borrow from others, analyze asset price changes using derivatives, insure against risks, trade cryptocurrencies and earn interest on savings accounts. DeFi uses layered architecture and composable block structures.

What is meant by decentralized or centralized finance?

Centralized finance is a form of financial practice in the field of digital currencies, where users can earn and borrow through a centralized platform on their digital assets such as Bitcoin, Ethereum, USD coins such as USDT and USDC, etc.

On the other hand, decentralized finance (DeFi) can be considered a newly emerging financial technology based on a secure ledger, similar to those used in cryptocurrencies. This system will remove the control of banks and institutions over money, financial products and financial services.

Advantages of decentralized financial systems

DeFi offers stable use cases, many of which are beyond the reach of conventional fiat-based financial systems. Here are some of the benefits of DeFi:

  • Anyone with a crypto wallet and an internet connection can access DeFi services, regardless of where they are. Users can also make a variety of transactions and move their assets wherever they want without waiting for bank transfers or paying conventional bank fees (although other crypto-specific fees, such as gas fees, may apply).
  • The blockchain infrastructure is updated at the moment the transaction is completed and the interest rates are updated several times per minute.
  • Every transaction on the Ethereum blockchain, which accounts for more than 90% of all DeFi traffic, is broadcast and verified to other users on the network. This level of transaction data transparency ensures that all users can view network activity.
  • Users can protect their assets by using decentralized crypto wallets or through smart contract-based escrow.
  • Smart contracts are highly programmable and can be designed to automatically execute based on an unlimited number of variables.
  • DeFi data is tamper-proof, secure and auditable thanks to the use of blockchain architecture.
  • Many DeFi protocols are open source. Ethereum and other projects are built with open source code and are available for everyone to view, inspect, and develop. Developers can easily connect multiple DeFi applications built on open source technology to create new financial products and services, without the need to obtain licenses.

What is the role of blockchain in the implementation of DeFi projects?

DeFi refers to financial applications built on blockchain technology that enable digital transactions between multiple users. Blockchain is basically a public ledger for digital assets including digital currencies.

The emergence of public blockchain networks such as Ethereum has enabled peer-to-peer transactions of value to be programmed based on a set of conditions through smart contracts. These contracts are simply pieces of code that are deployed and executed on the blockchain.

How to use defi?

Most DeFi protocols are built on top of networks such as Ethereum or the Binance smart chain, and the number of competing blockchain networks supporting smart contracts is increasing. Before deciding to use services in DeFi, you need to choose a network of your choice.

Most major protocols now support different blockchains, and the difference between them is often ease of use and transaction fees. Networks like Ethereum, Binance, and Polygon are all accessible through wallet plugins like Metamask, and only a few parameters need to be changed to switch networks.

These wallet plugins basically allow users to access their funds directly in their browsers. They install just like any other extension, and often require users to either import an existing wallet via a seed phrase or a private key, or create a new wallet. They are also password protected for added security.

Additionally, these wallets often have mobile apps that can be used to access DeFi projects. These apps are wallets with built-in browsers, ready to interact with DeFi apps. Users can synchronize the wallets they have created on different devices using seed or private key.

To make things easier for users, these mobile apps often integrate the open source WalletConnect protocol as well. Such a protocol allows users to connect their wallets to DeFi applications on desktop devices by simply scanning a QR code.

Before we begin, it's worth noting that the DeFi space is in an experimental phase and comes with a lot of risk. Offshore scams, fake projects, and other common scams are always around, so be careful with your money by doing enough research.

Buy crypto

DeFi applications are built on networks, and each network has its own native tokens that are easily identified by the symbol they use on exchanges: Ethereum (ETH), Polygon (MATIC), Binance Coin (BNB), etc.

These native tokens are used to pay for transactions on these blockchains, so you'll need some to move funds around. The choice is yours whether to buy only these native assets, or to add stablecoins or other assets before exploring DiFi.

After purchasing funds on a centralized exchange, you must transfer them to a wallet that supports that network. Be careful not to transfer funds to the wrong network, so make sure you're using the correct network before withdrawing.

Some exchanges allow users, for example, to deposit Bitcoin (BTC) to an Ethereum address or Ethereum to the Binance smart chain. These withdrawals are for encrypted versions of BTC or ETH on those networks that can be used in DeFi.

Every transaction on DeFi protocols must be manually verified and transaction fees paid, so it's important to choose a network with low transaction fees.

What are DeFi services ?

After choosing an application to interact with and fund a wallet, it's time to start using DeFi services. The simplest actions are to either provide trading and liquidity using a decentralized exchange (DEX) and charge fees, or lend funds using a lending protocol.

To start using a wallet compatible with DiFi protocols, all you have to do is visit the website of these protocols and connect your wallet to them. This is done either through a pop-up window or through the button in the top corner of the website that says "connect".

Connecting your wallet is the same as logging into the service using your account, except that you use your wallet address instead. Before lending, borrowing, or trading tokens in DeFi protocols, you must activate each token individually so that the protocol can access them in your wallet. This connection process requires a small fee.

Advantages of DiFi

The main advantages of using DiFi are:

  • easy access

DeFi transactions are done without any geographical restrictions. In other words, although in traditional finance some people cannot have a bank account or get a loan, with the DeFi platform anyone with an internet connection can access their account.

  • transparency

One of the main features of blockchain technology is transparency. All transactions, data and code in the blockchain are public. This level of transparency creates trust among users.

  • security

Without the intervention of central authorities, users do not need to worry about the security of their funds because they will always be in full control of them. However, it should be kept in mind that as with any new technology, there is always some risk associated with its use, but no more so than traditional financial risk!

  • Interoperability

In the blockchain world, interoperability is when two blockchain systems can communicate with each other and exchange currency value. Although DeFi platforms still have a long way to go, they can interact with each other with complete security.

  • Programmable

DeFi platforms eliminate any level of intermediaries and human intervention. Business rules in blockchain-based smart contracts will be automated and executed without the need for manual intervention.

Risks and disadvantages of defi

DeFi offers new and promising financial freedoms, but these freedoms come with many risks. Some of these risks are:

  • DiFi technology is still immature and has not yet been tested over a long period of time. There is a possibility that your funds will be lost or compromised. For example, the DeFi platform Compound recently found a serious flaw in which millions of dollars of cryptocurrency were accidentally sent to customers.
  • DiFi has thrived without rules and regulations. This means that users usually have little or no protection when things go wrong. No government reimbursement scheme covers DeFi, and there are no laws to enforce capital reserves for DeFi service providers.
  • While there is always a risk of hacking in traditional finance, the developed technological architecture of DeFi, with multiple possible penetration points, increases the possibility of a so-called cyber attack. For example, in August 2021, “white hat” hackers exploited a smart contract vulnerability and stole $610 million from DeFi platform PolyNetwork. Fortunately, all funds were returned.
  • Almost all DeFi lending transactions require collateral of at least 100% of the loan value. These requirements severely limit the eligibility of many types of DeFi loans.
  • With DeFi and cryptocurrency, users need to secure the wallets used to store crypto assets. This is a basic requirement for private investors and institutional investors who use multi-signature wallets. To do this, private keys are used, which are long and unique codes. In this way, if a private investor loses his key, he will lose access to his funds forever.

The best DiFi projects in 2022

DeFi appeared when people were looking for new ways to manage their finances. Thus, decentralization entered the realm of transparent and somewhat unreliable financial services. Compared to the centralized banks that we are currently familiar with, this decentralization of blockchain technology could turn the financial world upside down.

So, whether you are a crypto enthusiast or a blockchain technology beginner, you might want to know more about DeFi and its top projects. In the following, we will get to know some of them.

Uniswap project

IonSwap is an innovative decentralized exchange protocol built on top of Ethereum. In general, Uniswap can be considered an automatic liquidity protocol that does not require any order book or centralized guild for its operation. Thanks to the contracts built into its protocol, UniSwap can allow users to trade without any intermediaries and achieve a high level of decentralization and resistance to censorship.

You might ask yourself, how can transactions happen without an order book? UniSwap has developed a protocol that relies on liquidity providers creating pools of liquidity, then offering that liquidity across the platform, allowing users to seamlessly switch between any type of ERC-20 token. All this is done without the need for an order book.

Since the Uniswap protocol is completely decentralized, there is no real listing process like a centralized exchange. As long as the liquidity pool is available, any ERC-20 token can be launched for trading on the UniSwap platform. Because of this, Uniswap does not charge any listing fees, making it a must-have resource for new or smaller ERC-20 projects.

Terra project

Terra is a blockchain protocol and payment platform used for algorithmic stablecoins. This project was created in 2018 by Terraform Labs; A startup founded by Do Kwan and Daniel Shin . The project is best known for its Terra stablecoin and its associated reserve asset cryptocurrency Luna. In May 2022, the Terra blockchain was temporarily halted after the collapse of the stablecoins TerraUSD (UST) and Luna. The event wiped out approximately $45 billion in market value in one week.

Terra uses fiat stablecoins to power the payment system and a proof-of-stake token for public satisfaction. Because of Terra's infrastructure and the DEP system, several stablecoins have been built on top of its protocol, including TerraUSD, which was the third largest stablecoin by market capitalization before the collapse in May.

Decentraland project

Dicentraland is an online space that combines virtual reality with blockchain technology. Unlike most online games, players have direct control over the rules of the online world. The DAO allows token holders to directly vote on in-game and organizational policies. This mechanism affects everything from virtual item types to investments for the DAO treasury.

Irreplaceable tokens provide in-game collectibles, including clothing, items, and virtual game properties. Users store these tokens in their crypto wallets and sell them to other users on the Decentralized Marketplace. For example, to buy a new face mask, you need to earn some mana, Decentraland's native digital currency.

In addition to trading items and possessions, players can fill their personal space by interacting with others during games, activities, and artwork. There is also an option to monetize your LAND. It is entirely up to each player to decide what to do with their map.

Decentraland has many uses including advertising and content management. But for new players looking to get started with NFTs, the barriers to entry are high. Ethereum gas costs almost double the price of some decorative items. The price of land also reaches thousands of dollars, making ownership very difficult for some players.

Cosmos project

Coined by its founding team as the "internet of blockchains," Cosmas aims to create a network of cryptographic subnets united by open source tools to simplify transactions. This focus on customization and interoperability sets Cosmos apart from other projects.

Rather than prioritizing its own network, Cosmos aims to create an ecosystem of networks that can share data and tokens programmatically without the intervention of any central agent.

Every new independent blockchain created in Cosmos (called Zone) will be connected to Cosmos Hub. As a proof-of-stake blockchain, Cosmos Hub supports its native cryptocurrency, Atom. Users looking to stay in touch with the current state of Cosmos development can follow its schedule through the website .

What is the DFi 2.0 network?

The DeFi 2.0 program is an improvement on the original definition of DeFi technology. The next generation of decentralized finance aims to improve the current flawed DeFi system. As a result, DeFi 2.0 promises increased scalability, security and liquidity. Another goal of DeFi 2.0 is to comply with government requirements, so in the near future there will be plans to introduce regulatory and compliance rules for DeFi operations.

What is Defi 3.0 platform?

DeFi 3.0 projects are built on smart contract platforms (SCP) such as Ethereum (ETH), Solana (SOL), and Avalanche (AVAX). Smart contracts are digital contracts on a blockchain whose rules are written and executed as code. Once a contract is finalized, humans cannot manipulate it. In crypto there is a term that is absolute rule code. SCPs are the Layer 1 (L1) solutions that DeFi protocols are built upon.

What is Smart DiFi?

The smart contracts used by DeFi do not require traditional financial institutions to act as guarantors of transactions. Instead, participants in the decentralized financial ecosystem communicate directly with each other and transactions are secured through blockchain technology.

What is DiFi Group?

Defi Group is a platform where users can buy and sell stocks using the Defi Group token. According to the platform itself, they will revolutionize the way stocks are sold using blockchain technology.

What this platform maneuvers on is adaptive smart contracts. Regardless of the details of DiFi Group's plan, the general idea of ​​the project seems practical. The only problem is that we cannot trust an unregistered platform in any way.

The platform asks investors to buy their tokens as a store of value for selling shares. But unfortunately, DeFi Group has not explained how it plans to protect investors' interests, and that's why the Swiss Financial Market Supervisory Authority (FINMA) doesn't have a favorable opinion about it.

What is DiFi space?

DeFi space refers to data privacy around personal identification information as well as the free access of each user. Anyone with an Internet connection can access DeFi applications while maintaining control over their data and assets.

What are DeFi tokens?

A DeFi token is much like a digital version of a fiat coin and transfers value during a financial transaction. DeFi coins are built and often named after their own unique and native blockchain networks. Maker, Compound, Uniswap, Aave, Chainlink and Ankr are some of the most popular DeFi coins.

List of Defay currencies. List of Defay currencies

With the variety of coin options on the market, it's important to know what the potential options are before you buy. In many cases, it's smarter for buyers to focus on more authentic or popular coins before moving on to less common options. However, always remember that even the most reliable coins are not a safe investment. They can still result in losses due to the volatile nature of the crypto market.

The top 30 coins of 2023 by market value are:

  • Bitcoin
  • Ethereum
  • Tether
  • USDC
  • BNB
  • Binance USD
  • XRP
  • Cardano
  • Solana
  • Dogecoin
  • DAI
  • Polkadot
  • Tron
  • Shiba Inu
  • UNUS SED LEO
  • Avalanche
  • Wrapped Bitcoin
  • Polygon
  • Uniswap
  • Litecoin
  • FTX Token
  • Chainlink
  • Cronos
  • Stellar
  • NEAR Protocol
  • Monero
  • Cosmos
  • Algorand
  • Ethereum Classic
  • Bitcoin Cash

What is the ultimate goal of the DiFi industry?

The main purpose of DeFi is to get rid of the access of third parties involved in all financial transactions.

Predicting the future of Defi

DeFi Finance is still in the early stages of its evolution. First of all, it's still not set up properly, which means the ecosystem will still be rife with infrastructure mishaps, hacks, and fraud.

Current laws are based on the idea of ​​separate financial jurisdictions, each of which has its own set of rules and regulations. DeFi's ability to transact without restrictions raises fundamental questions for this type of regulation. For example, who will be responsible for handling a financial crime across DeFi borders, protocols and applications? Who will enforce the regulations and how will they be enforced?

Other concerns include system stability, energy requirements, carbon footprint, system upgrades, system maintenance, and hardware failures.

There are many questions to be answered and many technical improvements to be made before DeFi is safe to use. Financial institutions are not going to give up one of their main means of making money. Maybe this happens to control how to access your money, but it is not possible to make money from the system.

DiFi FAQs

In the following, we will review some frequently asked questions about DeFi.

Is it safe to invest in DeFi?

While DiFi may look flashy, it's not flawless. While this protocol removes intermediaries from traditional financial services, it does not provide the same level of security that traditional projects offer. In fact, in 2021, a total of $1.3 billion was lost to DeFi scams.

Software security vulnerabilities can also wipe out your Defi investment. Investments Many relatively reputable DeFi protocols, including Yearn Finance and Pickle Finance, have fallen victim to hackers who exploited security vulnerabilities in the software to steal investors' funds. Turchin was robbed twice in one week.

What is the impact of Ethereum 2.0 on DeFi?

Ethereum 2.0 will change the dynamics of DeFi in a way that we may see less transaction density and possibly lower the transaction fee stake model.

What is the main advantage of decentralized finance?

Decentralized finance uses the key principles of the Ethereum blockchain to increase financial security and transparency, unlock liquidity and growth opportunities, and support a unified and standardized economic system.

Is Decentralized Finance Similar to Bitcoin?

As the granddaddy of all cryptocurrencies, Bitcoin is a good example of a DeFi project. There is no central authority for Bitcoin, it is not issued by a central bank or managed by any central institution, and naturally, it is powered by a blockchain network rather than being stored on a central server.

What is meant by locked asset in DeFi?

Asset Locked (TVL) is the sum of all currencies staked, lent, deposited into a pool, or used for other financial actions across the entire DeFi. It can also be a provider of specific digital currencies used for financial activities such as Ether or Bitcoin.

Introducing currencies in the field of DeFi?

Some of the currencies of Defay are:

  • Lido Staked Ether
  • dai (DAI)
  • Uniswap
  • Chainlink
  • Aave
  • Frax
  • Lido DAO
  • cUSDC
  • Make
  • The Graph
  • Synthetix Network
  • cETH
  • THORChain
  • cDAI
  • Neutrino USD
  • amp (AMP)
  • PancakeSwap
  • Curve DAO
  • Loopring
  • Kava
  • Frax Share
  • 1 inch
  • convex finance
  • Rocket Pool

last word

Investing in digital currencies or Defi Finance is very risky and dangerous and this article is not in any way a recommendation by the author to invest in Defi and there is no guarantee that the information is correct or up-to-date.

DeFi platforms may be a great option for providing transparent and secure finance. But if you don't have previous experience, we recommend that you get advice from an expert before entering the fast-paced world of DeFi.

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