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Defi

Borrow money without a bank, trade stocks without brokers, raise funds without venture capitalists, and even print money without central banks — these are just some of the possibilities with Decentralized Finance, or DeFi. But how do you access it? Let’s delve deeper into DeFi and explore how to utilize it.

Table of Contents

How to get into Decentralized Finance - DeFi?

Metamask-Logo

Step 1: Install MetaMask

Open your web browser and go to MetaMask. Download the MetaMask extension and set up a wallet. Metamask has also app for iPhone or Android.

Follow the step-by-step guide on Metamask here.

Step 2: Buy Ethereum with a trusted Exchange or Broker

In order to trade on DeFi, you need to Ethereum. There is (currently) no other way to get your hands on Ethereum besides going through a centralized exchange.

Visit our exchanges pages for more info. We recommend the following trusted exchange.

Ethereum Logo

Step 3: Send Ethereum – ETH to MetaMask

Move your Ethereum (ETH) from your existing wallet on the exchange to your new MetaMask wallet. You will need this Ethereum to purchase or swap your preferred tokens on a Decentralized Exchange (DEX).

Step 4: Connect To Uniswap

The safest decentralized exchange to buy your preferred tokens on, is Uniswap. Visit Uniswap and click “connect wallet”. MetaMask will ask for your signature, this is completely safe.

Step 5: Swap Ethereum – ETH For your preferred token 

Locate your preferred token using the Uniswap search bar, then enter the amount of ETH you wish to swap for this token.

To make sure you are trading the right ERC-20 token be sure to check the official address that can be found on Coingecko.

What is Decentralized Finance - DeFi?

Decentralized Finance, or DeFi, refers to a suite of financial instruments rooted in decentralized systems. The primary aim of DeFi is to establish a self-sufficient financial system that operates independently from centralized institutions.

DeFi platforms allow for savings, loans, insurance, and a myriad of other financial transactions to be conducted anytime, anywhere. All that’s needed is an internet connection to access these decentralized applications.

These decentralized applications utilize what are known as smart contracts. Through these, all the aforementioned services can be administered without the need for an intermediary. DeFi, through blockchain technology, provides individuals without bank access an entry point to financial services.

Be mindful of the inherent risks associated with DeFi before getting involved! Learn more about these potential pitfalls here!

In summary, the following features are characteristic of DeFi protocols:

Decentralized: No central party owns the project, it’s powered by the community.

Open-source and transparent: Anyone can verify and control the smart contract(s).

Permissionless: Location doesn’t matter, anyone can access the platform by connecting their wallet. The platform does not hold custody over your funds, web3 is used for this.

Anonymous: No know-your-customer (KYC) or anti-money laundering (AML) verification required.

Composable: Developers can build on existing protocols and connect them together (lego blocks).

Loan Markets

In the DeFi world, there are several loan markets where investors can earn interest and passive income on their cryptocurrency. On the flip side, users can borrow tokens using collateral.

Participation in these markets is open to anyone. Traditional procedures like bank registration and credit checks are no longer necessary. Anyone with the resources and understanding can engage with the smart contracts of these decentralized loan markets.

Examples of loan markets include:

Decentralized exchanges – DEX

Decentralized exchanges, abbreviated as DEXs, allow users to trade, also referred to as swapping, in a fully decentralized manner without the need to hold tokens. The entire process is facilitated through automated applications built on blockchain platforms.

The emergence of decentralized exchanges has transformed the way liquidity is provided. DEXs operate with automated market makers (AMMs), where users provide liquidity and receive rewards in return.

Examples of decentralized exchanges include:

Derivatives and Margin Trading

Similar to traditional centralized markets, derivatives enable trading of contracts based on an underlying cryptocurrency. In DeFi, this is facilitated by various protocols.

Examples of derivatives platforms include:

Margin trading is another feature facilitated by DeFi. Protocols allow for maintaining larger positions than would normally be possible by borrowing funds.

Examples of margin trading platforms include:

DeFi and stable coins

Traditional stable coins like USDT, USDC, and BUSD are widely used in DeFi. However, these stable coins are centrally owned. The company behind the coin owns the code and could reverse transactions if necessary. They also promise that each coin issued corresponds to a real dollar in a bank. But is this truly the case? And does this align with the ideology of decentralized finance?

In an attempt to further decentralize this process, several initiatives have launched algorithmic stablecoins. These aim to maintain their fixed value based on smart contracts and associated incentives. This method provides a way to tether a token to a stable value without relying on central entities.

Examples of algorithmic stablecoins include:

DeFi Insurance

Insurance is an element that adds reliability and credibility to the DeFi world. By paying a premium, users can obtain certain guarantees. The most popular insurance applications provide coverage for users in case of smart contract failure or loss of deposits on certain protocols.

Examples of insurance platforms include:

Nexus Mutual

On which blockchains is DeFi running?

DeFi operates across multiple blockchains, each with its own unique strengths and weaknesses. For instance, smart contracts are typically confined to a single blockchain. However, numerous new decentralized platforms are emerging and carving out their market share. Therefore, when we discuss DeFi, we’re not referring to a single blockchain, but many.

Currently, DeFi is active on the following blockchains:

Ethereum

Polygon

Avalanche

Binance Smart Chain

What is Total Value Locked - TVL

Conclusion

Decentralized Finance (DeFi) is more than just noteworthy. It doesn’t merely improve upon outdated models of traditional finance; it creates an entirely new financial system that constantly builds upon itself. The crypto world is rapidly evolving, with new methods of investing money and earning interest emerging daily.

The sooner you familiarize yourself with this landscape, the better equipped you’ll be to discern whether DeFi could serve as an appropriate alternative to a problematic monetary system.

However, DeFi isn’t without its risks. Curious about these potential pitfalls? Be sure to check them out here.

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