What sectors in Decentralized Finance – DeFi are currently being build?
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In the DeFi world, there are several loan markets present where investors can earn interest and passive income on their cryptocurrency. On the other hand, users can borrow tokens based on deployed collateral.
Anyone can participate in this. After all, it is no longer necessary to go through a single form of verification. Registration with a bank and various credit checks are a thing of the past. Any person who has the means and the know-how can trade with the smart contracts of the decentralized loan markets.
Examples of loan markets;
Decentralized exchanges – DEX
Decentralized exchanges, DEXs for short, will allow users to trade, also known as swapping, in a completely decentralized manner and without effectively holding tokens. The entire process is done through automated applications built on top of blockchain platforms.
The advent of decentralized exchanges has changed the way liquidity is provided. Decentralized exchanges work with automated market makers (AMMs) where users provide liquidity and are rewarded for doing so.
Examples of decentralized exchanges are:
Derivatives and Margin Trading
As in the centralized world, derivatives make it possible to trade contracts based on an underlying cryptocurrency. In DeFi, this is also made possible by various protocols.
Examples of derivatives platforms:
Margin trading is also facilitated by DeFi. Protocols allow for larger positions to be kept open than would normally be possible, by borrowing funds.
Examples of margin platforms are:
DeFi and stable coins
The classic stable coins like USDT, USDC or BUSD are widely used in DeFi. However, there is one problem. These stable coins are centrally owned.
The company behind the coin owns the code and could recall transactions if necessary. They also promise that each coin created will match a real dollar in a bank. Is this true? And is this in line with the ideology of decentralized finance?
To make this even more decentralized, there have been several attempts to launch algorithmic stablecoins. These will try to maintain their fixed value based on smart contracts and associated incentives. This is a way to link a token to a stable value, without relying on central units.
Examples of algo stablecoins:
Insurance is something that makes the DeFi world more reliable and credible. Thus, in the meantime, one can obtain certain guarantees in exchange for a premium. The most popular insurance applications will cover users in case of smart contract failure or losing deposits on certain protocols.
Examples of insurance platforms:
What Decentralized Finance (DeFi) does is more than noteworthy. It not only improves dated models of traditional finance, but creates an entirely new financial system that builds on itself. The crypto world is evolving at a tremendous pace and new ways of tying up money and earning interest are being born every day.
The sooner one learns about this, the better one can decide whether DeFi can provide an appropriate alternative to a broken money system.
Of course, DeFi is not without its risks. Curious about the risks of DeFi? Then be sure to check it out here.