A Beginner’s Primer to DeFi

So — what is DeFi ?

DeFi (Decentralized Finance) allows anyone on the internet to access most features offered by traditional banking — and with an ever growing set of features. Here’s how CZ (Binance) puts it-

In DeFi — your funds are held on digital wallets instead of traditional bank accounts

The big difference here is accessibility- in DeFi, anybody with an active internet connection can access financial services.

How DeFi Works

As discussed earlier decentralized finance uses smart contracts and does not require intermediary Institutions like banks to act as guarantors. Instead, users of DeFi transact directly with each other and transactions are secured via the blockchain. Your funds remain in your custody in most cases — in your own digital wallet .

The Three Primary DeFi Applications

1️⃣ Lending/Borrowing

If you own Crypto tokens you can lend the tokens to protocols like Aave or Compound and in exchange earn interest or rewards.

2️⃣Trading

Using a decentralized exchange like Uniswap, you can trade while maintaining custody over your digital assets in the safety of your own wallet. This is different from centralized exchanges where you need to rely on the exchange to take custody of your assets.

3️⃣Derivatives

Certain decentralized platforms like Synthetix and dYdX allow users to go beyond spot trading and utilize leverage to trade derivative(synthetic) assets.

The Future of DeFi

The pace of growth of decentralized Finance has been exponential with the total value locked growing from less than USD 20 billion in November 2022 to more than USD 260 billion in 2021. We could very well be at the cusp of a huge DeFi wave. The advantages of an open financial system which is accessible to all are pretty compelling and could take up a big chunk of the global financial system in years to come.

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Genesis Shards

Genesis Shards

Transforming NFTs into a liquidity vehicle for Pre-IDO tokens and a whole new suite of DeFi products across multiple blockchains.