DeFi’s also about synthetic assets, like Synthetix’s tokenized stocks or Maker’s decentralized stablecoin, DAI, whose value is algorithmically determined by the protocol. Then there’s Uniswap, a decentralized exchange that lets you trade any Ethereum-based token you like, or earn money if you add liquidity to that token’s market. You can also earn interest from lending out cryptocurrencies. These are protocols that let you borrow cryptocurrencies instantaneously-and often in large amounts if you can prove you can pay back the loan in a single transaction. How does DeFi work?Īmong the most popular projects are lending protocols Aave, Maker and Compound. The decentralized finance world is made up of a multitude of non-custodial financial products, built around a culture of highly-experimental, highly-lucrative crypto projects that’s caught the eye of top companies and venture capitalists -and not a few scammers. The DeFi movement refers to a specific genre of financial product that champions decentralization above all else, and uses lucrative incentive mechanisms to encourage investors to play along. So what is this powerful, wild beast known as DeFi? And isn’t all of crypto decentralized finance, anyway? Sort of. By January 2020, "DeFi degens" had poured over $20 billion worth of cryptocurrencies into DeFi smart contracts. Back in June 2020, just $1 billion was locked up in DeFi protocols, according to metrics site DeFi Pulse. ĭeFi is crypto’s big thing at the moment, a little like how Initial Coin Offerings (ICOs) were all the rage back in 2017.
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