Decentralized Finance (DeFi)
Oct 17, 2024
Basic Concepts of DeFi
DeFi is a financial ecosystem built on blockchain technology that operates without traditional intermediaries. It includes various financial services such as lending, borrowing, and trading.
Decentralized Exchanges (DEXs)
DEXs allow users to trade cryptocurrencies directly with each other without intermediaries. Examples include Uniswap and aggregator 1inch. They use smart contracts to facilitate transactions and liquidity pools to provide trading liquidity.
Lending and Borrowing Platforms
Platforms like Aave and Compound allow users to lend their cryptocurrencies to others or borrow against their crypto assets. Lenders earn interest, while borrowers pay interest on their loans.
Decentralized Stablecoins
Stablecoins are a type of cryptocurrency designed to maintain a stable value. Unlike other cryptocurrencies, which can be highly volatile, stablecoins aim to provide a reliable store of value by being pegged to traditional assets like fiat currencies or using algorithms to control supply.
Fiat-Collateralized Stablecoins: Backed by traditional currencies like USD (e.g., USDT, USDC), these stablecoins maintain a 1:1 peg with the fiat currency held in reserve.
Crypto-Collateralized Stablecoins: Backed by other cryptocurrencies (e.g., DAI), these are often over-collateralized to account for price volatility.
Algorithmic Stablecoins: Use algorithms to adjust supply based on market demand, maintaining price stability without direct backing by assets (e.g., AMPL).