What is decentralized finance (defi) and how does defi work?
What does decentralize finance mean? Decentralized Financial Industry (DEFI) is to use cutting -edge technology to remove third -party and centralized organizations from financial investment transactions. Defi components include stablecoin, hardware, and software, and they apply the development of application software. DEFI's infrastructure construction and control have developed rapidly. Let ’s take a look at the work principle of decentralized finance, as well as any advantages and risks.
Today's centralized financial industry
Today, almost all levels of financial institutions, borrowings and payment are managed by the intermediate management information system, and the actual operation of the supervisory agency and the gatekeeper. The general public needs to get along with many financial industry agents in order to obtain everything from vehicle loans and mortgage borrowings to buying and selling bonds and stocks.
In the United States, regulators such as the Federal Reserve and the Securities Exchange (SEC) formulate rules for centralized financial companies and brokerage companies, and Congress will change the standard over time.
Therefore, customers immediately get very few capital and financial services. They cannot bypass retailers such as financial institutions, exchanges, and lenders who have obtained a certain percentage of profit from each financial and financial institution transaction. Everyone must pay to play.
What is the decentralized financial industry (DEFI)?
DEFI -the abbreviation of decentralized finance -banking is a new vision of financial services, and it pays for points to point -to -point payment based on blockchain applications. According to blockchain technology, DEFI allows "no trust" credit business to bypass traditional financial retailers such as banks and artist agents.
Decentralized Financial Industry (DEFI) is a new type of financial technology, which is based on the security distributed ledger of similar cryptocurrency applications.
In the United States, the Fed and the Securities Exchange Commission (SEC) formulate rules for centralized financial companies such as banks and brokerage companies. Customers use these institutions to immediately receive capital and financial information services. DEFI tests such centralized financial systems based on giving points to individuals.
What are the benefits of investors? DEFI service promises investors to "become financial institutions", so that they have the opportunity to order borrowing and get higher profit than ordinary bank accounts. Investors can also quickly remit money everywhere in the world. They can browse his assets through digital currency wallets without paying traditional banks to charge.
DEFI avoids the cost of financial institutions and other financial investment companies to apply for its service items. I can transfer the money in a safe digital currency wallet, and I can also transfer funds within a few minutes. All people with the Internet connection can apply DEFI.
Important key points of decentralized finance:
Decentralized financial industry or DEFI application cutting -edge technology clears third -party and centralized organizations from financial investment.
Defi components are stable coins, hardware and software for APP development.
DEFI's infrastructure construction and control are developing rapidly.
How does Defi work?
The purpose of DEFI is to give users and the company's many financial information services at this stage -borrowing, deposit interest rate, payment -but application decentralization technical to do this. In fact, DEFI regulates the field based on changing specific content rather than changes. In other words, DEFI has created new infrastructure to give similar financial products and services.
Therefore, it uses blockchain applications and blockchain intelligent contract tools. Blockchain is a kind of book book technical, which can track all the trading of the financial industry platform. See it as the transaction operating record of all the special blockchain technology, and record it in the order of time. If a person pays to B, it will permanently cover the time format in the book book.
Defi built blocks are blockchain intelligent contracts. They are all executable code that can store cryptocurrencies and interact with blockchain technology according to their standards."
In order to open DEFI, the blockchain intelligent contract will automatically complete the buying and selling among the participants. When the standard of the agreement is met, they also implement his instruction system.
"Defi allows blockchain intelligent contracts in blockchain technology to replace the trusted intermediary agencies (such as banks and brokerage companies) to carry out point -to -point transactions" . The point -to -point transactions in Defi can include payment, project investment, borrowing, etc.
In this world, cryptocurrencies have become de facto trading records.
"Defi is the persistence of the vision of corporate cash in Bitcoin white paper, so this is also a very exciting moment in this field".
How does DEFI challenge traditional banks and credit business?
One of the biggest thoughts of Defi supporters is that this new financial technology will change traditional credit business. They said that under normal circumstances, DEFI will be completely de -intermediary in financial investment -solving the intermediary -followed by decentralized peer network.
However, if Defi is so strong, why is it difficult for banks to use this method to provide it at the same time?
"Of course, we see more and more traditional financial companies using blockchain technology and distributed ledger technology," said Malka of Yieldfarming.com. "Along with this traditional organization that knows the inner safety factor of blockchain technology, you will see such a situation really accelerated in the near future."
Malka estimates that banks can establish a variety of DEFI products "to maintain competitiveness and correlation."
"You can easily imagine a picture of a traditional bank for customers to participate in the opportunity of profitable agriculture and animal husbandry," he said.
However, due to the pressure of control, these changes are easier than combining the actual paper. Lutskevych of CEX.IO said that it adds inconvenience to the traditional industry to do so.
"The integrated blockchain application will change a lot of sound operation processes, and at the same time make them encounter extra risk," he said. "More importantly, according to the control, these institutions will must be allowed to approve this kind of activity."
How to use Defi now?
DEFI operation timeout has a variety of simple and complicated financial investment. It is supported by decentralized application software called "DAPPS" or other procedures called "Agreement". DAPPS and Agreement solve two key cryptocurrency trading transactions, BTC (BTC) and Ethereum (ETH).
Although BTC is the most popular cryptocurrency, and Ethereum is more suitable for the main use of the largest range, which means that the vast majority of DAPPs and protocols are coded based on Ethereum.
The following are some methods that have been used in DAPP and contracts:
1. Traditional financial investment. From paying, buying and selling, to insurance, to borrowing, everything has been generated in DEFI.
2. Decentralization exchange (DEX). At this stage, most cryptocurrency investors use centralized exchanges such as Coinbase or Gemini. DEX promoted some financial investment and allowed consumers to save their funds and control.
3. Electronic account. Defi developers have established digital currency wallets that can be different from the largest cryptocurrency exchange, and investors can browse all the contents of online games from cryptocurrencies to blockchain -based online games.
4. Stable currency. Everyone knows that the uncertainty of cryptocurrencies is very large, but stable currencies try to stabilize its value with other cryptocurrencies such as the United States.
5. Obtain production volume. DEFI is called the "rocket fuel" of cryptocurrencies, allowing speculative investors to borrow cryptocurrencies and pay him at a high amount of revenue when paying for the rapid value -added of borrowings on the unique currency DEFI network loan platform.
6. Unsable currency (NFT). NFT applications generally establish digital currencies, such as slope videos or first articles on Twitter. NFT will commercialize things that cannot be commercialized before.
7. Flash loan. These are all raised funds and repayment funds cryptocurrency borrowings during the same transaction. It sounds against judgment? It is running like this: the lender may make money based on the signing of the Ethereum blockchain technology -do not need to be a teacher -borrowing funds, trading and timely repayment of loans. If trading cannot be executed, or if you lose money, the asset will automatically return it to the lender. If you are indeed profitable, you can use it as your own and reduce all interest expenses or spending. Treatment of Lightning Loan as a decentralized hedge.
The DEFI sales market measures the use rate based on the accurate measurement of the so -called lock -up value, and lock the use value to measure the amount of working assets in each DEFI protocol at various DEFI protocols. At this stage, the total lock in the DEFI contract is close to $ 43 billion.
The selection of DEFI is supported by the characteristics of blockchain technology everywhere: DAPP can be used at the same time on blockchain technology, and it can be used internationally. Although most of the centralized financial derivatives and technology have been released slowly over time, and the regional economic powers are controlled by the regional economic powers, DAPP has such rules, which enhance their potential income, and at the same time, it also improves They risked.
Advantages of Defi
For individuals, the benefits brought by Defi include a higher safety factor, a high -cost cost fee, a large number of categories of service items, and obtaining higher wages through cryptocurrencies. This benefit and other benefits are achieved through decentralized application software established by some teams.
"Decentralized application software or DAPPS allows everyone to transfer funds everywhere in the world (rapid liquidation and low cost), point -to -point borrowing, data encryption and swap service items, NFT and data encryption cash clips and storage. Service solution.
"DAPP is written by developers in advance. According to his goals, they can implement trading on a specific blockchain network, handle the agreement between the two parties between the two parties, or transfer the property from a decentralized exchange to a decentralized network loan platform".
In simple terms, the only limited is to write the application software capabilities to implement commands.
The advantage of cryptocurrency investors at this stage is that it can bring benefits. For example, the user of the data encryption pledge to allow coins to help apply the ecosystem of the coin and obtain benefits by assisting the certification trading. This is also part of the so -called output agricultural and animal husbandry. When the bank's annual interest rate has been at a trough for many years, this is proven to be eye -catching.
"Everyone can give encrypted assets as a liquidity or loan based on the profit, agriculture and animal husbandry, and pay interest expenses to the depositors." "Profit agriculture is how you make your cryptocurrency work to gain money."
In order to help, many DAPPs must apply liquid cryptocurrencies available on software. Therefore, they clearly put forward payment returns, that is, profit, to gain money in the coins for investors for a period of time. In fact, they bring benefits to liquidity -similar to the deposit interest rate paid in previous online banking, but more risk (as shown below).
According to the type of DAPP, cryptocurrency users can obtain benefits through various service items, such as:
Gives liquidity on currency exchanges
Give the lender to the lender to borrow from the lender according to the blockchain intelligent contract
Raise the coins borrowed from funds and property and cultivated land
Pickled loan equity proof coins, such as Ethereum
Therefore, this way of profitable profits brings another source of profit for investors, although you must pay taxes on cryptocurrencies, just like you are the same for existing fixed income.
"Even the lowest risk farm farm can easily get several times at the interest rate of bank card accounts in financial institutions," Marka said. "This is especially important during the bear market -the price of cryptocurrencies such as BTC or Ethereum continues to decline."
DEFI's risk to investors
Although DEFI sounds a brave financial industry, Defi does add various shortcomings and risks to potential participants:
1. Diversity: Participating in DEFI is not as simple as local financial institutions. Because of many Defi application software and investment opportunities, Defi may be a test for novices.
2. Thoroughly defrauded: Many frauds are trying to attract the return rate, which is likely to greatly exceed traditional financial companies that have deeply attracted new data encryption investors. High returns are likely to be amazing.
3. Stealing: In addition to thorough fraud, cryptocurrencies also stolen according to system vulnerabilities, especially to fully consider some number system vulnerabilities in some DAPP. In various vulnerabilities, assets may be lost.
4. Cost fee: GAS fees that must be said to interact with blockchain smart contracts, such as currency that allows equipment to operate. Several processes along the road are very easy to increase costs, and for some people with few assets, this may be very expensive.
5. Uncertainty: Although the output agricultural and animal husbandry can help alleviate your adverse effects in the turbulent and uneasy cryptocurrency world, you must still bear the surprisingly ups and downs to get appropriate profits. Within one day, cryptocurrencies are very easy to damage one year's profit or even higher.
6. Rapid yield: In addition to the encrypted currency that is changed, Defi participants must also solve the ups and downs yields. With the application software for a large amount of supply, the production volume is likely to decrease.
7. A dying project: a DAPP given may finally die on the tree vine, because the development and design of its core team are looking for many projects.
8. Public key regulations. Using DEFI and cryptocurrencies, you must maintain your cryptocurrency property wallet. The money clip is maintained by the public key, and the public key only has a long and different encoding of the money clip users. If you lose the public key, you will be unable to access your funds -you cannot restore the lost public key.
These are some of the greater risks in DEFI, and they are considering that investors need to grasp the risks before thorough investment.
How to participate in DEFI?
If you want to master other information about the relevant DEFI in the form of practical activities, you can gradually gradually gradually gradually:
1. Get data encryption money clip
"First create an Ethereum money clip like Metamask, and then used to provide assets for them." "The money clip of the money in the world is the ticket fee you entered the world of Defi, but please keep your public key and private key as soon as possible. If you lose some, you will not get back your wallet."
2. Buy digital currency.
"Personally, I feel that a little property is traded on a decentralized exchange such as Uniswap." "Try this training also helps data encrypted enthusiasts to grasp the current situation, but when learning and training is the best way to better control the risks, we must prepare everything to lose everything."
3. Scientific research stablecoin
"A exciting way to try to try in the case that is not exposed to the adjustment of basic asset prices is to try TrueFi, which is competitive Income.
The key to entering the new financial industry is to start slowly, maintain humility, and do not have to surpass themselves. It must be remembered that the trading digital currency in the cryptocurrency and Defi world has developed rapidly, and it has great losses to develop potential.
DEFI's future development
From removing retailers to changing the videos of basketball games to digital currencies with currency value, Defi's future development seems to be bright. This is why people like DEFI R & D Group iOTAFOUNDATION's financial relationship Dansimerman thinks that the development prospects and development potential of DEFI are significant, although it is in the initial stage.
Investors will quickly have more consciousness, which will lead to "deployment of" property] "from the uncertain creative method now." With the maturity of DEFI, data information can be commercialized in new forms, and DEFI has also had a profound impact on the field of big data.
However, although all the service commitments are promised, Defi still has a long way to do, especially at the level of the masses.
"The service commitment is there. Everyone has the obligation to continue to educate everyone to master development potential, but we must continue to build tools to make people see it."
The above content introduces the meaning and working principle of decentralized finance, and also introduces the benefits and risks of decentralized finance. Although the profits given by DEFI are very attractive, the income cannot be ignored by the risk of Defi. The decline in the cryptocurrency market may quickly erase the profitability of all small loans, and thorough deception or stealing is likely to be more likely to erase your cryptocurrency capital. Therefore, people who use DEFI must act with caution to ensure that they can bear the risks.