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What Is DeFi?

Date post: 28-Apr-2020
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AN explanation of decentralized finance (DeFI) and how it could be Ethereum's killer dApp. Visit: https://ethereumnexus.org/what-is-defi/
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What is DeFi? Ethereum’s goal is to become the platform for the next web. Web 3.0 will be decentralized, and with underlying economies built into it, anybody anywhere will have access to finance. These DeFi projects are being built and rolled out on Ethereum. Decentralized Finance (DeFi) could quite easily become Ethereum’s main industry. Imagine a global, open alternative to every financial service you use today: savings, loans, trading etcetera. One that is accessible to anyone in the world with a smartphone and Internet connection. Smart Contracts That’s DeFi and it’s possible because of Ethereum’s smart contract architecture, which is a program built on the Ethereum blockchain that can self-execute when certain conditions are met. Smart Contract capability is what has driven Ethereum They enable developers to build far more sophisticated programs than simply sending and receiving cryptocurrency. In fact the possibilities are so endless, nobody knows the exact vision possible with decentralized smart contracts. A smart contract, or dApp, is built using decentralized technology, which means it’s run and generated by thousands of different computers on all corners of the globe. The code of each dApp, and Ethereum, is open source for anyone to audit, and all transaction activity is also open for anyone to view. This alone is building a level of trust that is impossible with the legacy financiers. While the openness may worry some people, who value their privacy, transactions are pseudonymous by default, and nobody knows exactly who an account belongs to. Unlike the legacy financial world, nobody needs permission to participate, and nobody needs paermission to build anything on the blockchain. While DeFi is in its very early days, and we’ re nowhere near the possibilities of the new industry, the facilities are already being released. Blockfi pay up to 8.6% interest Collateralized loans are a big part of the early DeFi space. Companies and even peer- to-peer loans are possible. Whether you get a loan from a company or a random person,
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Page 1: What Is DeFi?

WhatisDeFi?

Ethereum’sgoalistobecometheplatformforthenextweb.Web3.0willbedecentralized,andwithunderlyingeconomiesbuiltintoit,anybodyanywherewillhaveaccesstofinance.TheseDeFiprojectsarebeingbuiltandrolledoutonEthereum.DecentralizedFinance(DeFi)couldquiteeasilybecomeEthereum’smainindustry.Imagineaglobal,openalternativetoeveryfinancialserviceyouusetoday:savings,loans,tradingetcetera.OnethatisaccessibletoanyoneintheworldwithasmartphoneandInternetconnection.SmartContractsThat’sDeFiandit’spossiblebecauseofEthereum’ssmartcontractarchitecture,whichisaprogrambuiltontheEthereumblockchainthatcanself-executewhencertainconditionsaremet.

SmartContractcapabilityiswhathasdrivenEthereum

Theyenabledeveloperstobuildfarmoresophisticatedprogramsthansimply

sendingandreceivingcryptocurrency.Infactthepossibilitiesaresoendless,nobodyknowstheexactvisionpossiblewithdecentralizedsmartcontracts.Asmartcontract,ordApp,isbuiltusingdecentralizedtechnology,whichmeansit’srunandgeneratedbythousandsofdifferentcomputersonallcornersoftheglobe.ThecodeofeachdApp,andEthereum,isopensourceforanyonetoaudit,andalltransactionactivityisalsoopenforanyonetoview.Thisaloneisbuildingaleveloftrustthatisimpossiblewiththelegacyfinanciers.Whiletheopennessmayworrysomepeople,whovaluetheirprivacy,transactionsarepseudonymousbydefault,andnobodyknowsexactlywhoanaccountbelongsto.Unlikethelegacyfinancialworld,nobodyneedspermissiontoparticipate,andnobodyneedspaermissiontobuildanythingontheblockchain.WhileDeFiisinitsveryearlydays,andwe’renowherenearthepossibilitiesofthenewindustry,thefacilitiesarealreadybeingreleased.

Blockfipayupto8.6%interest

CollateralizedloansareabigpartoftheearlyDeFispace.Companiesandevenpeer-to-peerloansarepossible.Whetheryougetaloanfromacompanyorarandomperson,

Page 2: What Is DeFi?

aslongasyouhavethecollateral,youwillgettheloan.Therearecompaniespayinginterestonyourcryptocurrencies,justforholdingcryptoontheirplatform.Veryfavourableinterestaswell,Imightadd.Theinterestvariesbutit’snotuncommontoreceivea10%returnonyourinvestment.HowcantheyaffordtopaysuchalargeamountofinterestIhearyouask?Theylendoutthecryptotoverifiedinvestorsandmakemoneythemselves.They’realsomuchsmallerthantheirlegacyfinancialinstitutionswithlessoverheads,andbecauseit’sallcodedintotheblockchain,theyhaveamuchcheaperandsecuresystem.DeFiisoneofthefastestgrowingsectorsincrypto–dataactuallymeasuredbyhowmuchETHislockedinDeFismartcontracts,whichisnowover$600m.Notbadforabrandnewindustry.WhatNextforDeFi?Inthecomingyears,everyfinancialservicethatweuseintoday’sfiatsystemcouldberebuiltforthecryptoecosystem.We’vealreadyseenindustrysectorssuchasexchanges,borrowing,lending,custody,andderivativesbuiltforcrypto.Thisisjustthebeginning.DeFidAppsrelyheavilyoncollateralasasafeguard,today,butthatwillevolveasregulationsareimplemented,andthiswillintroduceunsecuredborrowingandlendingintotheDeFispace.Thiswillneedasecureidentitysystem,somethingonlyablockchaincanoffer,andwithit,userswillbuilduparatingliketoday,andbegivenaccesstofundsnotjustfromtheirlocalbank,butprettymuchanywhereintheworld.

Theusuryindustryissetfordramaticchange

DeFiwillevolveasDAOsevolve,too.Aragonisbuildingsomethingthatcouldresembleadecentralizedgovernment,andmuchmore.Anythingcanbecodedintosmartcontracts,andwithunderlyingfinancelockedintotheprogram,thefutureofDeFianddAppsingeneralisimpossibletoquantify.Itisareallyexcitingtimetobealive.Innovationisgrowingsomuchquicker,andEthereumisgoingtodisruptandevengivebirthtomanynewindustries.It’searlydaysnotjustinDeFiorevenEthereum,butthewholeblockchainmovement.Legacyindustriesaretakingnote,andmanyarejoiningforcesandbuildingonEthereum.Idon’tknowexactlywhatthefuturewilllooklike,butI’mconfidentDeFiandEthereumwillplayalargepartofit.www.ethereum.orgwww.ethereumnexus.org


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