Is it worth investing in DeFi ?
Table of contents
- What does DeFi mean ?
- DeFi as a Technology ?
- Classification of DeFi
- DeFi work ?
- 3 Ways Payments from P2P are made available
- DeFi is Big ?
- Crypto’s version of a Stock Exchange?
- Is DeFi safe ?
- The Risks of DeFi ?
- Features of DeFi –
- Can you keep yourself safe in DeFi ?
- Worth investing in DeFi?
- Investing in DeFi ?
- What measures you can adopt if you wish to invest in DeFi ?
- Battle for the Essence of Decentralized Finance
- What is Total Value Locked in DeFi ?
- How DeFi Market Categorised ?
- Unlocking DeFi’s Potential : COLT.Hedera, UniSwap – Show the way
What does DeFi mean ?
Firstly , Decentralized finance ,or DeFi , uses emerging technology . Additionally, to remove third parties and centralized institutions from financial transactions.
Secondly , the components of DeFi are stablecoins, software, as well as hardware . Essentially, it enables the development of applications to put simply .
Further , the infrastructure for DeFi and it’s regulation are constantly evolving.
DeFi as a Technology ?
Essentially, a Decentralized finance (DeFi) builds on distributed ledger technologies (DLT ) .
Further, it does not use a traditional centralized intermediary.
Furthermore, the fact that DeFi components can be programmed may open up new possibilities. Additionally, for more competitive financial markets.
Moreover, it could bring efficiency gains. However, DeFi introduces enormous technological and economic complexity .
Further, which makes it difficult to assess the risks and potential of DeFi financial products.
Classification of DeFi
To explain , DeFi is defined as a competitive contestable composable and non custodial financial ecosystem.
Additionally, it is built on technology that does not require a central organisation to operate.
Essentially, Decentralized Finance (DeFi) is a new financial paradigm. Additionally which leverages distributed ledger technology to offer services to put simply .
For instance, lending, investing, or exchanging crypto assets without relying on a traditional centralized intermediary.
DeFi work ?
Firstly , DeFi eliminates the fees that banks and other financial companies charge for using their services to put simply .
Additionally, individuals hold money in a secure digital wallet, can transfer funds in minutes . Essentially, anyone with internet connection can use DeFi.
Furthermore, two of the DeFi’s goals include reducing transaction times as well as increasing access to financial services.
Additionally, DeFi uses blockchain technology that cryptocurrencies use. Further, a blockchain is a distributed and secured database or ledger.
Moreover, applications called dApps are used to handle transactions and run the blockchain.
Firstly , Peer-to-peer (P2P) financial transactions are one of the core premises behind DeFi .
Secondly , a P2P transaction is where 2 parties agree to exchange cryptocurrency for goods or services without a third party involved.
Additionally, in DeFi , P2P can meet an individual’s loan needs . Essentially, an algorithm would matches peers that agree on the lender’s terms.
And then , a loan is issued. Payments from P2P are made via a decentralized application, or dApp.
Essentially, it follows the same process in the blockchain , using DeFi allows :
3 Ways Payments from P2P are made available
a. Accessibility – Essentially, anyone with an internet connection can access a DeFi platform. Additionally, transactions occur without any geographic restriction.
b.Low fees and high-interest : Firstly, Smart contracts published on a blockchain and records of completed transactions are available for anyone to review.
Essentially, it is important to not to reveal your identity. Blockchains are immutable , meaning they can not be changed.
c. Autonomy : – First, DeFi platforms do not rely on any centralized financial institutions. Additionally. they are not subject to adversity or bankruptcy. The decentralized nature of DeFi protocols mitigates much of this risk.
DeFi is Big ?
First, the total value locked or TVL. — a standard way of measuring the value of crypto held in DeFi projects — is currently about $77 billion, according to DeFi Pulse.
Further, it would make DeFi something like the 38th largest bank in the United States by deposits, if it were a bank.
Crypto’s version of a Stock Exchange?
Chiefly , DeFi also includes things like lending platforms, prediction markets, options as well as derivatives.
Basically, crypto people are building their own version of Wall Street — one that is largely decentralized and deals exclusively in crypto , simply put . Additionally, with crypto versions of many of the products offered , by traditional financial firms .
Further,without much of the red tape and regulations that govern the existing financial system.
Is DeFi safe ?
Firstly, DeFi prides itself on providing anonymity to users. Additionally, it provides increasing efficiency. Thereby, by removing the multiple layers of financial institutions.
Essentially, the jury is still out on it’s safety. Furthermore, a Finance Professor at the University of Texas at Austin, John Griffin, warns “DeFi has risks ” .
Additionally, in particular it could malfunction in ways that we can not predict . Further, it could lead to financial fragility in ways we also do not expect.
The Risks of DeFi ?
1. First, Provinces do not regulate these types of depository accounts or products . Mainly, because they are built on cryptocurrencies and not on fiat currencies .
Simply put , do not invest more than you can afford to lose .
2. No restrictions or guidelines exist on who can use DeFi . So, anyone can have a crypto wallet or access DeFi protocols , simply put .
Essentially , do your homework and understand the technology . Although , it may not be right for everyone .
3. Secondly , be wary of representations of full transparency and security . And then , further understand what the actual risks are .
Further , while a blockchain may be alternative banking services rely on software systems that are vulnerable to hackers .
4. Firstly , No DeFi consumer protections exist . Additionally , you may have no way to get your money back should a transaction go wrong . And further , the parties involved in the transaction could literally be located anywhere in the world .
5. Further , to borrow funds using DeFi , a borrower funds using DeFi , a borrower typically has to post an equivalent amount of digital assets on the blockchain as collateral .
Basically, this means you normally can only borrow funds equal to what you already have . If you fail to make payments on a loan , the DeFi protocol may be able to automatically take your posted collateral . Further , without giving you any notice or method to dispute.
6. Additionally , DeFi requires you to have a private key to secure your wallet housing your cryptocurrency , simply put .
Essentially , this private key is a long unique code known only to the owner of the wallet. Further if you lose access to your funds – there is no way to recover a lost private key .
7.Lastly , given the complexity of the various lending and borrowing mechanisms at play with DeFi , an average investor may find it hard to distinguish . Further, between DeFi opportunities that have real value and those that are scams .
8. Further, if it looks like an investment , lending or banking opportunity , there is a good chance the service and the people selling it should be registered .
Additionally , use caution before you put your hard earned money at risk .
Especially , in an unregulated marketplace that may be operating illegally.
Features of DeFi –
Accessibility :- Firstly , one of the key benefits of DeFi is that it provides greater access to financial services to people . Who might otherwise be excluded from the traditional financial system , simply put.
Additionally , it includes people who live in areas without access to traditional banks or those who do not meet the credit requirements for traditional banks .
Lower costs : –Firstly , DeFi eliminates intermediaries like banks , reducing the cost of financial services .
Further, this can result in lower fees and better interest rates for users .
Additionally , DeFi eliminates the need for intermediaries , reducing the cost of transactions and making them faster and more efficient .
Transparency :- Essentially , DeFi operates on blockchain technology which provides a transparent and secure record of all transactions .
Secondly , This transparency makes it easier for users to understand the terms and conditions of financial products , and to track the performance of their investments .
Security : – Simply , DeFi operates on blockchain technology which is secure and tamperproof .
Further , this reduces the risk of fraud and hacking , making DeFi a safer option for financial transactions than traditional financial systems .
Innovation : – Firstly , DeFi allows for the creation of new financial products and services ,which can help drive innovation in the financial industry .
For instance , DeFi lending and borrowing platforms offer users new investment opportunities, while decentralized investment platforms provide access to a wider range of assets .
Decentralization : – Essentially , DeFi operates on blockchain technology which is decentralized , meaning that it operates without a central authority .
Further , this decentralization gives users more control over their financial transactions . And additionally , it reduces the risk of a single point of failure .
Can you keep yourself safe in DeFi ?
Firstly, You can use audit tools ,like Token Sniffer for Ethereum , to check the smart contract for bugs.
Additionally, it would be better to opt for open-source projects. Further, by doing this you can see the code .
Additionally, you can be rest assured that any abnormalities will be pointed out and fixed.
Worth investing in DeFi?
First, this became popular for it’s promise of autonomy . Additionally, it removed human involvement in financial services.
Essentially, reducing the chances of error as well as provides cheaper access to capital In addition to , giving you chance to make significant profits.
Indubitably , DeFi investments can prove extremely profitable. Essentially, if you can digest the risk that comes with it ?
Self Governance –
Further, despite it’s “self – governance” , small groups of stakeholders (or holders of “governance tokens”) could change the rules of the Defi project.
Additionally, it might not be in your favor. Moreover, there are no shock absorbers ( like banks ) in DeFi.
Essentially, it means that if you lose all your money , you are not protected or assured of any returns or a safety net.
Investing in DeFi ?
Firstly, DeFi tokens are native virtual assets used by DeFi platforms. For instance, Compounds base asset is COMP while Maker’s native currencies are Maker (MKR) and DAI .
1.Trading DeFi Tokens –
Additionally, DeFi tokens are traded on exchanges , like any other cryptocurrency. Trading these tokens allow you to buy, hold and sell when the price is right.
Furthermore another major importance of being, in on the action is that these tokens are at the core of DeFi protocols. Thereby, unlocking their potential.
Additionally, it is best to invest in a DeFi tokens with provable real use cases such as governance, staking etc.
For instance, the UN token from Uniswap is a governance token and usable as collateral for banks .
essentially, YFI allows you to participate in yield farming in the Tearn ecosystem . Further, having use cases like these will cause a demand which is ultimately the only factor that affects the price of an asset besides supply.
2.Liquidity Mining –
mining is the act of injecting liquidity into a DeFi protocol .
Liquidity miners interact with a liquidity pool that holds funds . Additionally, Liquidity providers are incentivized to participate in DeFi platforms since they receive a huge share of the collected fees.
For example , if it is a lending platform. LPs receive a percentage of the fees charged to borrowers.
Therefore, instead of letting your funds sit idly , may be it’s time to become a liquidity provider. Additionally, it earns rewards. Just remember , that there is always the risk of impermanent loss.
What measures you can adopt if you wish to invest in DeFi ?
Essentially, if you want to get started with investing in DeFi projects , prioritize research. Additionally, do thorough check of small contracts and codes associated with them.
Furthermore, you could start off by investing in some well-known and well-performing decentralized applications (dApps) .
Battle for the Essence of Decentralized Finance
Firstly, the collapse of the FTX cryptocurrency exchange has fueled the ongoing debate over the future of the crypto industry .
Further , with skeptics arguing that it is plagued with fraud .
DeFi – “DeFi” i.e. decentralized finance , has become a crucial topic in the crypto world .
Further , advocates of decentralization believe that platforms like UniSwap , which are decentralized exchanges , are necessary .
Essentially , to maintain privacy and financial freedom .
Regulating Decentralized Platforms – Oh, those poor policy makers ! They just can’t seem to get a handle on how to regulate those pesky decentralized platforms .
Additionally , their misguided attempts could put our freedom at risk .
The Tornado Cash Case – Tornado Cash , a decentralized finance platform , faces US government sanctions over alleged money laundering .
Further , DeFi rebels fight back lawsuits.
Crypto and it’s Regulations – The fight for crypto’s soul is heating up in the US !
Further , with Congress and courtrooms , as the battleground , the outcome will affect not just Americans , but everyone around the world .
Brace yourselves folks – the crypto world is about to get crazy !
DeFi’s Front-end battle for Regulation – The regulation of front ends (User Interfaces) as access points and the ambiguity of crypto tokens pose challenges to decentralized finance .
Additionally , while governments seek to regulate DeFi , many users value it’s accessibility , and freedom .
What is Total Value Locked in DeFi ?
First , Total value locked in (TVL) is the sum of all cryptocurrencies staked , loaned , deposited in a pool , or used for other financial actions across all of DeFi.
Second , It can also represent the sum of specific cryptocurrencies used for financial activities , such as ether or Bitcoin .
How DeFi Market Categorised ?
DeFi stacks on different Blockchains : –
Native Token – ETH
Stable Coins – USDC , USDT , DAI
Exchange – UNI , SHUSHI , CURVE
Lending – Maker , Compound , AAVE
Yield Farm – Yearn Finance
Native Token – BNB
Stable Coins – BUSD , USDT , DAI
Exchange – PANCAKE , ELIPSUS , 1INCH
Lending – Venus
Yield Farm – Autofarm , Beefy
Native Token – Matic
Stable Coins – USDC , DAI
Exchange – QUICKSWAP
Lending – AAVE
Unlocking DeFi’s Potential : COLT.Hedera, UniSwap – Show the way
Firstly, as the DeFi ecosystem expands ,there are three projects that stand out as leaders in this space.
Collateral Network (COLT) – Chiefly, Collateral Network offers .a seamless peer-to-peer lending experience that connects borrowers and lenders directly.
Additionally., the game changer for Collateral Network (COLT) is its use of fractionalized NFTs to facilitate loans to borrowers. Further it allows everybody to lend and become their own bank.
For instance, a person owns a painting worth $50000 and wants to unlock some of its value . Thereby he can turn to Collateral Network ,once for all the relevant checks are done, Further, an NFT of the painting is minted and the asset is held in a value.
Thereby, this NFT represents the physical asset on a 1:1 ratio. Moreover, it is fractionalized into smaller pieces.
And then, this allows anybody in the world to lend against this asset with smaller amounts of funds. Additionally, provides the borrower with institutional-level liquidity as the loan can now be funded by multiple people.
Essentially, COLT is the native token of the platform and offers various perks to the holders. For instance discounted interest rates, lower fees, staking rewards, and governance rights.
Further, as Collateral Network (COLT) expands, these benefits will only increase. In addition to it, the Collateral Network (COLT) is poised to disrupt the lending world. Thereby making it an attractive opportunity for investors.
Further, with only a limited number of discounted COLT tokens available, now is the time to seize the chance and join the lending revolution.
Hedera (HBAR) – Firstly, Hedera (HBAR) emerges as a cutting-edge distributed ledger technology (DLT) platform.
Specifically, designed to support decentralized applications of the future. Uniquely, underpinned by the groundbreaking Hashgraph technology. Hedera (HBAR) sets itself apart from traditional blockchain-based platforms.
Thereby, offering rapid transactions,ultra-low latency, and exceptional throughput, Hedera (HBAR) is the perfect choice for dApps requiring instant high-performance functionality.
Redefining DeFi Lending
Clearpool expands to Polygons zkEVM.
Leading DeFi player Clearpool has taken a groundbreaking step by announcing its expansion to Polygons’ zkEVM., an advanced scaling solution.
This strategic move marks the third blockchain solution integrated into Clearpool’s lending marketplace. Thereby promising a host of benefits for you and DeFi community.
Polygons’ zkEVM is a revolutionary scaling solution that enhances the speed,scalability,and security of decentralized applications (dApps).
By leveraging Zero Knowledge roll-ups ,transactions can be grouped together before approval on the Ethereum main chain.
This dual -layer functionality boosts transaction efficiency and flexibility.
What does it mean for Clearpool users?
- Lightning-Fast transactions:With the integration of polygons zkEVM ,Clearpool’s platform performance receives a turbocharge ,ensuring faster transaction speeds.
- Lower Transaction Fees – Reduced transaction fees on the lending marketplace make it more accessible to a wider audience,making DeFi lending a viable option for more users.
- Enhanced Security – The robust security offered by zkEVM gives Clearpool borrowers the confidence to transact securely on the platform.
Idle Yield Tranches (YTs) on the zkEVM ecosystem.
In collaboration with Idle,a decentralized yield automation protocol,Clearpool is introducing Idle Yield Tranches (YTs) on the zkEVM ecosystem.
These innovative DeFi primitives allow for the segmentation of yields and risks, catering to a diverse range of users.
The Idle Yield Tranches offer two risk-return profiles. Which are namely, Senior and Junior ,providing liquidity providers with the flexibility to lend digital assets based on their preferred risk/reward level.
This dual-tranche system accommodates different investor’s risk appetites.
Since its launch in March 2022,Clearpool has achieved impressive milestones,originating over $400 million in loans and attracting a diverse user base. Including crypto and traditional finance institutions like Wintermute,Jane Street,Fasanara Capital and CoinShares.
Chiefly, Clearpool expansion into Polygons’ zkEVM is yet another testament to its commitment to pioneering innovative technology in the DeFi space.
With the integration of Idle Yield Tranches ,the future looks promising for Clearpool as it continues to revolutionize DeFi lending.
Firstly it is still a new development in the crypto space. Additionally, as it expands, the risks might, too.
That is why there is a need for a regulatory framework to support DeFi projects and protect the investment.
Secondly, it is once-in-a generation investment opportunity if done right. Additionally, the industry is also very young and full of not-so-great players looking to exploit new investors due to their lack of technical knowledge .
Furthermore, prices are also currently so inflated that it is hard to decide .
Secondly, if the current prices reflect honest price discovery or whether it is just a concerted “pump” effort that will come crashing down soon.
For example, hot new protocols like AAVE have jumped from under $20 to over $520 in only weeks.
DeFi is an term for peer-to-peer financial services on public blockchains,primarily Ethereum.
Cryptocurrency is one type of digital asset that can be used in DeFi. But DeFi is not limited to just cryptocurrency . And it encompasses a wide range of financial applications that can be built on blockchain technology.
Aave (AAVE), Synthetix (SNX), Uniswap (UNI) ,and the Cardano DeFi project.
DeFi wallet offers some security features that can be hard to find in online self-custody wallets. Notably, it has two-factor authentication available. And its code is open source ,which lets people check the code for flaws.
The market value of Ethereum-based DeFi transactions is proof enough that it is giving TradFi a run for its money. In addition, DeFi may soon be the preferred choice for institutions to fulfill their credit needs due to its ability to provide financing at more competitive rates when compared with TradFi.