Whether you're brand new to the universe of cryptocurrency or have some experience investing, there's a lot to be learned about DeFi, the trendy new digital asset that everyone is talking about. This article will take you through the history of DeFi, how to get involved, and the one application that can help you manage it right in with the rest of your portfolio.
What exactly is Decentralized Finance?
The term "decentralized finance" refers to a subset of the broader cryptocurrency industry.
DeFi refers to a set of financial products based on blockchain and managed by smart contracts, such as applications and "protocols," which are essentially autonomous computer programs. Smart contracts are digital, software contracts that self-execute and include the conditions of an agreement, and their capabilities enable anonymous parties to conduct trackable but irrevocable transactions.
When the developers of a system or app transfer ownership of the smart contracts to their users, the contracts are called community-controlled assets. DeFi's non-custodial aspect indicates that the person retains ownership over their DeFi coins and/or tokens, in contrast to how conventional businesses and even cryptocurrency lending facilities take custody of your assets anytime you need to execute a transaction.
Why is DeFi important and how does it work?
DeFi expands on Bitcoin's basic principle - digital money — to provide a full digital substitute to Wall Street, except without the associated costs (think office towers, trading floors, banker salaries). This has the potential to build more transparent, free, and equitable financial markets that anybody with an internet connection may access. Interacting with DeFi is enabled by specialized applications known as dApps or Decentralized Applications, the majority of which are now based on the Ethereum blockchain. Unlike traditional systems, there’s no physical sign-up work or account opening required.
Understanding DeFi Coins and Tokens, and their differences
DeFi coins and tokens are frequently used interchangeably in the crypto industry. While they are relatively similar, there are a few significant differences.
A DeFi coin functions similarly to a digital counterpart of a fiat coin in how it transfers value during a financial transaction. DeFi currencies are based on and named after their own proprietary blockchain networks. Maker, Compound, Uniswap, Aave, Chainlink, and Ankr were the most popular DeFi coins in spring 2021.
DeFi tokens also convey value, though not always in a monetary sense. Non-fungible tokens (NFTs) represent one-of-a-kind "objects" such as digital art (for example, Nyan Cat recently managed to sell for $600,000). Utility tokens can be used to provide access to a resource while asset tokens can be used to represent physical assets like real estate. DeFi tokens differ from coins as they can be constructed on top of current blockchain networks.
Is Bitcoin a DeFi coin or not?
The first DeFi applications were Bitcoin and ETH. Network topologies of computers, not central organizations, control both. Many investors treat bitcoin as if it were gold, treating it as a store of value and a stable asset immune to volatility that protects against inflation, whereas Ethereum has been crucial—and divisive—in helping entrepreneurs crowdfund their operations.
Now that the key fundamentals of DeFi coins and tokens are laid out, let’s take a look at some top DeFi coins:
AAVE - Aave was founded in 2017 and has quickly become one of the most popular DeFi platforms on the market. Because it delivers a truly decentralised marketplace that supports the lending and borrowing of digital currencies, this platform possesses all of the characteristics required to replace traditional finance.
Uniswap (UNI) - Another top DeFi coin, Uniswap is an Ethereum protocol for exchanging ERC-20 tokens. It offers a user-friendly and low-latency environment for exchanging ETH and ERC20 tokens directly. Users choose Uniswap because it does not have an order book, unlike most exchanges. It makes use of the Constant Product Market Maker mechanism, which forecasts exchange rates and price fluctuations in order to ensure that the users are always aware of market conditions.
Chainlink - This platform functions as a decentralized observatory. Its network provides tamper-proof inputs and outputs for complicated blockchain smart contracts. Chainlink enables the secure, trustworthy, and transparent transmission of data into and out of a blockchain network.
Synthetix (SNX) - Synthetix is one of the industry's most hyped DeFi platforms. It's an ethereum-based decentralised insurance system. It enables users to create synthetic representations of their physical assets as tokens that are pegged to the asset's value. Synthetix is a popular derivatives protocol with its own native coin, SNX. Users must stake at least 750% of the value in SNX in order to mint new derivatives, known as Synths.
Curve Finance (CRV) - Curve Finance is a decentralized cryptocurrency exchange that allows users to buy, sell, and exchange ETH. It also serves as a source of liquidity in the DeFi market. A market-making algorithm is one of its unique and pioneering ways for introducing liquidity. This algorithm aids in the purchase and sale of crypto coins by utilizing the advantages of bidding. Curve is a liquidity aggregator for assets that are pegged to the same currency, such as stablecoins and Bitcoin wrappers. The Curve application stakes the native token CR for some time-extensive governance rights and liquidity multipliers on CRV liquidity mining. It's been suggested that the Curve DAO will employ protocol fees to buy and burn CRV on the open market in the future.
Exchanges like C-Trade are home to some of the best innovations in crytpocurrencies. They enable users to trade in various forms of cryptocurrencies and buy BTC, ETH, and USDT via their exchange. Would you like to see the best DeFi coins listed on C-Trade? Let us know!
Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. C-Trade, its affiliates, agents, directors, officers, or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same