pexels photo 373912 Decentralized Finance (DeFi) Is Taking Over The World of Finance

Decentralized Finance (DeFi) Is Taking Over The World of Finance

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What is DeFi ?

DeFi is a field in the cryptocurrency industry that many believe to be their best use case with the brightest future. DeFi stands for Decentralized Finance, which means that it is a financial system that does not rely on traditional financial institutions. In other words, it is a space where crypto has the best chance of becoming a real world currency. 

The goal of DeFi is to create a financial system that is censorship resistant, trustless, and accessible to anyone with an Internet connection. This is achieved by using decentralized technologies such as blockchain and smart contracts. So far, the DeFi space has been mostly focused on creating protocols and platforms that allow for the lending and borrowing of cryptocurrencies. This is because lending and borrowing is one of the most important functions of traditional finance. By creating decentralized versions of these services, DeFi is able to offer them in a way that is trustless and accessible to anyone. The DeFi space is still in its early stages and is constantly evolving. New protocols and platforms are being created all the time, and the space is quickly becoming one of the most exciting in the cryptocurrency industry.

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History of DeFi

Decentralized finance (DeFi) is a new paradigm for financial applications that are built on the Ethereum blockchain. DeFi applications are open source, decentralized, and peer-to-peer, meaning that they are not subject to the control of any single entity.

The history of DeFi can be traced back to the early days of Bitcoin, when developers started to experiment with building financial applications on top of the Bitcoin blockchain. One of the earliest examples of this was the development of the Bitcoin lending platform BitLendingClub, which launched in 2013. In the years that followed, a number of other DeFi applications were developed, including decentralized exchanges, stablecoins, and synthetic assets. However, it was not until 2017 that the DeFi ecosystem began to take off, with the launch of the Ethereum-based lending platform MakerDAO. Since then, the DeFi ecosystem has grown at an exponential rate, with new applications and protocols being launched on a regular basis. The total value locked in DeFi protocols has now surpassed $13 billion, and the ecosystem is showing no signs of slowing down.

The DeFi space has seen a number of major milestones in recent years. In 2019, the total value locked in DeFi protocols surpassed $1 billion for the first time. In 2020, that figure rose to over $13 billion, with a number of protocols seeing explosive growth. The year 2020 also saw the launch of a number of major DeFi protocols, including Synthetix, yearn.finance, and Compound. In 2021, the DeFi space is expected to see even more growth.

A number of major protocols are expected to launch this year, including MakerDAO’s Multi-Collateral Dai, Synthetix’s Synthetix Network Token, and yearn.finance’s y.earn. The total value locked in DeFi protocols is also expected to exceed $100 billion this year. This growth will be driven by a number of factors, including the continued development of the DeFi ecosystem, the launch of new protocols, and the increasing adoption of DeFi by mainstream users.

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Key characteristics of DeFi:

  • Interoperable: DeFi applications are built on open standards and can interact with each other. DeFi applications are built on open standards and can interact with each other. The DeFi applications are built on open standards, which means that they can interact with each other. For example, you can use Maker to collateralize your ETH and then use Compound to borrow against that collateral. The DeFi applications are built on open standards, which means that they can interact with each other. For example, you can use Maker to collateralize your ETH and then use Compound to borrow against that collateral.
  • The DeFi applications are trustless and permissionless. The DeFi applications are trustless, which means that you don’t have to trust a centralized party to custody your assets or execute transactions. The DeFi applications are also permissionless, which means that anyone can use them without having to go through a KYC/AML process.
  • Programmable: DeFi applications are powered by code and can be automated. What does this mean for traditional financial instruments that are driven by humans?
  • The DeFi applications are composable. The DeFi applications are composable, which means that they can be used in combination to create new financial instruments. For example, you can use Maker to collateralize your ETH and then use Compound to borrow against that collateral.
  • Composable: DeFi applications can be combined and used together to create new financial products and services. These applications can be integrated with traditional financial products to create new DeFi products. For example, a crypto exchange can offer a DeFi product that allows users to trade crypto assets without having to hold them on the exchange. This would allow users to trade crypto assets without having to worry about the security of the exchange. Another example is a DeFi product that allows users to take out loans against their crypto assets. This would allow users to borrow money against their crypto assets without having to sell them. The possibilities are endless and the potential for DeFi applications is huge.
  • The DeFi applications are open source. The DeFi applications are open source, which means that anyone can audit the code and contribute to the development of the applications.

The traditional financial system is powered by humans and is therefore subject to human error. Automated DeFi applications are powered by code and are not subject to human error. This means that DeFi applications have the potential to be more secure and efficient than traditional financial instruments.

Errors and hacking in DeFi:

Since the DeFi ecosystem is still in its early stages of development, it is prone to errors and hacks. Some of the most notable errors and hacks in the DeFi space include:

  • The DAO hack: In 2016, an Ethereum-based decentralized organization called The DAO was hacked and $50 million worth of ETH was stolen.
  • The bZx hack: In 2019, the decentralized lending platform bZx was hacked twice, resulting in the loss of $8 million worth of ETH.
  • The Parity hack: In 2017, a popular Ethereum wallet called Parity was hacked and $30 million worth of ETH was stolen.
  • The Synthetix hack: In 2020, the decentralized synthetic assets platform Synthetix was hacked and $30 million worth of SNX tokens were stolen.

Despite these errors and hacks, the DeFi ecosystem has continued to grow and attract more users and developers.

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