At its core, DeFi, or decentralized finance, is a conventional financial instrument built on the blockchain. Usually, the Ethereum blockchain is used, but other networks have been used also. DeFi applications are generally based on open-source protocols for creating and issuing digital assets.
Like all applications on a public blockchain, DeFi is censorship-resistant and offers improved access to financial services.
DeFi aims to provide a global, open alternative to traditional financial services available today.
DeFi uses smart contracts on the Ethereum network, which are self-executing contracts. These allow DeFi DApps to use sophisticated functions rather than just simply sending and receiving cryptocurrency.
As is the case with most DApps, DeFi DApps have automatic processes with rules that are hardcoded into the smart contract. These rules are transparent and visible to all within the code.
DeFi is one of the fastest-growing areas in the crypto world. More than $600 worth of crypto has already been invested in its infrastructure.
There are many popular use cases for DeFi:
Open Credit Protocols
Open credit protocols enables the integration of lending/borrowing of digital assets, the insurance of digital assets, instant transaction processing and new methods of secured lending, broader access to people who are unable to access traditional services and standardization and interoperability, which can reduce costs through automation.
Issuance Platforms and Investment
Issuing platforms encompass a wide range of platforms, including multiple exchanges that simultaneously serve as issuing media. A significant portion of issuance platforms are in the security token space.
Well-known security token issuance platforms such as Polymath and Harbor provide issuers with the framework, tools, and resources to launch security tokens on a blockchain.
They are preparing their own standardized token contracts for securities (i.e., ST-20 and R-Tokens) that allow for automated compliance and customizable trading parameters to meet regulatory requirements.
Besides, they are similarly integrated with service providers such as broker-dealers, legal entities, and others to assist issuers in their process. Dual exchange/issuance platforms include Overstock’s tZERO, for example.
Issuance platforms and investment management systems are likely to grow rapidly in importance as more participants enter the open finance world while providing growth for the DeFi ecosystem.
Decentralized betting platforms
Decentralized betting platforms are among the more compelling components of open finance that are highly complex but offer tremendous potential. Augur launched a censorship-resistant platform based on Ethereum last year that allows people to bet on just about anything. Other projects, such as Gnosis, are aiming for something similar.
Betting platforms, or prediction markets, have long been popular financial tools for hedging risk and speculating worldwide events. Decentralized prediction markets enable the same thing, but with cryptocurrencies and without the ability to censor the markets. Everything from political and weather forecasts to hedging all kinds of risks on financial or adverse events in the real world is already offered in Augur.
Exchanges and open marketplaces
The role of exchanges is fulfilled by decentralized exchanges (DEX). A DEX is a P2P marketplace for assets on Ethereum between two parties, where no third party acts as an intermediary in a transaction. Thus, they differ from centralized exchanges like Coinbase & Co. in this respect. Some DEX also uses some highly innovative methods of exchanging tokens such as atomic swaps and other non-depository means of exchanging one asset for another with minimal settlement time and risk.
Other types of open marketplaces focus on exchanging non-fungible tokens (NFTs), often referred to as crypto-collectibles. Platforms such as OpenSea and Rarebits facilitate the search and buy/sell of crypto assets ranging from NFTs in games such as Cryptokitties to virtual land parcels in the game Decentraland. Some marketplaces, such as District0X, are even said to allow users to create their own exchanges and vote on management procedures. Current examples of dexs that offer cryptocurrency trading include Binance DEX and Ether Delta.
Protecting Your Cryptocurrency while using DeFi
Cryptocurrency and the blockchain stand to be a major driving factor in the technology of the future. However this popularity has attracted an element of cybercrime. There are several tools internet users should use to increase their online protection. One of these tools is SaferNet.
SaferNet is the perfect solution to the cybersecurity issues that individuals, families, and businesses face today. It not only connects every device using a secure, 24/7 always on, military grade VPN, but it also stops outside cyberthreats, malware and viruses as well. On SaferNet, all users are protected anywhere in the world, all the time, on any cellular or Wi-Fi network. In addition to SaferNet’s VPN and cyber protection, it also offers a range of employee or parental/family internet controls including internet filtering, monitoring, scheduling, and blocking access to websites or even entire website categories
Typically, a user would need 3 separate services for a VPN, Malware Protection, and Internet Controls; SaferNet offers all 3 features in one service. SaferNet truly is an endpoint security presence that can be implemented in minutes around the world, on phones, laptops, tablets, and computers at an economical price point that caters to all internet users. SaferNet guarantees a smooth setup and installation process that takes only minutes, and an easily accessible control hub for you to monitor all your employee’s or family members devices; including activity, time spent online, and threats blocked.