This article highlights opportunities and potential risks of the DeFi ecosystem. DeFi uses smart contracts to create protocols that replicate existing financial services in a more open, interoperable, and transparent way. Lawful question but which contains a very thorough and detailed explanation, and it is for this reason that this and other questions such as which are the best platforms for this kind of financial products, are answered in the book that explains the various topics in detail, which takes the name of ' Mastering DeFi - A practical guide for beginners and the advanced', important because it not only explains the basics of this sector and the various steps of the various protocols, over 30, but it is also the only one that examines 3 different blockchains such as Ethereum ( ETH), EOS and Tron ( TRX).The term decentralized finance (DeFi) refers to an alternative financial infrastructure built on top of the Ethereum blockchain. Therefore, the purpose of these protocols is to make it easier, faster and cheaper to transact certain assets within the same protocols, but still have a link with the reference blockchain, since other systems fall into other categories.Īnother interesting protocol that falls into this category is the one related to xDAI, Ethereum sidechain with a higher speed and a cost price much lower than what we find on the main Ethereum blockchain. Here the subjects will have to send their BTCs which will then be transacted within the LN network, taking advantage of all the advantages of speed and economy that we do not find on the main bitcoin network. The most famous case of protocol that we find in this category of payments is certainly that of the Lightning Network (LN) protocol, an upper layer that is based on that of bitcoin and which serves as an aid for the exchange of bitcoins but in a fast and economical way. In most cases, these protocols do not have their own token, because they offer a structure on which to communicate different protocols or allow you to connect to the starting one so as to bypass some technological limits of the same.

Obviously, not all protocols fall within the DeFi and some can be sorted into sub-categories, but the goal and the common basis they share is to block funds within the protocol to obtain an advantage of some sort.įor example, in a lending and borrowing protocol, we block one of our assets for a certain number of time, placing it in a pool, and in exchange we obtain interest for the duration of the time in which we have left the funds in that pool, so we have a passive income and doing nothing.īut this is not the only case of advantage of a certain application and of how funds can be blocked for an interest, and in fact we can also have protocols that allow the advanced exchange of a certain asset to have an economic or timing advantage that would otherwise be impossible to have.

just read up a little to see beyond the hedge.ĭecentralized finance is distinguished from the traditional one because it allows everyone to interact with traditional financial instruments but independently and without a third party who can act as an intermediary or impose constraints and limits on our work. When we talk about DeFi, the word is often associated with only some protocols such as those that allow the exchange of tokens, and we think that only on the Ethereum blockchain there are such tools, but unfortunately the reality exceeds our visual limits and that's it. About having seen one of the 5 macro areas of decentralized finance (DeFi), namely lending and borrowing, today we will focus on another aspect and which is called payments.

Defi overview