Guide

Understanding DeFi: How Blockchain is Revolutionising the World

DeFi, Blockchain, cryptocurrency; these words are interrelated and can be found in major headlines almost every day. So, how are they connected, and why should you invest time in understanding them? Let me explain this today.

What is “DeFi” and how is it related to Blockchain?

“DeFi” is short for Decentralized Finance. It’s a blanket term for various financial applications in cryptocurrency. Bitcoin and Ethereum are original DeFi applications.

Compared to Bitcoin, DeFi aims at a broader approach to decentralizing the traditional banking system. Its core is to have open traditional financial services with Blockchain as its basic infrastructure. Based on protocols and applications, they can be combined to provide a peer-to-peer financial network.

Advantages of DeFi

DeFi apps bring forth several advantages, and may very well change the way we consider the future. But before we discuss that, let’s take a look at the benefits of these apps:

  1. These are more reliable, secure, and flexible. Boosting mainstream adoption of cryptocurrencies, they are more adaptable than traditional applications.
  2. Unsusceptible to single points of failure as they work on a decentralized network, eliminating the need for a single entity to control.
  3. They are Censorship Resistant which means it’s an application that gives control to its users.

Notable DeFi Projects to Look Out For

One important thing to note is that most of the DeFi projects are based on Ethereum, since it allows the execution of smart contracts, which is paramount to run a decentralized finance network. Every day, we’re hearing about new DeFi projects that aim to change the way we think about finance, but here are the DeFi apps that you should check out:

  1. Compound Finance: It’s a platform to borrow and lend assets, specifically cryptocurrency assets. 
  2. Uniswap: It is a decentralized exchange built on Ethereum for trading ERC-20 tokens. 
  3. Polkadot: It is a multi-chain platform framework. The network protocol allows transferring arbitrary data – not only tokens – between the connected blockchains.
  4. DeFiChain: It is a non-Turing complete blockchain built on top of Bitcoin, designed specifically for the decentralized finance (DeFi) industry.

Of course, this is just a primer for DeFi. There’s much more to them, be it the terms like Yield farming or liquidity mining, and their applications as stablecoins or in prediction markets. Stay tuned to TotalKrypto as we dig deeper into each of these and more.

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