It's been back to school for more than a week now, guys, and today we're going to discuss together what decentralized finance is in its broadest sense. Indeed, in our last episode of this series "back to school" we had discussed security in the ecosystem, today we are more interested in the possibilities that DeFi offers us.
What exactly is DeFi?
DeFi, or decentralized finance, refers to a wide range of financial tools that can liberate people from governments and other organizations like banks and insurance companies. Smart contracts, a component of the Ethereum cryptocurrency, are the foundation of DeFi apps. These make it possible to link a computer software to a specific currency.
DeFi applications' main selling point, however, is that they depend only on smart contracts and are not connected to any specific business. Once an application is programmed, it operates on its own. The user incurs very little expense as a result because there is no building to maintain, no office space to lease, and no middlemen to pay. Additionally, registration requirements are strictly minimized. A DeFi-based insurance will therefore be extremely affordable and flexible, which is unheard of in the actual world.
Users must be genuinely interested in taking part and investing their ETH (Ethereum), BNB (Binance), or other cryptocurrencies for a DeFi application to succeed. DeFi applications accomplish this by enacting rules in the smart contract that compensate users for taking part in the program. Additionally, investors in the cryptocurrency associated with a specific app earn "governance tokens" that let them cast votes on changes to the app.
What's the point of DeFi?
What exactly can be done with this ever-growing sector? Today, there are many, many services offered by multiple protocols and applications. Here is a non-exhaustive list of the most mature and widely used services in DeFi:
Traditional financial transactions such as trading or sending/receiving funds;
Decentralized exchanges (DEX), platforms where buyers and sellers are connected to exchange assets.
Lending/borrowing services, allowing the lending and borrowing of assets in a decentralized manner and without any form of justification;
Flash-loans, which allow users to borrow very large amounts of money with very little collateralization. This money is then used in a flash strategy involving many transactions (such as arbitrage), and then repaid to the protocol. And all this in a single block.
Full wallets, similar to banks, with many integrated financial services and direct connections to several blockchains;
"Stablecoins" or cryptocurrencies paired with stablecoins such as the dollar or the euro. They allow users to access all the services offered with non-volatile currencies;
Yield farming, a complex and semi-automated activity that consists of finding strategies that combine several protocols in order to increase returns tenfold;
Areas for improvement?
Although the DeFi ecosystem is still very young, there is already talk of DeFi 2.0, proving that the crypto market is always evolving. The new decentralized finance, also known as DeFi 2.0, will put forward ways to permanently stabilize money within blockchains.
Decentralized finance is being revolutionized by certain protocols (which is already a revolution in itself). The pace is now extremely rapid; if a protocol is not accepted by the community, it can be born and then expire the same day. In the past, LP tokens were given to someone who supplied liquidity for a system (Liquidity Providing Token).
When they came back to get their liquidity, they would give the protocol the LP tokens back and leave with their liquidity. Now, liquidity providers become guarantors and have an incentive to permanently lock liquidity to the protocol. They then sell the LP token and receive a discount on the protocol's governance token in exchange. In sum, the protocol no longer fears withdrawals from suppliers and thus low liquidity supply of its cash, since it now owns the cash.
How does DeFi integrate with SuperBots?
The SuperBots ecosystem shares many of the features of DeFi as it is the first fully decentralized automated trading platform based on the best algorithms available on the market.
With SuperBots it is therefore possible to trade on decentralized trading platforms using our vaults that trade automatically. Each vault represents a distinct strategy. It is also possible to do staking on the platform, NFTs and a Metaverse game are currently under development.
SuperBots is a good choice to take advantage of the possibilities that DeFi has to offer, the anonymity offered by decentralized exchanges for example. SuperBots is also easy to access for someone who is just starting out by being more accessible than a classic decentralized exchange.
Innovation in this sector is exponential and even if DeFi 2.0 is still in its infancy, I think we can expect great things.
I'll see you next week for a new episode of back to school!