What is DeFi

What is DeFi?

• DeFi - decentralized (De) finance (Fi) services/products

• eliminate companies/intermediaries to reduce processing time & charges

• can use DeFi service with simply a device with internet

• no identity and 3rd party approval needed when using the services

• processes are executed by pre-defined logics (if fulfil something then), known as smart contract

• smart contract makes the processes automated, fast, transparent, no manual interferences

• transactions are verified and recorded on blockchain, which blockchain as a public ledger

💡 Smart contract: ‘programs’ on blockchain that run when predetermined conditions are met

Types of DeFi

DeFi can be any financial services we see in real world, but executed on blockchain instead. Key products include:

1. Trading & Saving

   • Decentralized Exchange (DEX) - empowered by Automated Market Maker (AMM) that allowed Liquidity Provider (LP) to provide assets to the platform, then platform matches trades and shares portions of transaction fee to LP

   • Staking/Saving/Yield Farming - putting in your token to platform either with/without lock period, you’ll get interests in token itself/platform token/stablecoin

2. Lending & Borrowing

   • Borrowing: borrow another token by putting in your tokens as collateral, whenever your assets’ value drop (e.g. <120% of total borrowed), your collaterals will be sold automatically

   • Lending: lend out your idle cryptos to earn interest, protected by auto liquidation mechanisms to make sure lenders’ assets are always in place to be claimed back

3. Derivatives & Lottery

   • Futures Contract: enabling margin long/short bets on assets like stock options

   • Lottery/luck draw/Gambling: blockchain enables a fair, transparent way of these activities

4. X-Fi

   • GameFi: monetarize gaming experience that turn game assets/currencies into real money

   • SocialFi: reward people who create & contribute content creation

💡 Liquidity Provider (LP): user who deposits tokens into a liquidity pool, 'combining' tokens to be LP tokens. Whenever trades occurs on that token pair, liquidity providers are awarded LP tokens (mainly from TXs fee) that represent the share of the liquidity pool the user owns.

💡 Automated Market Maker (AMM): an automated decentralized exchange (DEX) that allows users trade against liquidity pools. An algorithm is set to regulate the values and prices of the tokens in the liquidity pools, execute in a way of 'peer-to-contract' transactions.

💡 Total value locked (TVL): is the sum of all cryptocurrencies staked, loaned, deposited in a pool, or used for other financial actions across the DeFi platform(s).