What is DeFi and How Does It Work?

Coming in hot with some ultimate crypto stats! Today starting with DeFi aka Decentralized financing. The platform often called DeFi is a form of blockchain-based financing that does not rely on central financialintermediaries such asbrokers, stock exchanges orbanks that provide traditionalfinancial instruments, but integrates smart contractsused in blockchain via an Ethereum (open access and invitation to use digital money regardless of your location).

The DeFi platform allows individuals to lend or borrow money from others, use derivatives tospeculate on theprice dynamics of various assets, tradecryptocurrencies, hedge risks, and earninterest in savings accounts. But, remember that the Crypto world has set up certain standards that the DeFi platform would need to tuned to. This is where a Defi development company can help you foster the essential transparency and security.

It also uses easy-to-assemble building blocks and layered architecture.Certain DeFi applications encourage high interest rates, with no doubt low risks.  By October 2020, the distribution of various decentralized financial agreements exceeded 11billion U.S. dollars (cryptocurrency), which is more than ten times that of 2019.

As of January 2021, approximately 20.5 Billion dollars areinvested in the dynamic well of profits.The TVL of the DeFi derivatives market is currently $2.78 billion, accounting for approximately 7.4% of the entire DeFi market.

Earning Profit through DeFi

There multiple ways to earn profit from the crypto markets without being exposed to the same risk and volatility as trading. Talking about cryptocurrency reminds me of a perfect quote to explain the working of DeFi – “when the price goes up, it’s because the crypto is bullish. When the price goes down, it’s because the market makers, bankers, mainstream media, whales and your ex-girlfriend are all working together to make you sell!” Because, why blame yourself?

We remember when it used to be financially irresponsible to dump your net worth into crypto. Now it’s financially irresponsible not to. Look at it this way, if you buy $100 worth of crypto and the value goes to 0, you’ll lose 100 bucks. But if the value increases 100 times you’ll gain $10,000 in a second! Why wouldn’t you take the risk?

Decentralized finances help create a protocol, or let’s say, smart protocols for the barter and lending of money. Why did they earn the title of “Decentralized?” This is because these protocols are under smart contracts and are non-custodial in principle. Non-custodial means that you have full access to your cryptocurrencies, that is, there are no specific teams that will manage or look over your crypto money on your behalf.

In a Nutshell

In short, only you have full control over your investments and gains in the crypto market world via DeFi. The power of the creators of these protocols demoted over the smart contract to the lenders, individuals and the community itself.

These smart contracts start working according to their making immediately after the money lent. People can also withdraw a good big amount of loans. (if they successfully show that they are capable of returning the amount within a decided period) at once.

The lenders can set a specific interest rate for a specific amount of money. And a due date for the returning of the same. They can earn a good amount by the interests they put over their lent cryptocurrency.

If the lender and the borrower both agree on all the conditions and verify each other. They can both end up having a Win-Win deal. Decentralized finances have not only ballooned up over the last 1 year. But have also kept maintaining the trust and security of all those who engage in it.

It also gives the buyers more choice as any cryptocurrency can traded/lent. There no limit and boundaries on what is sold.

How to Start Your Decentralised Financing?

Wondering how to join the DeFi family? Here’s how you baptised. First, make sure you own a wallet that works with Ethereum. And all the abilities to connected to the different DeFi protocols on your browser.

MetaMask has been the common choice till now. Second, buy the relevant cryptocurrency of your choice for the DeFi protocol. That you like to choose, ETH and ERC-20 are the popular pick-ups. Third, use these digital currencies to make profits. There are three ways you can make a profit out of them, all three listed below!

1). Lend your cryptocurrency at a particular interest rate. You not only get your lent money back, but you also get it back with a raise. Also, you awarded governance tokens for lending your cryptocurrency which you can use in a variety of styles.

2). Become a Market Maker. This means you can invest your funds in a decentralized exchange, like Uniswap or its controversial rival, SushiSwap. As much as market making you will do, you will keep on earning tokens.

3). Invest Your Money in Even Insane DeFi Projects whose Token Money Skews and Bases Daily. This might considered extremely experimental, but everything worth the risk. As I said earlier, you might lose your 100 bucks or you might gain 100 times of your 100 bucks. We never know!

Decentralized finances are no doubt a risk-to-take, but they are also risk-worth-taking. While investing, the one thing that we have to be extremely careful. And sure about are the smart contracts that we are agreeing to. It might be a bit of a task for beginners but once you know how it works. You will start making money in no time.

DeFi by most people called “a blockchain in a bubble” but the majority of them state that the “bubble” will soon pop. (has started popping from 2020) and DeFi will see huge heights of success and fame.

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