DeFi (or “decentralized finance”) is an umbrella term for financial services on public blockchains, primarily Ethereum. With DeFi, you can do most of the things that banks support — earn interest, borrow, lend, buy insurance, trade derivatives, trade assets, and more — but it’s faster and doesn’t require paperwork or a third party. As with crypto generally, DeFi is global, peer-to-peer (meaning directly between two people, not routed through a centralized system), pseudonymous, and open to all.

What is DeFi?

So what is this powerful, wild beast known as DeFi? And isn’t all of crypto decentralized finance, anyway? Sort of. The DeFi movement refers to a specific genre of financial product that champions decentralization above all else, and uses lucrative incentive mechanisms to encourage investors to play along.The decentralized finance world is made up of a multitude of non-custodial financial products, built around a culture of highly-experimental, highly-lucrative crypto projects that’s caught the eye of top companies and venture capitalists—and not a few scammers.

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1: Download TOKEN POCKET wallet

2: Create a BSC smart chain wallet

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4: Click the connect wallet at the top right

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How does DeFi work?

Among the most popular projects are lending protocols Aave, Maker and Compound. These are protocols that let you borrow cryptocurrencies instantaneously—and often in large amounts if you can prove you can pay back the loan in a single transaction. You can also earn interest from lending out cryptocurrencies.

Then there’s Uniswap, a decentralized exchange that lets you trade any Ethereum-based token you like, or earn money if you add liquidity to that token’s market. DeFi’s also about synthetic assets, like Synthetix’s tokenized stocks or Maker’s decentralized stablecoin, DAI, whose value is algorithmically determined by the protocol. And other services port Bitcoin to Ethereum in a non-custodial manner or offer decentralized price oracles, which, among other things, allow synthetic assets to accurately peg themselves to their non-synthetic likenesses.

What earns these protocols the DeFi tag is that they are—at least in principle or ambition—decentralized

》》》Maybe you are also interested in this article A Step-by-Step Guide for Beginners to Get Started with Decentralized Assets

Define: Decentralized

A system which has moved away from a single point of control, towards many points of control and non-custodial.Non-custodial means that the teams don’t manage your crypto on your behalf. Unlike, say, depositing your money in a bank or lending out your crypto with a crypto loans company (such as Cred), with DeFi protocols you always maintain control over your cryptocurrency.

Decentralized means that the creators of these protocols have devolved power over their smart contracts to the community—in the spirit of the hacker ethic, their creators vote themselves out of power as soon as possible and let the users vote on the future of the network.

The space has been known to fall short of its lofty ideals. In even some of the largest DeFi protocols, close readings of their smart contracts reveal that teams hold immense power or the contracts are vulnerable to manipulation.But it’s wildly lucrative for some traders. Many of these lending protocols offer crazy interest rates, bumped up even higher by the phenomenon of yield farming, whereby these lending protocols offer additional tokens to lenders.

These so-called governance tokens, which can also be used to vote on proposals to upgrade the network, are tradable on secondary markets, meaning that some annual percentage yields work out at 1000%. (Of course, whether the protocols in question will last a whole year is up for debate).

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