What is DeFi (Decentralized Finance)?


DeFi is an acronym derived from Decentralized Finance. It means financial practices developed provided that there is no need for any central authority. DeFi is not a commercial project or a name given to any coin. DeFi is a concept. In its most general and simplest definition, it reconstructs traditional finance products using the programming capability of smart contracts.

Although the first thing that comes to mind is to take or give credit to the person with collateral, when we talk about DeFi; as can be seen in the table below, there are companies working on many different subjects in the field of decentralized finance. People’s belief in this concept is increasing day by day despite some recent manipulation and hacking events and new projects are being added to this list.

Source: https://www.theblockcrypto.com/genesis/15376/mapping-out-ethereums-defi

However, the applications and commercial institutions shown here should not confuse us. What needs to be distinguished is that these institutions do not have any provision on the assets of the users (provided that they have not been previously programmed). These companies provide the infrastructure in the programming section to us, and their earnings usually constitute the small commissions they receive from the transfers made.

Getting Credits over DeFi

Getting credit through DeFi applications is the most confusing issue in this regard. Because, in order to get credit, a certain amount of collateral is required for the smart contract, and this amount of collateral (although this rate varies in many applications) is more than the amount of loan requested. So, for example, you might need to lock your $150 worth of Etherium Token to a smart contract to borrow $100.

Although this situation causes you to lose your belief in the concept at first glance, the logic here is that the assured asset (your crypto money) can be seen as an investment tool that you do not intend to sell in the long term. To give a more understandable example: If your crypto money was an agricultural land that you think would gain value in the long term, it would be possible to get cash through the system by showing this land as collateral when you need cash and return the cash when your balance is in a better situation and retrieve your agricultural land as you leave it.

In addition, by using this borrowed money, you even have the chance to earn interest by providing liquidity on another DeFi application that pays a higher interest than you get. In other words, we can say that we take out loans with 6% interest and deposit the amount withdrawn into another bank with 10% interest.

So, How to Get Credit on DeFi Applications?

To understand how the system works, let’s first look at the stable coin types. Because the stable coin in the DeFi concept is the key part of the job. There are four types of stable coins as follows:

  1. Stable coins indexed to fiat money, which is promised by a central authority to promise to hold any fiat money for each coin.
  2. Coins indexed by major commodities such as gold and oil.
  3. Decentralized algorithmic stable coins that do not have any guarantees that support their systems and manage prices with algorithms to stay stable.
  4. Finally, crypto-indexed decentralized coins, such as DAI, managed by the consensus of users on the network, regardless of any central authority that concerns us.

For the stable coin you want to get as a loan, this is DAI in our example. First, go to Oasis.app, an application of Maker DAO. The desired operation is selected from the transaction preferences on the page. Then you need to connect a digital wallet to your computer. As far as I can see, mostly the most preferred wallet is Trezor and MetaMask. If the transaction you want to make is borrowing, by choosing one of the collateral types that vary according to each application; You can create your DAIs in proportion to the crypto asset you deposit according to the collateral percentage. You can cash out the DAIs you have created through exchanges or other intermediaries, invest in other cryptocurrencies and even lend your money by checking the interest rates on https://loanscan.io/ as I mentioned above.

Important notice: When installing your digital wallet on your computer, do not forget to note the “Backup Phares” that is given to you in a safe place. Otherwise, if you forget your password, you will not be able to access your wallet.

I tried to explain the subject in its shortest form. For more information, you can browse the articles of Fidelitas Lex, one of the valuable writers of BTChaber.com, follow the groups DeFiTurkey, DeFi and DeFi Channel Highlights on Telegram.For detailed information: https://defipulse.com/

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