DeFi, short for decentralized finance, means centralized finance. Refers to the decentralization agreement used to build an open financial system, so that anyone in the world can conduct financial activities anytime and anywhere. Remove the third-party guarantee institutions and directly provide cryptocurrency lending/trading services for both parties. For example, solve the problems of unequal financial system, complicated audit process, lack of transparency and potential transaction risks.

For example:

Once upon a time, people wanted to save money or borrow money, either from banks or from private usury; Then came internet plus. Many people choose to deposit their money in Internet finance companies or borrow money from the Internet, that is, P2P Internet finance. Now someone has transferred the loan service to the blockchain, so this system is called difi.

According to the currency circle, your digital currency's private key is entirely in your own hands, and others have no ability to control your property. But now the blockchain is like you give money to the exchange for safekeeping, and then you say how to use it, but the money is actually not in your hand. But many people's money is valuable. What if the exchange also runs away? At this time, if there is a decentralized exchange, this problem will be solved perfectly, and you can see where your money is spent.

The Value and Application of DeFi

Decentralized finance refers to various financial applications born in an open decentralized network. The goal is to establish a multi-level financial system and rebuild and improve the existing financial system based on blockchain technology and cryptocurrency.

DeFi is a broader concept, including: currency issuance, currency trading, lending, asset trading and so on.

Borrow money or borrow money

DeFi protocol allows users to borrow assets. At present, all DeFi loans are over-mortgaged, which means that the guarantee provided by users must exceed the amount of the assets they borrow. This situation is similar to mortgage, where individuals use their own houses as collateral and then get loans.

Using the DeFi protocol, users can publish various assets as collateral and borrow other encrypted assets including stable currency as collateral. When the borrower's collateral value is lower than the specified loan value ratio, their collateral will be liquidated to ensure that the agreement remains solvent.

Decentralized exchange

Decentralized Exchange (DEX) is a peer-to-peer market, which allows cryptocurrency transactions between two stakeholders directly. DEX aims to solve the inherent problems in centralized transactions, such as centralized custody of assets, geographical restrictions, asset selection and so on. Today's most popular DEX uses an automatic market-making system instead of the traditional order book.

Users can store assets in a pool and then determine the price according to the proportion of assets in the pool, instead of matching individual orders. This DEX allows users to passively provide liquidity, make market for any asset on the Ethereum, and provide always available liquidity for traders.

Famous decentralized exchanges: Uniswap, 1inch, Sushiswap, Curve, Kyber, 0x.

Stable coin

A stable currency is a cryptocurrency designed to achieve price stability through another asset. These assets can be linked to legal tender such as US dollar, other cryptocurrencies or precious metals. The main benefit of these assets is price stability (duh), which is very important because most cryptocurrencies are very unstable and difficult to trade.

So far, the price of the most popular stable currency has remained stable with the US dollar. Usually, there are three ways to realize stable currencies: legal mortgage (each stable currency is supported by legal tender in bank account), crypto mortgage (each stable currency is supported by crypto currency in smart contract) and algorithm (each stable currency is supported by incentive mechanism to ensure the price is stable at its target level).

In addition to price stability, a stable currency also provides a borderless payment system, which is faster, cheaper and safer than traditional networks such as SWIFT.

Famous stable coins: Dai,,.

Synthetic assets

Synthetic assets are financial instruments that simulate the value of another asset. There are many ways to realize value simulation; However, this is usually achieved by using price forecasting to ensure that assets track their target values. Encrypted assets can be used to create various types of synthetic assets. The existence of these assets in the blockchain open market such as Ethereum means that global investors can obtain these assets more openly.

Before assets were produced, only a few people had access to and were allowed to enter the global financial market. Synthetic assets can provide investors with value, such as more diversified capital allocation, opportunities to hedge risks, and tools to increase investment returns.

Famous synthetic asset platforms: Synthetix and UMA.

Financial derivatives-options, futures and permanent contracts

The definition of financial derivatives in traditional finance is that the value of financial derivatives comes from the performance of basic entities. This basic entity can be an asset, an index or an interest rate, and is usually referred to as "basis" for short. "Although the attractiveness is still limited compared with other DeFi agreements such as loans, exchanges and stable currencies, the trading volume of derivatives exchanges has increased by 10 times during 2020. Platforms such as Synthetix, yearfinance and Hegic help financial derivatives get the correct names in DeFi.

Famous options and futures trading platforms: Hegic, Opyn, Synthetix, Perpetual Protocol, Futureswap, Alpha Homora.