Criticism: Picturing the Ether DeFi crowd trying to exit their positions but can’t cause the gas is too expensive.
Before going by a one-liner statement by a celebrity or a billionaire, it is only practical to educate and get to know what we are dealing with when it comes to DeFi.
Those who are beginners will want to know about what is decentralized finance; the common uses of DeFi like lending, borrowing, trading, and stable coins; Difference between decentralized finance and centralized finance; how does Dapp use smart contracts; How Bitcoin, Ethereum, and other blockchains fit within DeFi, Defi-Wallets, and Self-Custody; being in 100% control of tokens and lot more.
There are several tools available to get started with DeFi. And, in many cases of DeFi, KYC is not needed. Permissionlessness is an essential feature in DeFi investors should understand that.
There is something called Yield Farming, and people are trying to understand if it is different from DeFi or if it is a part of DeFi.
Defi is a finance system. It is decentralized, and the financing happens in a peer-to-peer fashion. Bitcoin is all about value and being able to transfer that value. And, BTC is very important. However, Ethereum has expanded on that which Bitcoin has made possible by smart contracts and Dapps, thus settling transactions in minutes or seconds.
There are several popular DeFi applications like wallets, lending, borrowing, spot trading, margin trading, interest-earning, market making, derivatives, options, and more.
DeFi is that which allows your money and assets to continue to earn more. In Legacy finance, it becomes important to go through KYC, through brokers, and lots of middlemen, but in DeFi, the same thing gets done in a peer-to-peer fashion.
UniSwap Liquidity providers are the easiest way to understand Defi. You are a market maker in a DEX that allows someone to trade any asset on Ethereum or other assets. And, the way that it works here:
Traders go to Uniswap to do a swap or a trade. Swap means the user can trade Ether for DAI. In this process, the Ether is sold for certain units of DAI, and this happens in a peer-to-peer fashion. Therefore, those who are providing liquidity are in control of their assets. The smart contract is trusted in the process. For as long as there is no bug in the protocol program, all is well.
When trading, there comes the ability to be a liquidity provider. The user, for instance, gets into the DAI/ETH pool and deposits the assets in the liquidity pool. And, people are allowed to trade between DAI and Ether. People pay transaction fees like 0.3% per trade. The user who has contributed to the liquidity pool will earn a fraction of that percent depending upon the staked value.
So, you take idle assets and put them to work in a liquidity pool to bring in some yield and therefore yield farming.
This is how money is made; the rest is sustainability math!
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