What is DeFi? What does it do? Who created it, and what problems is it solving? In this article we will explore these questions. We’ll talk about how DeFi’s features can help you take more control of your money and make transactions more quickly; we’ll also discuss the difference between centralized systems and decentralized ones, as well as why decentralization matters. Let’s begin by exploring the history of DeFi.
DeFi is a relatively new term, but its roots go back much further. The first form of DeFi was actually created in the early days of the internet, when people began trading digital assets on forums and message boards. These were essentially proto-cryptocurrencies, and they laid the groundwork for what would eventually become DeFi.
It wasn’t until 2009 that Bitcoin was released, and with it came the first truly decentralized financial system. Bitcoin allowed people to exchange value without relying on a third party, which opened up new possibilities for commerce and investment. Other cryptocurrencies soon followed, each with their own unique features.
Ethereum took things one step further in 2015 with the release of its blockchain platform. Ethereum made it possible to run any decentralized application (dapp) on its blockchain, meaning that developers could create their own financial applications. The possibilities for defi seemed endless; the future looked brighter than ever before.
However, not everyone saw these newfound opportunities in DeFi as a positive development. After all, if anyone can build dapps and benefit from them without permission or restriction, what does this mean for established companies? What happens when big corporations lose control of their users’ finances? This is why defi has been met with some degree of suspicion by regulators and other stakeholders in traditional finance systems – after all, defi represents an existential threat to many centralized institutions .
Cryptocurrencies may have opened up new possibilities back in 2009 , but even still they remain limited in some ways. For example, most cryptocurrencies are only accepted on the specific blockchain they were created for; this means that users must exchange their cryptocurrency of choice for whatever defi service they need to use. This is already beginning to change thanks to new technologies like atomic swaps and interoperability protocols , but it’s difficult to predict what will become possible with decentralized money once these innovations mature.
We’ve come a long way since the early days of defi; where we go next remains uncertain. One thing is certain, though: if you’re interested in defi then now is the best time yet to get involved .
One example of a recent defi project is Aave. Aave is a masternode defi platform that allows developers to create their own financial applications. It’s an excellent choice for those who want to build defi projects; it provides the tools and infrastructure they need to do so easily and quickly, all while keeping things decentralized.
Aave also makes it possible for users of defi services – like borrowers or lenders – to avoid having large amounts of money tied up in one project at any given time. Aave bills itself as “the future of lending”, meaning its goal is bringing more people into the defi movement than ever before through features such as fiat integration .
Basically, you can take certain cryptocurrencies and deposit them in to your Aave dashboard, and then borrow against said crypto. For example, you can take a stable coin, such as DAI, deposit in to your account, then click “borrow” to borrow a certain percentage off of what you have deposited. Based on your LTV (loan to value ratio) and your “health factor” you will be able to borrow more. If however your “health factor” gets too low (1 or less) your collatoral will be taken to pay off whatever percentage will bring you back to a healthy “health factor”.
I personally got rekt by over-leveraging myself, and when ETH dipped hard part of what I had in my account got liquidated. Lesson learned.
Aave is available on the Ethereum main net as well as the Polygon (MATIC) network.
Matic is another defi platform that’s worth mentioning here. It’s a Plasma chain built on top of the Ethereum blockchain, and it allows for quick and easy creation of dapps . Polygon is one such dapp, and it allows users to invest in defi projects in a completely trustless way.
Thanks to tools like Matic and Polygon, defi is becoming more accessible than ever before. This is making it possible for people who may not have been interested in cryptocurrency or blockchain technology to get involved in defi projects. Projects like Aave are helping to break down the barriers between traditional finance systems and defi, paving the way for a brighter future for all.
This is just written for an use case example and is in no way financial advice, as you can tell from the example above, I ended up losing about 4 eth by using Aave. defi is still a very new industry and there are lots of risks involved, so please do your own research before borrowing or investing in any defi projects!