Ivan on Tech Academy provides latest insights and reports about the blockchain industry.
Those looking into the DeFi field will likely come across the term "yield farming". Yield Farming is the process of putting crypto tokens to productive use in a decentralized finance (DeFi) market to earn interest. Yield Farming takes place on the Ethereum blockchain, and yes, it is a way to earn passive income on Ethereum. But “hodling” ETH tokens is not the same thing as Yield Farming.
This kind of farming is a creative process. It is also a managed process where “farmers” typically hop from one protocol to the next to maximize returns. However, farmers can also employ “set it and forget it” strategies.
Yield Farming became popular with the release of Compound’s COMP governance token. When word got out that farmers could reap Annual Percentage Yields (APY) over 100%, things took off. At present, there is over $4.5 billion Total Value Locked (TVL) in DeFi according to DeFi Pulse.
Governance tokens like COMP offer hodlers...
Balancer is an automated market maker (AMM) for multiple tokens. It enables portfolio owners to create Balancer Pools where traders can then trade against these pools. Balancer is still a relatively new liquidity provider (LP) in the decentralized finance (DeFi) space. It only launched in March 2020.
Exchanges, whether they be centralized (CEX) or decentralized (DEX), exist to fulfill buy and sell orders. Their role is to find matches for a wide variety of orders from buyers and sellers so their orders can be executed. Traders rarely find the perfect match on the other side of a trade, so compromises have to be made. Hence, the need for market makers.
A traditional market maker is an individual or member firm of an exchange that buys and sells securities with the primary goal of profiting on the spread. Investopedia describes it this way: “Many market makers are brokerage houses that provide trading services for investors to keep financial markets...
Prediction markets use the “wisdom of the crowd” philosophy to make decisions on future events or outcomes. The events predicted can be extremely diverse, such as - elections, sales of a company, price fluctuations of commodities, etc. In this article, we will talk about DeFi prediction markets. These are prediction markets that use the advent of decentralized finance to drive the prediction systems.
So, first thing’s first….
DeFi stands for decentralized finance. It’s a movement that aims to utilize protocols like smart contracts to create decentralized versions of traditional financial products and instruments. A DeFi can be anything from a digital asset, decentralized applications (DApps), financial smart contracts, and protocols that run on top of public blockchains. Some features of these DeFi applications are as follows:
Aave is a decentralized money market protocol that enables users to lend and borrow cryptocurrencies in a trustless manner. There is a wide variety of cryptocurrencies to choose from, and Aave offers both stable and variable interest rates to its users.
We’re looking closer at Aave today because it is quickly establishing itself as a market leader in the lending and borrowing sector of decentralized finance (DeFi). Like other DeFi protocols, there are no lengthy registrations to contend with, nor any KYC (Know Your Customer) or AML (Anti Money Laundering) documents required.
To transact on Aave, lenders must deposit funds into liquidity pools, and users can then borrow from these pools. Each pool sets assets aside as reserves to hedge against volatility. These reserves also help ensure that lenders can withdraw their funds when they’re ready to exit the protocol.
Aave has close to 20 different cryptocurrencies available for...
Derivatives are one of the most sophisticated and mature instruments in the financial market. One of the most exciting things about DeFi is that it allows developers to recreate traditional financial instruments in a decentralized context. The DeFi derivatives market has garnered a lot of steam.
As per DeFi Pulse, DeFi derivatives applications have >$500 million locked up, with Synthetix being the clear market leader. If properly executed, DeFi derivatives can bring a whole new class of investors and institutions. But before we do so, let’s look into the definition of financial derivatives.
In finance, a derivative is a contract that derives its value from an underlying entity's performance. The contract specifies the exact conditions under which two parties can transact with each other. These conditions include:
Synthetix is the name of a decentralized, synthetic-asset exchange. “Synthetics,” on the other hand, are financial instruments that simulate other instruments. They play a big role in the world of traditional finance. And this is what the company, Synthetix, aims to bring to the world of decentralized finance (DeFi)
But, before we dig into the role that Synthetix plays in the DeFi space, let’s look at the traditional role that synthetics have always played. We’ll start with derivatives.
A derivative is a security that derives its value from an underlying asset (or group of assets). Futures, swaps, and options are all examples of derivatives. The derivative holds no value in and of itself. Its value is based on its underlying asset(s).
Underlying assets can be things like stocks, bonds, and currencies. Bitcoin could be an underlying asset. Thus Bitcoin’s intrinsic value could drive the price of a derivative.
A decentralized exchange, or more commonly a “DEX”, is one of the most fascinating aspects of the DeFi revolution. As you may already know, DeFi, is a movement wherein developers create decentralized alternatives of various traditional legacy financial institutions and products. The DEX is the decentralized version of an exchange, such as a crypto exchange. Before we answer the “what is a decentralized exchange” question, let’s learn about traditional exchanges and its many flaws.
Centralized cryptocurrency exchanges are often the first point of contact that people have with the crypto world. The chances are that if you have cryptocurrency, you must have bought it from one of these exchanges. The exchanges act as a portal between the “real” world and the crypto world.
Now, don’t get us wrong. While they have plenty of flaws, they certainly have some advantages, as well.
The DeFi lending space plays the same role as any traditional bank giving loans to a user or business. But as with any other blockchain application, DeFi lending has much more to offer than its conventional peers.
The DeFi crypto lending platforms offer crypto loans to anyone in a trustless manner, i.e., without intermediaries. Any user can enlist the crypto coins they own in the DeFi lending platforms for lending purposes. A borrower will directly take a loan from the platform, which can also be called DeFi P2P lending. The lending protocol enables the lender to earn interests.
Out of all the other DApps available in the decentralized finance space, the DeFi lending growth rate is highest, making it the most significant contributor to locking crypto assets. According to crypto research company Messari, the DeFi lending space is the top-performing section in terms of ROI (return of investment), followed by decentralized exchanges (DEX) and DeFi payments.
DeFi Pulse is the world’s leading resource for everything related to DeFi or decentralized finance. We are pretty sure that you are very well-familiar with the term “DeFi” by now. It’s an all-encompassing term for decentralized protocols that deal with a variety of financial services like lending, derivatives, payments, exchange, etc. The lion’s share of these protocols is ETH-based, which is why the rise of DeFi has been a huge Ethereum price growth factor.
With its rise in popularity, the DeFi space has welcomed a barrage of newcomers. This is why websites like DeFi Pulse are so incredibly valuable. Crudely speaking, you can think of DeFi Pulse as the CoinMarketCap of DeFi projects. However, as you will soon find out, it packs quite a punch with the sheer amount of value it gives to its users.
The moment you enter the website, you will see the following the screen:
Let’s see what all is happening here:
Curve is a decentralized exchange (DEX) designed for efficient stablecoin trading. It is like Uniswap in that it uses liquidity pools, it’s non-custodial, and it rewards its liquidity providers. However, because Curve focuses solely on stablecoins, it costs less to use.
Stablecoins are traded directly against each other on Curve. Furthermore, that is one of the most significant differences between it and Uniswap. If you want to trade between a pair of stablecoins on Uniswap, two trades must occur:
So, as a trader, you will accrue double trading fees. And while Curve has similar benefits as Uniswap for liquidity providers, it’s not subject to the degree of “impermanent loss.” That’s because Curve only trades between stablecoins, whilst Uniswap trades directly against ETH. And ETH’s volatility can wreak havoc on...