Decentralized Finance is synonymous with conducting peer-to-peer permissionless finance activities that do not require centralized intermediaries (banks) to validate transactions.
Fully implemented, DeFi aims to provide all the services native to traditional finance, using cryptocurrencies which make DeFi cheaper, faster, and more transparent than traditional finance (TradFi). Examples of services available within DeFi include; options trading, borrowing and lending, arbitrage trading, loan issuance, and margin trading.
A key DeFi attraction is that it is built on top of a computer that runs 24/7, free of human interference and observing only the laws of code. In essence, nobody knows which directions the code might take in the future, not even the founders of Ethereum, on which DeFi runs.
Yield Farming is among the biggest current trends in DeFi, which may be pictured as mining without a miner. With yield farming, one uses their own tokens to provide liquidity in the given protocol, which then earns an interest rate.
Yield Farming transactions including the interest rates will typically be enforced by smart contracts. Here’s a brief guide on how to conduct Yield Farming;
Purchase some ETH on a centralized crypto decentralized exchange e.g Coinbase, Gemini, etc
Download the metamask.io ETH wallet extension to your browser, which gives you both an ETH wallet and a seed key. Write down the seed key and lock it up in a safe spot.
Transfer your purchased ETH from the Coinbase or Gemini hot wallet to your Metamask wallet address.
With the ETH on your Metamask, feel free to log into a reputable DeFi protocol of your choice e.g Aave or Compound.
Trying to earn some yield? Put your ETH into Aave and Compound and earn a return on your ETH.
Trying to earn yield via stablecoins? Take your ETH to Uniswap where you’ll swap it for USDC, which you can deposit into Aave to start earning between 7-8%.
Considering that there are many DeFi protocols, it pays to stick with the ones that have been around for a little while longer, just as much as you stick to the ones that seem to have reputable teams around them. What’s the Vision? Is the protocol ownership really decentralized? The DeFi ecosystem is currently the wild wild west, with opportunities to partake in many different activities like marketing, coding, governance, and content generation.
Most DeFi organizations are run as Decentralized Autonomous Organizations, where governance happens in the form of voting for proposals submitted by the community. A forum page would typically be built, with a list of proposed ideas in which the protocol could invest, submitted by random community members.
Top proposals and ideas are then passed around the forum, discussed, and brainstormed, with the best ones eventually making it to a designated governance page within the protocol, at which point voting takes place on the protocol.
To vote, each member needs to connect their Metamask wallet to the protocol which allows them to vote on the blockchain. After the vote is passed, the proposal makes it to the implementation list where the protocol’s developers have to develop it as directed by the community.
These steps followed while governing DeFi protocols are yet another indication of how much there is to do within DeFi, as each step in every protocol would require specialists like developers, administrators, content curators, and governance experts to effectively execute.
The DeFi revolution is arguably the largest transfer of wealth seen in human history, as it gives everybody access to what only the elites have had access to, at least for the past 100 years. All you need is an ETH wallet and an internet connection; a fact that opens up wonderful opportunities for the unbanked of the world and those with limited access to financial services. Now, anyone anywhere in the world can just plug in and participate.
