DeFi as locally termed has a definition as a term is “decentralized finance,” a term used to describe varieties of financial applications in crypto, that's designed to eliminate financial intermediaries.
This is an update that was designed by developers to ease the stress and complexity of centralized platforms.
Defi is finding real life usage because centralized systems have flaws which can be corrected by decentralization and centralized systems can disrupt the speed and sophistication of transactions while offering users less direct control over their money and resources which has been staked.
Current banking and financial systems comes to mind as you can even be prevented from accessing your fund an example is the current Nigeria CBN regulations on accessing your domiciliary account. DeFi is an improvement on blockchain and crypto usage as it incorporates complex financial transactions and gives fiat like usage to Cryptocurrency in a bid to promote mass adoption.
Defi main advantage is completely eliminating middlemen from all financial transactions including loans, insurance, crowdfunding and betting. Paying with fiat for a transaction includes a middleman who can chose to accept or decline your transactions but with Defi, it's direct transaction between buyer and seller.
Presently, most Defi applications are built on Ethereum ecosystem but recently, Binance chain is fast carving out it's own niche in Defi due to cheaper fees. Other DeFi platforms are Tron, and with recent launch of DFI token, Bitcoin. DFI token is DeFi on Bitcoin.
DeFi are built on Smart Contracts which are automatically self executing. Smarts contracts automatically executed transactions provided conditions for it's execution are met and it offer wider flexibility. Example is Jeff Kirdekis Trustswap project, where you want money sent to your employee by month-end provided he met certain performance indexes. These would have been written in the smart contract and meeting the condition executes it.
The common DeFi applications include:
Decentralized exchanges (DEXs): DEXs, a short form of decentralized exchanges are exchanges that directly connect users so they can trade cryptocurrencies with one another without trusting an intermediary or centralized exchanges with their fund. Transaction is done directly from a connected wallets of users. The most popular of these DEXes is Uniswap on Ethereum, Pancakeswap on Binance chain, Julswap on Tron and Balancer.
Stablecoins: A cryptocurrency that's tied to an asset outside of cryptocurrency; Gold, Dollar, Naira, or Euro, for example to stabilize the price.
Lending platforms: These platforms use smart contracts to replace intermediaries such as banks that manage lending in the middle. Aave, Nexo, YFI, Compound are examples of lending platforms.
"Wrapped" Tokens: A way of sending bitcoin or non ERC tokens to the Ethereum network so it can be used directly in Ethereum's DeFi system. This is also applicable on Binance chain as you'll have to wrap Ethereum and other ERC tokens do it can be used on Binance chain. Wrapped tokens allow users to earn interest on the tokens they lend out via the decentralized lending platform. To show how popular wrapped tokens is, it's believed that total Bitcoin wrapped on Ethereum network is more than Bitcoin traded presently.
Prediction markets: As a punter, I love this market as it's designed for betting on the outcome of future events, such as football matches or other sport matches. The goal of Defi in this market is to eliminate intermediaries.
In addition to these, new DeFi concepts have sprung up and includes:
Yield farming: Recently, Uptrennd announced 1UP is now available for yield farming. This entails serious research and knowledgeable approach as it's very risky but it offers larger returns, some as high as 1000%.
Liquidity mining: Liquidity mining is providing Liquidity on DEXs with your tokens with the hope of getting a free token in return. A recent example is the distribution of UNI tokens on Uniswap to traders. This too can be said to be an example of yield farming.
In all of this, there's a note of warning. If you intend buying coins like Uniswap, 1Inch tokens on Binance, you'll have to agree to the fact you can lose all money invested in these tokens.
There's the bigger issue of Rug pull; a situation where liquidity pool is taken away from a DEX markets. This will cause mass dump as everyone involved try to sell to get off and cut their loses till the market goes to zero.
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