Cryptocurrency has established itself as one of the major asset classes in the last decade. Most people think of only bitcoin being used as digital gold, the only use case of crypto investment. This, in reality, is an incomplete representation of the potential cryptocurrency offers in terms of investments. Many new instances of investments have emerged from altcoins as well. In fact, Ethereum offers more intrinsic value and usability than bitcoin.
This is mainly due to the decentralization capabilities that the blockchain offers. Decentralized finance or de-fi is the most impactful ecosystem that has been created utilizing Ethereum. De-fi has the potential to disrupt and even replace the traditional banking system.
As the popularity of Ethereum increases, so does the usage of de-fi. More and more people are stepping into the ecosystem of Ethereum because of its increasing usability. This includes investors, developers, and miners as well. If you wish to mine Ethereum, all you need is a powerful GPU which you can get from https://www.hashuni.com/shop/gpu-miner/.
What is de-fi?
Up until now, the world has used centralized finance. This means a central authority controlling the flow of money. In de-fi, there is no centralized authority. In fact, a piece of code in the form of smart contracts that govern the flow.
These pieces of code are visible to everyone on the blockchain. Individuals could make transactions without a 3rd party being involved. This makes de-fi much more transparent, censorship-resistant, and much cheaper than centralized finance.
Pillars of de-fi
In order to understand the de-fi infrastructure, let’s have a look at the pillars it’s built upon. The foundation of de-fi rests upon three main pillars.
#1: Stable coins
These act as the bridge between de-fi and traditional finance. Stable coins are cryptocurrencies that are pegged to traditional currencies. This peg is maintained by minting or burning stable coins upon a deposit or withdrawal. Stable coins allow an individual to get involved in the crypto ecosystem while avoiding volatility. Users can sell or trade their coins for stable coins on an exchange. These stable coins can later be exchanged for traditional currencies.
#2: Lending and borrowing
De-fi is a peer-to-peer lending system. In this way, an individual can take a loan without going to the bank in a decentralized manner. Through smart contracts, de-fi also allows borrowers to loan out the money while lenders maintain ownership. This works in a manner that is impossible in centralized finance. Lenders are given a special token that consists of their principles plus interest. This issuance is done against the over-collateralized deposits that are collected from the borrower. The issuance is done by the smart contract upon deposit by the lender. In this way, the lender earns interest in a safe way. The borrower can, in turn, take a loan out against the value of their cryptocurrencies without having to sell them.
#3: Decentralized exchanges
Users can trade their coins at decentralized exchanges. Transactions on a DEX are sent directly to the blockchain. They open the world up to a whole new variety of tokens and coins. These exchanges charge a minimal fee transaction fee. This transaction fee is then distributed amongst liquidity providers on the exchanges. Some famous decentralized exchanges built on Ethereum are uni swap and sushiswap.
Opportunities presented by Defi
#1: Minimizing the monopoly of centralized organizations
In centralized organizations, intermediaries such as banks hold great power. This has led to a monopoly being established. Banks now charge High-interest rates for their services. The process can also be time taking. Defi can end this monopoly as it offers the perfect alternative to traditional finance with lower interest rates and quick service.
#2: Defi can revolutionize the insurance industry
Insurance companies use great resources to maintain their operations. Despite this, there are many inefficiencies in their system. Through Defi, a smart contract could take over the role of an insurance company. A smart contract can be written on the Ethereum network that shall specify the conditions under which the premium is to be paid. Oracles are used to transfer real-world data onto the blockchain. This makes the execution of conditions under the contract easy.
Earning money through Defi
#1: Lending through Defi offers greater returns than traditional finance and is much safer
It is not uncommon to see up to 30% interest rates on de-fi. This is due to the increased amount of money being thrown into the de-fi. Lending through crypto is also safer since the private key is needed to transfer funds. Another feature that makes de-fi leading desirable is that the loans are over collateralized. This means that the lenders will always get their money back. Aave and compound are the major decentralized lending platforms.
#2: Providing liquidity to earn passive income
In order to maintain liquidity on decentralized exchanges, liquidity pools are created. These provide an automated market-making system through a code. An individual can earn money by providing the crypto required by the pool. The individual provides liquidity by depositing the required pair in the pool. Every trader who makes a trade using the pool will pay a fee. This fee will then be distributed amongst the liquidity providers. This distribution is made on the basis of the percentage of liquidity pool provided
#3: Incentives and airdrops by newly launched platforms
The technology of airdrops is relatively new and not understood by most people. Furthermore, due to frauds in recent times, most websites don’t allow crypto ads. This means that normal marketing strategies are not yet suitable. Thus blockchains are now using a different approach of incentivizing their users. Free tokens are given to users for using newly launched platforms. Since the de-fi space is so new, this presents an amazing opportunity. Users can collect free coins right now that shall be worth much more in the future.
Altcoins such as Ethereum is leading the innovation in blockchain. Having a stake in an emerging ecosystem is nothing short of beneficial. You can start mining Ethereum using powerful hardware that you can get from Hushi. Hashuni Technology (Shenzhen) Co., Ltd. is headquartered in Shenzhen, China. A leading mining hardware manufacturer focused on creating many core competencies for mining digital currency products.
The infrastructure of Defi is relatively new and still faces many challenges. However, it offers an alternative to a system that has been established over centuries. Adopting and being involved in Defi can present a lifetime opportunity.