Mismanagement, fraud, and corruption, to mention a few, are problems associated with this centralized financial system, or CeFi. However, DeFi, or decentralized finance, is all about decentralizing the financial system as a whole, much like Bitcoin is all about decentralizing money.Yield farming, liquidity mining, and margin trading are all important DeFi concepts. Decentralized Exchanges (DEXes), Stablecoins, Lending Platforms, and Prediction Markets are just a few of the DeFi concepts that run on Ethereum.
Aave is an open-source, decentralized lending system based on the Ethereum blockchain that allows users to lend and borrow a variety of cryptocurrencies. Users can deposit crypto into a pool and receive interest on their deposits via the Aave protocol. Other users can borrow crypto from that pool at the same time in exchange for interest costs. On Aave, no middlemen or banks are involved in the lending process. Instead, smart contracts, a characteristic of blockchain technology, handle all assets. Users of smart contracts rely on a network of computers running Aave and a series of algorithms to conduct transactions instead of trusting (or paying) any institution or individual to look after their money. Aave is a decentralized money market account that allows users to borrow bitcoins from a pool of deposits.
MakerDAO is an Ethereum-based decentralized credit platform that uses Dai, a USD-pegged stablecoin. Anyone can utilize Maker to create a Vault, deposit ETH or BAT as collateral, and then generate Dai as debt against that collateral. A stability fee (i.e., interest that never stops collecting) is charged on Dai debt, and it is paid when the Dai is repaid. Along with the repaid Dai, that MKR is burned. Dai allows users to borrow up to 66 percent of the value of their collateral (150 percent collateralization ratio).
Maker’s other token (MKR) holders vote to govern the system and act as the last line of defense in the event of a black swan occurrence. MKR is created and sold on the open market to generate more collateral if system-wide collateral value goes too low too quickly, diluting MKR holders. The Dai Savings Rate is another feature in Maker (DSR). Maker’s DSR contract allows DAI holders to lock their DAI and earn a variable interest rate in DAI, which is earned via stability fees.
Compound is is one of the growing number of decentralized finance (DeFi) protocols, provides this service by utilizing several crypto assets to enable lending and borrowing without the necessity of a financial intermediary such as a bank. In June 2020, Compound generated gains of over 800 percent, highlighting Ethereum’s dominance in the financial market.Users of Compound can borrow and lend tokens. It also serves as a cryptocurrency exchange and a liquidity market. DAI Stablecoin (DAI), Ethereum (ETH), USD Coin (USDC), Wrapped BTC (WBTC), Basic Attention Token (BAT), Augur (REP), and Sai (SAI) are some of the DeFi-related coins that compound users can transact with. Users can earn from Compound without having to make a huge investment. They can trade their cTokens at any moment, and as an incentive, they will receive a 5% discount on liquidations. Compound provides a fair governance approach for its users, reducing Compound Lab Inc.’s centralization.
Yearn is now one of the most popular and decentralized DeFi projects in the cryptocurrency space. Yearn.Finance can be regarded of as a portal that allows users to access and invest in a wide range of assets and products from a single location. For investors or users, they combine decentralized finance (DeFi) solutions into a single package. The algorithm then determines the optimum rewards for investing, allowing investors to earn interest on their money with ease.The platform distributes an investor’s assets automatically between multiple platforms such as Compound, Dydx, Curve, or Aave in order to provide the highest and most advantageous returns on their investment. The token’s governance feature, which allows users to vote on project upgrades and updates, is another characteristic of this cryptocurrency. Not every cryptocurrency allows token holders to influence the project’s direction. Yearn.finance’s native cryptocurrency is called YFI. YFI, unlike Bitcoin, is a governance token with an autonomous protocol.