Introduction to DeFi

Decentralized finance is a blockchain-based type of finance that uses smart contracts on blockchains, the most common of which is Ethereum, to offer traditional financial instruments without relying on central financial intermediaries such as brokerages, exchanges, or banks.

DeFi Operation

DeFi works through DApps and smart contracts; they are decentralized applications built on the Ethereum or other public networks. These create, store, and manage digital assets. They are popular in borrowing and lending platforms and decentralized exchanges (DEX).

What’s the difference between open banking and DeFi?

Open banking is a banking system that grants safe access to financial data to third-party financial service providers via APIs. This allows banks and non-bank financial organizations to network their accounts and data. In essence, it enables for new sorts of goods and services to be offered inside the existing financial system.

DeFi, on the other hand, promises a completely new financial system that is not dependent on existing infrastructure. Open finance is a term that is occasionally used to describe DeFi.

Open banking, for example, may make it possible to handle all traditional financial instruments in one application by securely combining data from several banks and organizations.

Decentralized Finance, on the other hand, may enable the administration of totally new financial instruments as well as new ways of engaging with them.

What is Binance Smart Chain?

Binance Smart Chain is a blockchain that operates alongside Binance Chain, the company’s original blockchain.

BSC differs from Binance Chain in that it enables smart contracts, decentralized applications (DApps), and Ethereum Virtual Machine compatibility (EVM). People may use BSC to build decentralized finance (DeFi) initiatives thanks to DApp support. BSC is also cross-chain interoperable, enabling users to move assets between the Binance Chain and the Binance Smart Chain.

DApps on the Binance Smart Chain

For building DeFi protocols and implementing decentralized apps, BSC is quickly becoming a preferred Ethereum alternative. According to statistics supplied by DApp Radar, the top five DApps on BSC based on dollar amounts locked in smart contracts are shown below.

PancakeSwap is a BSC-based automated market maker (AMM) that allows users to exchange BSC-based digital assets. PancakeSwap also allows DeFi investors to yield farm and stake crypto assets in order to (possibly) earn large APYs on their holdings.

You may now start swapping Binance Smart Chain (BEP20) assets, providing liquidity to trading pools to generate trading fee revenues, and staking liquidity provider tokens to receive yield farming incentives on the platform.

Venus is a DeFi lending platform that allows customers to borrow against collateral without a credit check. Lenders, on the other hand, can put money into a lending pool to get a higher-than-average variable APY on their digital assets.

Autofarm Network is a DeFi platform with a yield aggregator and a DEX. Vaults are available on the platform that “automate the greatest yield farming prospects.” Automated activities, such as utilizing assets as liquidity and collateral, and compounding yields, are carried out by vaults.

BakerySwap is a Binance Smart Chain-based decentralized automated market-making (AMM) system (BSC). The BAKE coin is the platform’s native BEP-20 governance token. BAKE rewards are available in a variety of liquidity pools, including BTC, ETH, DOT, LINK, BUSD, and BAKE against BNB at first.

We will go through the following topics in this beginner’s guide to decentralized finance (DeFi).

Stablecoins

A fundamental component of decentralized finance. A stablecoin, unlike cryptocurrencies like Bitcoin or Ethereum, which are notorious for their price volatility, is designed to be “stable” at exactly 1.00 units of fiat. The majority of stablecoins are tied to the US dollar, although others are in fiat currencies other than the US dollar, such as the Chinese RMB.

Decentralized lending.

Take out a blockchain loan programmatically. There is no need for a bank account.

Decentralized exchanges.

Rather of using a centralized exchange like Coinbase, use a blockchain to buy and sell bitcoins. In principle, a machine could trade on these!

Collateralization.

Collateralize your decentralized loans with digital assets, giving the lender some recourse in the event of default.

Decentralized Identity.

In the context of smart contracts, identities are utilized for things like determining your creditworthiness for a decentralized loan.

Composability.

Putting together DeFi functions that perform different things, similar to how software libraries are put together. For example, if one contract accepts crypto and earns interest, the second contract might reinvest the money automatically.

Risk management.

In DeFi, big gains are frequently coupled by even higher dangers. Fortunately, new technologies are emerging to assist in mitigating these risks.

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