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DeFi sector in the cryptocurrency industry: a great overview
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DeFi sector in the cryptocurrency industry: a great overview

 

In the new wondrous world of cryptocurrencies, the most enterprising minds are increasingly going to DeFI. From this material you will finally find out what is MakerDAO or liquidity pools on Uniswap, understand why the niche is so popular, whether DeFi is with us for a long time, in principle, or is it just another hype, whether you can earn from platforms like Curve Finance, and, in the end, is it too late to start earning from them for you too?

Did you ever play Lego as a kid? Anyone who likes to assemble something big out of little pieces is also likely to be interested in decentralized finance, a $15 billion industry made up of connected and strangely similar projects where adult game lovers freeze their funds in smart contracts, create liquidity, lend and borrow cryptocurrencies and bet on tokens to earn more tokens – well, or lose them. Do you like this kind of game? Then let’s do it!

What is DeFi?

DeFi or decentralized finance isn’t really that easy to put into one definition. First of all, it’s a community of libertarian-minded developers and business people who would like to replace traditional banking with distributed systems. Why would they want to do that?

First, this approach eliminates the need to trust third parties and pay them high fees for their services, and it makes the whole system more resilient. That is, DeFi can help solve problems that are typical of the long-standing, traditional system of finance.

Second, decentralized finance refers to a vast ecosystem of decentralized applications (dApps) designed to make various cryptocurrency transactions, such as borrowing or lending, exchanging some coins for others, or storing tokens in special wallets to earn interest income – the latter activity is often called stealing. Basically, such decentralized applications are created on the Ethereum (ETH) blockchain, commonly known in the community as Ether, but sometimes also on TRON, EOS and a number of others.

Finally, DeFi is a movement with its own leaders, very transparent logic and philosophy. This is what this system of ideas is all about.

All DeFi projects are designed so that decentralized applications can interact with each other on a technical level. Everyone who has access to the Internet can use such an application; any programmer can offer his version of the code for such an application; any person on the planet can create his personal account in such an application. All market information, say, the history of your transactions, is in the public domain, although no one (except maybe only analysts) can associate this information with you personally.

At the end of the summer of 2020, decentralized exchanges created on the Ethereum (Ether) blockchain set three records at once. They managed to raise $11.6 billion in dollar terms into the system, compared to just $4.5 billion a month earlier in July. But the stakes in this game weren’t always this high.

So what is decentralized finance and where did it all start?

A brief history of the DeFi industry
It all started with Satoshi in 2008, when he included his Bitcoin whitepaper into mailing list for crypto punk kids, which he considers himself to be. Bitcoin became the first DeFi crypto project.

Weak version? Okay.

It all started with Vitalik in 2013. In the very first version of the Ethereum tech booklet, he described three categories of possible decentralized applications: financial, quasi-financial, and non-financial. Buterin foresaw much of what is happening now: the development of derivatives, predictive instruments, and credit instruments…

Weak version? Good.

In May 2018, Polychain, which has an office in San Francisco, hosted a convention of 150 DeFi projects. Maker, Compound Labs, 0x, Wyre, and dYdX, the first decentralized financial apps, participated in the event. But these were by no means all of the existing projects of this kind at the time.

EtherDelta – the first decentralized exchange (year of foundation 2016)
One of the first decentralized exchanges, the so-called dex (DEX – decentralized exchange), was EtherDelta, a trading platform that allowed and allows traders to conduct transactions through smart contracts.

There are no intermediaries and no centralized servers – only smart contracts. To buy and sell you don’t need to create an account on the exchange, you only need a MetaMask wallet to which you can send and receive ERC20 tokens. Does it sound good? Yes, but you have to admit that for 2020, the speed of execution, editing and canceling orders on EtherDelta seems a bit slow, since everything happens on the Ethereum mainchain, and that takes gas and time.

 

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