Decentralized Finance (DeFi)
DeFi, or decentralized finance services , are a set of tools and protocols that try to bring the instruments of the traditional financial world to cryptocurrencies.
That is, to have the same services that a bank can provide, such as loans and mortgages, working in an unalterable way in a smart contract .
For now, DeFi allows creating loans , building decentralized exchanges , payments, and financial derivatives.
The arc of possibilities that DeFi brought with it to the world of cryptocurrencies broadened its scope so much that it became the most talked about topic in the ecosystem , with such growth that in October 2020 the total money “deposited” in DeFi projects had exceeded the 11 billion dollars , as you can check on DeFi Pulse .
Some of the most well-known projects in DeFi are the Maker protocol, Compound, and Uniswap clone .
Ethereum gave rise to a range of financial services and decentralized tools for trading securities
Traditional financial services
Decentralized lending protocols take some very simple concepts from traditional finance and implement them through smart contracts .
When someone deposits money in your bank account, they can access it at any time , but they can also move it to other types of deposits to receive interest . Uniswap clone script The reason interest is earned is that the bank uses that money to make different types of investments, such as mortgages, personal loans, and business loans.
These loans usually have a higher interest rate than the one the user obtains for depositing their money. That difference between what lenders are paid and what lenders are charged is one of the ways banks make money .
The novelty that DeFi presents
DeFi lending protocols offer a way to earn a return on cryptocurrencies without giving ownership of our assets to a “centralized” third party . This is achieved through smart contracts on the Ethereum blockchain.
The smart contract represents a place where assets can be pooled, much like the way deposits are pooled in a bank’s pool. But with the advantage that its custody is not delegated to a centralized entity .
With these funds, any user can request loans to the contract, and thus the investor users obtain periodic returns from depositing a certain amount of cryptocurrencies in a smart contract.
How to get started in DeFi
DeFi allows you to create a lot of applications and types of projects. And among the most prominent categories are developments that allow us to emulate a function of the traditional financial system but with tokens, on a blockchain and in a decentralized manner .
- Lending : oriented towards loans that allow both taking on debt and providing liquidity. Thus, users with idle cryptocurrencies can earn interest by depositing them on different platforms. This is the case of Maker, Compound and Ripio Credit Network, the lending platform created by Ripio.
- Dexes : For a long time, cryptocurrency users were wary of having to transfer their cryptocurrencies to an exchange in order to operate there. From there came the idea of creating exchanges that work directly on the blockchain, without the need for intermediaries such as Uniswap, Curve (for stablecoins) or Balancer.
- Derivatives : are a type of financial asset whose value is derived from another asset or another set of assets; as a second layer of value. Projects like Nexus bring this idea to reality in DeFi.
- Payments : making payments easily is one of the initial promises of any cryptocurrency. But with the growth of platforms and network congestion, small transactions become very expensive and slow. For this, new systems integrated to pre-existing blockchains were created, to make payments quickly and at a very low cost. Such is the case of Flexa, in Ethereum, or Lightning Network, in Bitcoin.
- Assets : projects that allow the creation of new assets such as WBTC, a stablecoin whose price is at parity 1:1 with Bitcoin, but works on the Ethereum blockchain. Or Yearn, who created an asset that is used for multiple financial operations.
The case of Ripio Credit Network
Ripio Credit Network is a global credit network, based on the Ethereum blockchain. RCN connects lenders and borrowers ,Uniswap clone software who can be anywhere in the world, so that they lend and receive money in any currency, thanks to the technology of this protocol.
This system allows, for example, someone to make a loan in Chinese yuan and another person to receive that sum, and be able to repay it, in Argentine pesos. In this way, RCN manages to create a global credit network, without intermediaries .
The system is based on smart contracts that uniquely guarantee transparency and reliability in loans. Once the conditions of the same have been established, they cannot be changed under any point of view.
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