A Beginners Guide to Decentralized Finance (DeFi)

By: Obinna Tony

June 22, 2022 12:44 AM

Cryptocurrency’s goal is to make money and the method of payment accessible to people regardless of where they are located. The Decentralized finance known as DeFi or Open Finance Movement’s goal is to make the payment method further from what it’s known.

DeFi, global transactions for financial services from savings, loans, insurance, trading etc, are made easier for involved parties with various available internet connections.

DeFi stands out amongst traditional bank or wall street counterparts in the sense that it’s not managed by an institution and its employees. Here, rules are written in code or smart contracts. Immediately after smart contracts have been deployed to the blockchain, DeFi dapps can easily run themselves without human interference. In other cases, developers maintain the dapps when it’s necessary either for upgrades or to fix bugs.

DeFi has been able to build trust with its users due to the transparency of its code on a blockchain which allows anyone to audit easily. This means transactions are visible for anyone to see but it’s in place of anonymity. For this, DeFi has been one of the fastest-growing sectors in the field of cryptocurrency.

The decentralization aspect of DeFi does not only highlight less power for capitalist overlords but also bears lesser risks. In a case of a company holding people’s data in one spot which presents high risks when it’s hacked, Decentralized finance curbs this risk by storing data in different locations, hence improving security. 

DeFi solutions are built on different blockchains with ecosystems consisting of participants who are interacting in a peer-to-peer (P2P) fashion and the outlet is facilitated through distributed ledger technology and smart contracts which put the system in check. There might not be a forward manner of interaction when one is operating DeFi solutions. The spirit of the process highlights P2P and this means that the third party is replaced with technology not ruled by a central authority.

To begin with DeFi, you have to get a wallet that supports Ethereum and can connect to an avalanche of DeFi protocols via your browser. MetaMask is commonly used. Secondly, buy coins that are relevant to the DeFi protocols. And lastly, play the DeFi game.

One way to play the DeFi game is to lend your cryptocurrencies. You can get the best deal easily through yearn.finance or you could become a yield farmer.

There is another way to play which means putting your funds in a decentralized exchange such as Uniswap and earning by becoming a market maker. Or you could invest in one of the highly experimental, crazier DeFi projects like Based.Money.