Decentralized Finance (DeFi) represents a new financial system built on blockchain technology. This guide introduces the fundamentals of DeFi and key protocols.
What is DeFi? DeFi refers to financial services built on blockchain networks without traditional intermediaries. Users maintain control of their assets through self-custody and smart contracts.
Key DeFi Services:
Lending and Borrowing: Deposit cryptocurrency to earn interest or borrow against collateral. Protocols like Aave and Compound facilitate these transactions.
Decentralized Exchanges (DEX): Trade cryptocurrencies directly from your wallet without intermediaries. Uniswap is the largest DEX by trading volume.
Yield Farming: Deposit cryptocurrency into liquidity pools and earn rewards. Rates vary by protocol and risk level.
Staking: Lock your cryptocurrency to help secure blockchain networks and earn rewards. Popular with Ethereum 2.0.
Derivatives: Speculate on price movements with leverage through protocols like dYdX.
Risk Considerations: - Smart contract vulnerabilities can lead to fund loss - Impermanent loss in liquidity pools - Market volatility and liquidation risk - Choose established protocols with audited code