Updated: Sep 18
Your money is sitting in a Wells Fargo account and accruing close to 0% in value. What if you could make ~5% in a relatively risk-free way?
Robinhood banned you from trading Gamestop on their platform. But what if you could trade a synthetic version of the S&P 500 and other stocks on Ethereum without being shut down?
The open finance movement is here.
Internet money for the people, by the people, is here.
DeFi (decentralized finance) is here.
What is DeFi?
DeFi, or decentralized finance, is a movement that aims at making a new financial system accessible to everyone. DeFi doesn’t require trusting intermediaries like banks; instead, it relies heavily upon cryptography, blockchain, and smart contracts (Finematics).
DeFi refers to the digital assets, financial smart contracts, protocols, and decentralized apps (dApps) mostly built on the Ethereum network. You can think of DeFi as money Legos — able to be pieced together on the blockchain to create better financial tools. dApps interact with each other synergistically and beneficially.
This movement essentially gives people their own banking platform to manage their financial well-being, as anyone with an internet connection can interact with smart contracts.
Smart contracts are the building blocks of the DeFi movement. They are pieces of code that can be automatically executed and secured on the blockchain — removing the human decision-making factor from the equation, which tends to be error-prone and biased.
DeFi brings a slew of potential in a more transparent and efficient financial system.
DeFi may sound like a far-fetched fantasy, especially since Wall Street behemoths are so embedded in our culture today. Rest assured, this movement is very real and expanding rapidly by the day.
The TVL (total value locked) in DeFi is over USD 68 billion.
How is it used?
Through lending, borrowing, decentralized exchanges (dexes), and derivatives on these crypto protocols (dApps), individuals and businesses can interact on new systems.
Yield farming (maximizing rate of return on capital) allows new streams of wealth and opportunity where individuals can achieve a high APY as much as 100% or more — through DeFi protocols.
Instead of letting your money sit in a bank account earning virtually 0% a year, you can choose to supply liquidity to money protocols and earn 10x that.
Yield farming is a higher risk, higher reward scenario, and it’s important to do your own research to find out what you’re comfortable putting your money towards. At least you now have a choice.
Here’s some of the differences between DeFi and CeFi (centralized finance):
Unlike centralized finance, you don’t have ladders to climb within the DeFi space. It’s so new and open that it’s akin to a vast flat of unsaturated land.
This is how the internet was back when it was first introduced — the wild, wild west of sorts.
Being able to execute transactions in seconds without clunky banks delaying the process is already a game-changer. With NFTs revolutionizing artist industries and protocols that allow you to keep custody of your own money, crypto is being used to improve the way current industries operate.
Entrepreneurs can build amazing solutions to help solve the issues of the world today.
How can you use DeFi to disrupt industries and build something advantageous for the world? There’s never been a better time.