This guide covers the most important categories within the DeFi (Decentralized Finance) sphere—an innovative ecosystem that promises to transform the financial world as we know it.
DeFi stands for Decentralized Finance and refers to a financial ecosystem built on top of blockchain technology. While most DeFi applications are developed on the Ethereum network, other blockchain protocols also support DeFi projects.
Vision:
DeFi aims to establish a permissionless, transparent, and open-source financial environment accessible to everyone—without the need for centralized control. It encompasses a wide range of financial services, including payments, lending and borrowing, insurance, and decentralized trading. These services operate on blockchain networks and use smart contracts to automate processes, eliminating intermediaries.
DeFi Basic Principles:
Built on blockchain networks (primarily Ethereum)
Decentralized, without centralized control
Open-source and accessible to all
Leveraging smart contracts to automate financial agreements
Replacing intermediaries with blockchain automation, reducing costs
Exploiting blockchain composability—combining different protocols to create new services
Composability:
One of DeFi’s most innovative features is composability—the ability for different protocols to connect and build on each other like software libraries. This modular approach allows developers to create complex financial products by integrating various smart contracts.
A key player in this space is Chainlink (LINK), a decentralized oracle network that feeds reliable off-chain data to blockchains. Chainlink enhances the security and reliability of DeFi applications by reducing vulnerabilities and preventing fraud, making it a critical infrastructure component for composing trustworthy DeFi services.
DeFi Apps -On the backend, DeFi protocols operate as a software library, allowing different smart contracts to plug into each other creating new financial services...
Components of the DeFi Universe
Decentralized Finance (DeFi) encompasses several key categories of financial services built on blockchain technology:
Stablecoins are digital currencies pegged to a fiat currency (most commonly the US dollar), providing price stability unlike more volatile cryptocurrencies like Bitcoin or Ethereum.
taking is similar to earning interest, where validators lock up tokens to validate transactions and maintain network security, earning rewards in return.
Key projects:
StakeWithUs: Staking-as-a-Service for Proof of Stake (PoS) protocols.
Figment Networks: Provides staking and app-building services.
DEXes enable peer-to-peer trading of digital assets without centralized control or middlemen, using smart contracts for trade matching.
Advantages:
Lower fees and spreads
Anonymity of transactions
Support for synthetic assets and customizable trading parameters
Vision: fully peer-to-peer asset exchange
Key projects:
Augur –A peer-to-peer protocol that lets anyone create a market around the outcome of any real-world event
Ox -An open protocol that enables the peer-to-peer exchange of assets on the Ethereum blockchain. ZRX is the governance token that allows voting on protocol upgrades, and earn liquidity rewards
DEX AG -A trading interface that compares and tracks the best price from 11 different DEXes
dYdX -A non-custodial trading platform on Ethereum
Gnosis Protocol -Allows anyone to add any trading token pair
Kyber -Aggregates liquidity from a wide range of reserves, powering instant and secure token exchanges in any DeFi application
Synthetix - A decentralized platform on Ethereum for the creation of Synths (digital assets that track the value of real-world assets)
Uniswap - An on-chain protocol on Ethereum that uses liquidity pools instead of order books
ver 1 billion people globally lack official ID, limiting access to economic and social services. Decentralized identity solutions aim to provide secure, blockchain-based identities.
Importance in DeFi Lending:
Current loans require over-collateralization due to lack of credit scores.
Decentralized identity can provide reputation systems and reduce collateral needs.
DeFi relies on blockchain infrastructures to operate efficiently:
Ethereum:
The leading platform for DeFi, hosting over 190 projects. Ethereum 2.0 aims to improve scalability, security, and transaction throughput.
Bitcoin:
The original decentralized blockchain. While less programmable, Bitcoin plays a role in DeFi via collateralized loans and second-layer solutions like the Lightning Network. About 24 DeFi apps are Bitcoin-based.
Other Blockchains:
Solana, Avalanche (Avax), Cardano, and others are emerging but currently less dominant in DeFi.
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