Decentralized Finance (DeFi) is revolutionizing the way the world thinks about earning and funding, but fully understanding its theory and practical aspect can be challenging. In this article, we’ll break down the three best applications within DeFi, which will enable you to grasp this novel concept in practice.
Let’s see what DeFi is all about before moving on to the specifics. Simply put, DeFi is the aggregate name for all crypto protocols and ecosystems that are based on a distributed blockchain and that offer some kind of earning opportunity for users. There are many actual use cases within DeFi, but the most popular ones are token staking, liquidity providing, and borrowing or lending. To ensure you’re getting a clear overview, we assembled the list with all three use cases included.
Starting off with staking, which is the activity of putting up certain tokens to secure a protocol that operates with a Proof-of-Stake (PoS) consensus mechanism. This could sound complex and intimidating at first, but thanks to platforms like PancakeSwap and its “Farm”, staking is as easy as using any other application.
After choosing your favorite crypto from a transparently and simply displayed list of staking options, and assessing whether the predicted interest expressed in annual percentage rate (APR) fits your goals, you’re ready to stake within a few clicks. The one thing that you should consider before putting up your assets is the lock period of the staking, and the expected future price development of the token at hand.
Another popular application within DeFi is the so-called liquidity providing, where token holders essentially delegate their funds to liquidity pools of Decentralized Exchanges (DEXs) with an automated market maker (AMM) protocol. Once again, despite the highly technical sounding words, liquidity providing is made simple by various ecosystems, the top of which is Aave with its in-house application. Through it, users are able to access six markets and all their available tokens, including Ethereum, Avalanche, Polygon, AMM, and more.
Liquidity providing is fairly similar to staking from a user's point of view, meaning that with only a few clicks, many options are available with relatively high annual percentage yield (APY). Also, be aware of which network you choose, as it can greatly affect the efficiency of your funds. For instance, if you’d like to provide your Tether (USDT) holdings for liquidity, you should be selecting Polygon instead of Ethereum, as the same amount of funds could yield you almost six times more there.
Last, but not least, let’s have a word about the area with possibly the greatest influence within DeFi, which is crypto loans. This novel idea completely disrupts the world of lending and borrowing as we know it, and introduces official, verifiable peer-to-peer loans.
Crypto loans are exactly what they sound like: lending or borrowing funds in crypto assets. With Fantom’s fLend, the complexity is taken out of the process, and holders can easily access attractive interest rates by lending their tokens, while those who are in need of liquidity but unwilling to sell their assets can borrow against them to get the best of both worlds. Crypto loans are revolutionizing the way capital moves around, both in terms of the unmatched turnaround time per loan of a few hours, and crypto-collateralized liquidity allocation.
DeFi is an incredibly exciting concept, and so it’s no surprise that millions of users are taking advantage of its applications every day. Staking, liquidity providing, and crypto loans are three of the many examples that await the adventurous with potentially lucrative opportunities, which challenge the traditional financial system better than anything else have ever before.
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