Now DeFi and Dapps have become part of the crypto lexicon, it can be hard to admit you don’t actually know exactly what they are! But worry not.
Read our beginner’s guide to decentralised finance and fill in those gaps.
What is DeFi?
Decentralised finance, or DeFi, is the latest stage in the disruption of traditional, centralised finance markets—the kind many of us grew up with.
And it’s not just for geeks. Anyone can take part in the burgeoning DeFi smart contracts and automated agreements happening daily on blockchain platforms.
Cryptocurrency trading on decentralised exchanges (DEX) is peer-to-peer, eliminating the bank or lawyer ‘middleman’ who traditionally pulls the levers.
DeFi offers a new kind of freedom—no asset tests, easy global trading and apps (Dapps) you can build and customise yourself.
What’s a smart contract?
A smart contract is a program running on the blockchain, which is automatically triggered when certain conditions are in place. Ethereum, for instance, is a smart contract blockchain.
A smart contract can facilitate something as simple as sending or receiving cryptocurrency, or as sophisticated as borrowing, lending or trading a range of assets.
What else can you do in DeFi?
Pretty much anything you can already do in conventional finance—just using different tools, vehicles or routes.
- Borrow and lend cryptocurrency
- Earn interest via blockchain platforms
- Trade derivatives of real-world assets
- Participate in lotteries where no-one loses
- Buy and trade stablecoins
- Try prediction markets like Augur
- Trade synthetic versions of assets like gold or Euros
- Create and buy artworks via non-fungible tokens (NFTs)
New functionality is added every day, as innovations land on DeFi markets.
I know about apps. But what’s a dapp?
Right, so an app is a software application you use on your mobile device. A dapp also runs on your handheld, but it’s built on decentralised or blockchain technology.
Where a conventional app is developed and controlled by a central entity, a dapp is created to run pretty much along its own lines—free of human intervention, outside the centre.
Popular Dapps like Maker (stablecoin), Compound (borrowing/lending), Augur and Synethetix show what’s possible.
Why are Dapps so important?
The real value of Dapps lies in their autonomy. Their rules are written in code, or smart contract, which is then deployed on the blockchain. After that, they can steer themselves with minimal interference—just an occasional upgrade, tweak or fix from the developer. Dapps have plenty of upside.
Anyone can view and audit dapp codes on the blockchain—they are in the public domain. With most transactions not linked to real-life identities, privacy is preserved.
■ Global reach
DeFi services, networks and platforms are accessible to everyone with an internet connection, wherever you happen to be in the world.
■ No gates
Forget the gatekeeper, everyone has permission to create and use Dapps. Set up a crypto wallet and you’re ready to go.
Blockchain enthusiasts are great, but they can be a bit . . . nerdy. If a geeky interface freaks you out, just adapt it, borrow from a third party or build your own. This is how DeFi gets more user-friendly every day.
Dapps are like Lego for grownups. You can mix and match, build on a simple base and combine the parts to make something awesome—interoperability taken to new heights.
What’s next in the expanding world of DeFi? We’re ready for anything!
Photo by Alesia Kozik from Pexels