The strong development of the cryptocurrency market has paved the way for the birth of DeFi, a decentralized finance platform, a form of cryptocurrency investment that has attracted a lot of attention in recent times. So what is DeFi? Can it become a new investment trend and make a big push to make cryptocurrencies a more attractive investment portfolio in 2020? All of the above questions will be answered right in the article below, let’s find out right away!
DeFi – Everything you need to know!
1.1. What is DeFi?
DeFi (Decentralized Finance) literally means decentralized finance, also known as open finance. This is a finance that goes against the traditional financial model (CeFi – Centralized Finance) for generations. With CeFi, you choose to give control of your finances to another party (banks, financial intermediaries) and trust that they will do a better job of managing your wealth than you. However, open finance DeFi is not about creating an entirely new financial system, but democratizing the existing system and making it fairer, using open protocols and data. transparent.
1.2. DeFi – Pros and Cons
DeFi has many outstanding advantages over CeFi finance, but if considered fairly, it still has undeniable disadvantages. Let’s analyze through the table below!
1.3. Today’s Popular DeFi Apps and Services
In order for us to understand DeFi well, the simplest and most direct way is to look at its current products. One thing all of these products have in common is that they are all Blockchain-based. Most of the existing products are based on the Ethereum Blockchain.
The open lending protocol allows users to borrow this asset by collateralizing another asset (usually ETH). After a period of time, the lender will receive the principal with interest as originally agreed.
A good example is Maker – a lending platform based on the Ethereum Blockchain, which supports lending DAI (a stablecoin pegged to the US dollar) so that investors can make other investments and receive credit mortgage with ETH. The value of the collateral is always higher than the value of the loan to ensure that in the event the borrower defaults on the loan, the collateral can be used to cover the lender’s loss. .
Derivatives are another type of DeFi product – derivatives can be used for tokens/coins pegged to another asset (gold/fiat) and also for risk transfer insurance in decentralized prediction markets.
For example, Synthetix is a decentralized platform built on top of the Ethereum Blockchain, a token developed on this platform called SNX provides the ability to “exposure” to other types of assets such as: fiat money ( USD, EUR, JPY), cryptocurrencies (BTC, ETH,…), gold and silver assets (XAU, XAG).
Decentralized exchanges will not hold users’ coins/tokens, but users fully hold their coins/tokens and perform exchanges and transactions through a P2P peer-to-peer network.
Binance DEX is one of the typical decentralized exchanges based on their own Blockchain platform Binance Chain. Users can freely trade coins/tokens listed on Binance DEX.
Decentralized payment platform (Payments Platform)
Payment platforms are an interesting use case of decentralized finance with products using both the Bitcoin and Ethereum blockchains. In the payments sector, DeFi products have attempted to make micropayments more efficient and less expensive, thereby improving the scalability of Blockchain networks.
Lightning Network is a product focused on the Bitcoin Blockchain that improves transaction speed by taking transactions off-chain. In the Lightning Network, two or more network members who want to transact with each other can open up payment channels. You can do as many transactions as you want in this payment channel, and simply record the first and last state of the transactions occurring in the payment channel on the Blockchain.
Stablecoins are cryptocurrencies created with the goal of maintaining price stability. As we all know, the characteristic of the cryptocurrency market is volatility, investors can move their assets to Stablecoins when the market is volatile instead of having to move completely. to fiat currency.
Currently, Stablecoins can be divided into 3 main types:
Crypto-collateralized stablecoins For example, the DAI coin we mentioned above is collateralized with ETH.
Fiat-collateralized stablecoins 1:1 (most popular today) The most popular stablecoins among investors are Tether (USDT), Coinbase’s USDC, or the newly launched BUSD. eye (January 6, 2020) of Binance
Non-collateralized Stablecoins Stablecoins of this kind are likely to take a long time to gain widespread adoption. It is maintained stable by applying algorithms to calculate the supply and demand of users. Some typical stablecoins: Carbon, Steeem Dollar, Bitpay Officical, Nubits.
Why all roads lead to decentralized finance 2020?
2.1. 2019 – The Blooming Period of the DeFi Movement
Surely by now you have somewhat grasped the most basic knowledge about DeFi (decentralized finance). But why is 2019 considered the blooming year of the DeFi movement?
According to DappRadar’s year-end 2019 report (Blockchain is at the forefront of deploying Dapps decentralized applications) on the development of the decentralized application ecosystem – DappRadar 2019 dapp Industry Review, DeFi is the category the strongest growth with the number of new users increasing to 529%. In addition, DeFi also accounts for 45% of the total value of ETH and ERC20 tokens in the Ethereum Dapp ecosystem, and token activity of DeFi products is up 1.990% since June.
According to statistical data from Dune Analytics – a data statistics website related to Ethereum, decentralized exchanges DEXes have seen an impressive trading volume (over 2.3 billion USD) in 2019 alone. .
Statistical list of decentralized exchanges with the highest trading volume | Source: Dune Analytics
Idex exchange leads with a trading volume of more than 850M USD. In second place is Oasis exchange with nearly 500M USD. In the next positions are Kyber, Uniswap and 0x exchanges with a total volume of 388M USD, 370M USD and 228M USD respectively.
In addition, the “big guys” in the cryptocurrency market were soon aware that DeFi would be the development trend of the market in the future and soon invested in developing decentralized financial products and services. central. Typically, the world’s leading cryptocurrency exchange – Binance launched the testnet version of Binance DEX on February 20, 2019. Or in September 2019, Coinbase – the world’s leading crypto wallet established the USDC Bootstrap fund to work towards the development of DeFi technologies.
see more: How to buy the Primexbt COV Token
2.2. 2020 – New era for the global economy
Based on the above figures, we can see that DeFi has seen a pretty good year of development in 2019, but will it still be the development trend of 2020? Will DeFi be able to transform traditional finance?
To answer the above question, let’s go back to the definition at the beginning of the article a bit. The birth of DeFi as an inevitable consequence of a society with many political instability problems and you can’t trust anyone but yourself!
As you can see, according to recent news reports, people in Hong Kong and Santiago have been holding demonstrations demanding to change the structure of the government or elect a new government. They gradually lose trust in the authorities and this also makes people here decide to invest in Bitcoin in primexbt exchange, because it is not under the control of the government.
People’s distrust towards banks and financial institutions is deepening. Typically, on October 30, 2019, the Federal Reserve Bank of the United States of America FED announced a policy of cutting interest rates from a range of 1.75-2% to a range of 1.5-1.75% (this is the 3rd time in the year the Fed makes a decision to cut interest rates). People think that this fiscal policy of the Fed is problematic and influenced by politics. Cutting interest rates can stimulate economic development, but at the same time, it will easily lead to inflation, then the USD and other currencies will easily depreciate and have a heavy negative impact.
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