Summary of DeFi decentralized financial projects

Decentralized Finance (DeFi) is a movement that allows users to use financial services such as lending and transactions without relying on centralized entities. These financial services are provided by decentralized applications (Dapp), and most of the applications are deployed on the Ethereum platform. DeFi refers to a series of products and services that replace institutions such as banks, insurance, bonds, and money markets. DeFi Dapp allows users to combine the services they provide to open up more possibilities. According to the current decentralized financial applications, the scenes and applications are classified and summarized.

More blockchain technology and application classification:

Blockchain applicationBlockchain development

Ethernet Square | Fabric | BCOS | cryptography | consensus algorithm | bitcoin | Other chain

Token Economy | Traditional Financial Scenarios | Decentralized Finance | Anti-counterfeiting Traceability | Data Sharing | Trusted Deposit

Decentralized finance:

A preliminary exploration of MakerDAO

Introduction to Decentralized Lending Compound Project

Synthetix, a decentralized derivatives protocol

Decentralized fund management TokenSets

Decentralized Lottery PoolTogether

Decentralized payment and Sablier

Uniswap of Decentralized Exchange (DEX)

DYdX of Decentralized Exchange (DEX)

Decentralized Insurance Nexus Mutual

Summary of DeFi Project Portal Official Website

Introduction to DeFi

DeFi represents a movement that aims to promote borderless, censored, and barrier-free financial products. It aims to revolutionize traditional financial services by eliminating the need for intermediaries. In the final analysis, its greatest advantage lies in its ability to eliminate intermediaries and operate in a zero-censorship environment. But it needs to be pointed out that DeFi is still in the early experimental stage.

DeFi transforms the three key parts of the traditional banking system

1. Payment & Clearing System (Remittance)

When we use traditional bank payment services, we can usually deeply feel the pain points-remittances involving banks all over the world usually take several working days to complete and involve a wide variety of handling fees. What is more troublesome is that there may also be issues related to the supporting documents required for remittances, compliance with anti-money laundering laws, and privacy.

In DeFi activities, cryptocurrency allows to bypass the middleman who can make considerable profits in the transfer process. The transfer speed is faster, the transfer transaction will be processed unconditionally, and you only need to pay a lower fee than the bank. For example, it only takes 15 seconds to 5 minutes to transfer cryptocurrency to any account in the world and pay a small fee.

2. Availability

According to estimates by the World Bank, as of 2017, 1.7 billion people did not hold accounts with financial institutions, and more than half of them were from developing countries. They mainly come from poor families. The main reasons why they do not have a bank account include poverty, geographic location and trust issues.
For the 1.7 billion people without bank accounts, access to banking services is very difficult-but DeFi has the potential to make it easy. Access to DeFi Dapp (decentralized application) only requires the user to have a mobile phone connected to the Internet, and does not need to go through a lengthy verification process. The World Bank estimates that of the 1.7 billion unbanked people, two-thirds have mobile phones. Therefore, unlike traditional banks, DeFi Dapp can become a gateway for these people to obtain financial products.

3. Centralization & Transparency

Banks are one of the central nodes leading to the collapse of the financial system-the collapse of Lehman Brothers triggered the 2008 financial crisis. It is very dangerous to concentrate power and funds in the hands of banks. Ordinary investors cannot fully understand the operation of financial institutions, which led to a series of events in the 2008 financial crisis, including credit rating agencies that gave high-risk mortgage securities a AAA rating.

In contrast to DeFi, most of the DeFi protocols built on public blockchains (such as Ethereum) are open source, facilitating auditing and enhancing transparency. These agreements usually have a decentralized governance organization to ensure that everyone knows exactly what happened, and to ensure that no evildoer can make malicious decisions alone. The DeFi protocol will be written as a line of code, which runs exactly in the way it was written. You can't cheat the code because it treats everyone the same and does not treat it differently. Since the code will be open source for public review, any vulnerabilities will be quickly revealed.

DeFi applications by degree of centralization

1. Centralization

Features: custody, centralized price feeding, centralized determination of interest rates, centralized injection of liquidity when margin calls are made

Examples: Salt, BlockFi, Nexo, and Celsius

2. Semi-decentralized (has one or more but not all of the above characteristics)

Features: non-custodial, decentralized price feed, initiates margin call without permission, adjusts liquidity without permission, determines interest rate decentrally, develops/upgrades decentralized platform

Examples: Compound, MakerDAO, dYdX, and bZx

3. Fully decentralized

Feature: Every component is decentralized

Example: There is currently no fully decentralized DeFi protocol

Currently, most DeFi Dapps belong to the semi-decentralized category.

DeFi category

1. Stablecoin

Centralized stable currency

Like Tether, each USDT has one U.S. dollar as an endorsement in the bank account of its issuing institution. However, a major disadvantage of USDT is that users need to trust that its USD reserves are fully collateralized and do exist.

Decentralized stable currency

It is created in a decentralized form through the method of over-collateralization, runs completely on a decentralized ledger, managed by a decentralized autonomous organization, and its reserves can be publicly audited by anyone.

2. Borrow

Decentralized lending allows anyone to mortgage their digital assets and then use the mortgaged assets to obtain loans. At the same time, users can also get income from their assets and participate in the loan market by injecting assets into the loan pool to earn interest. With decentralized lending, borrowers no longer need a bank account or perform credit checks.

3. Exchange

Decentralized exchanges aim to solve the above problems by allowing users to trade cryptocurrencies without giving up the custody of their assets. Since there is no need to deposit assets like a centralized exchange, users do not need to trust the exchange to maintain its solvency.

4. Derivatives

Derivatives are contracts whose value comes from other underlying assets such as stocks, commodities, currencies, indexes, bonds or interest rates. Traders can use derivatives to hedge their positions, thereby reducing their risk in specific transactions. Derivative contracts are mainly traded on centralized platforms. Currently, many DeFi platforms are beginning to build decentralized derivatives markets.

5. Fund Management

Fund management is the process of monitoring your assets and managing their cash flow to generate investment returns. There are two main types of fund management: active and passive. In DeFi, some projects have begun to allow passive fund management in a decentralized manner. The transparency of DeFi makes it easy for users to track how funds are managed and know what fees they have to pay.

6. Lottery

The lottery combined with DeFi can transfer the custody of the fund pool to the Ethereum smart contract.

7. Pay

With the development of DeFi, more and more innovative payment methods are being created and tested. For example, a Dapp project is designed to change the way we process payments by resetting payments to streaming mode instead of familiar transactions. The possibility of streaming payments will give rise to a large number of potential currency applications. . Streaming payment can be imagined as "pay as you use" (a mode of paying according to actual use) with finer and higher accuracy.

8. Insurance

Involving the transfer of a large amount of funds, the tokens locked in the smart contract are susceptible to the vulnerability of the smart contract. These risks highlight the necessity of purchasing insurance, especially when users process large amounts of funds on DeFi, decentralized insurance can be used.

Risks faced by current DeFi users

1. Technical risk: There are loopholes in the smart contract, and security attacks are encountered;

2. Liquidity risk: similar to the exhaustion of the liquidity of the Compound platform;

3. Key management risk: The master private key of the platform may be stolen.

Original link: Summary of DeFi Decentralized Finance Project