Author | Produced by JackyLHH
| Vernacular Blockchain (ID: hellobtc)
In the second half of this year, the price of DeFi tokens has risen sharply , leading to a continuous increase in the popularity of the DeFi concept.
So, what is DeFi? Is it the same thing as FinTech? If not, what is the difference? Today, let’s take a look at DeFi.
01
What is DeFi, and FinTech What is the difference?
Let me talk about FinTech, which was heavily reported by traditional media in the past few years. FinTech (financial technology) mainly uses Machine Learning and Artificial Intelligence to make better predictions and judgments.
The core of FinTech is credit . Based on users' historical consumption records, FinTech uses machine learning and artificial intelligence to perform big data analysis to calculate the credit levels of different users, and then launch different financial services, such as loan services, according to the different credit levels. For example, Ant Financial, a giant in the FinTech field, uses various transaction data generated by Alipay every day to calculate and analyze Huabei services for people with different credit levels.
Unlike FinTech, DeFi (decentralized finance) refers more to decentralized financial derivatives and related services, behind which is distributed ledger and blockchain technology .
Because it is decentralized, DeFi has no credit system. FinTech will evaluate a user's credit rating based on historical data. DeFi mainly exists on the decentralized blockchain. Most DeFi products do not have identity on the chain, and users are basically anonymous or semi-anonymous.
DeFi's vision is that all assets can be tokenized and freely traded in the global open market.
02 The
current foundation of DeFi : Maker DAO
From stablecoins to decentralized Token exchange platforms and lending, there are currently thousands of DeFi projects, and the entire ecosystem is booming.
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Source of DeFi products on Ethereum : theblockcrypto.com
Next, through the well-known DeFi on the Ethereum network -Maker DAO, to help everyone understand the operation of DeFi at a deeper level.
We can simply understand Maker DAO as a decentralized bank, which can issue its own stable currency- Dai , which is anchored 1:1 with the US dollar.
One of the most important businesses in traditional financial services is lending. Suppose that after the cryptocurrency investor Zhang Sanquan bought a house, he met true love and planned to get married, but he didn't have the money to do the wedding and planned to go to the bank for a loan. The bank will investigate Zhang San's credit history and use Zhang San's assets (such as a house) as collateral before it is willing to lend him.
How to achieve this in the decentralized "bank" Maker DAO? In fact, it is very simple. Maker DAO does not need to check Zhang San's credit history, and he does not even know that he is Zhang San (anonymity of the blockchain). Maker DAO will ask Zhang San to mortgage the blockchain assets. Assuming that Zhang San has a value of $150,000 in ETH, all pledged to Maker DAO through a smart contract , Maker DAO will give Zhang San a maximum of 100,000 Dai (worth $100,000) , Because Maker DAO stipulates that the value of the collateral is at least 1.5 times the loan amount. With Dai, Zhang San can be exchanged into legal currency (such as US dollars) for use in life.
After Zhang San has money, he can buy Dai in the market, return it to Maker DAO and pay interest, and redeem the mortgaged ETH assets. Assuming that the market declines and Zhang San’s original ETH worth $150,000 has also shrunk, which is already less than 1.5 times the loan amount, Maker DAO will forcefully sell Zhang San’s ETH to repay his loan, ensuring that Maker DAO itself "does not" Will go bankrupt".
03
Conclusion
Ethereum founder V God once said that finance and games will be the first two areas where blockchain technology will land. Compared with traditional financial service institutions, DeFi does have many advantages, such as decentralization, high transparency, and low fees.
Just as many people cannot understand blockchain technology, DeFi also has cognitive thresholds, and the road to popular science is a long way to go.
Which financial products are you most looking forward to launching the DeFi version? why?Welcome to leave a message in the message area.
▎Past issues
What types of digital asset wallets are there? How to choose?
What is the consensus mechanism known as the "soul of the blockchain"?
This article is a reissue of an old article with slight adjustments to the
original link: What is the recently discussed DeFi (decentralized finance)?
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"Sound Description: This series is only for entry-block chain science learning, does not constitute any investment advice or recommendations. If there are any errors or omissions, please leave a message to point out. 』
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