What is DeFi?
At present, the pledged mining of DeFi is mainly a product that occurs on the Ethereum blockchain. It obtains income by providing pledge for DeFi products on the Ethereum. In simple terms, mining can be done by depositing certain token assets. The reason why it is called mining is also the industry argument of Bitcoin mining. Pledge mining on Compound mainly involves depositing tokens or lending tokens on it, so as to obtain rewards of COMP governance tokens. The COMP token represents the governance right of the Compound protocol. COMP holders can vote to determine the development direction of the Compound protocol. If the Compound business has value, then COMP has natural governance value.
Compared with traditional centralized finance, DeFi has three main advantages:
a. Individuals with asset management needs do not need to trust any intermediaries, and new trust will be rebuilt on the machine and code;
b. Everyone has access rights and no one has central control rights
c. All agreements are open source, so anyone can cooperate on the agreement to build new financial products and accelerate financial innovation under the network effect.
8 characteristics of DeFi projects:
1. Financial characteristics: The agreement must specifically target financial applications, such as credit markets, token exchange, derivative/synthetic asset issuance or exchange, asset management or forecast markets.
2. No permission required: the code is open source, allowing any party to use or build on it without a third party
3. Anonymity: Users do not need to reveal their identity.
4. Non-custodial: Assets are not managed by a single third party.
5. Community-based governance: A single entity does not have upgrade decision-making and management privileges. If anything, there must be a trusted way to transfer individual rights to the community.
6. No pre-mining, no founder rewards, and no private equity. Participants have the same opportunities.
7. Self-certified innocence, transparent capital flow, and verifiable system solvency chain.
8. All codes of the project, including smart contract and client code, have passed the third-party audit.