On December 17, 2017, Dai, the first fully decentralized digital stablecoin on Ethereum, was officially released, which is the cornerstone of decentralized finance (DeFi). The ultimate goal of DeFi is to build a transparent financial system, which is open to anyone who can connect to the Internet, and does not need to obtain permission from any organization, and can meet personal financial needs without relying on third-party institutions, so that users You can control your own assets in a real sense. The application scenarios of DeFi are very extensive, currently involving asset management, blockchain infrastructure construction, blockchain lending, decentralized exchanges (DEX), financial derivatives and other businesses. To date, the size of liquidity on decentralized finance-related applications has reached tens of billions of dollars and is still growing rapidly.
DeFi starts with Bitcoin
In a sense, Bitcoin is the first application based on decentralized finance. Bitcoin allows users to control their own assets in a true sense, and can send their Bitcoin assets to any account in the world. The Bitcoin network provides a mechanism by which mutually distrustful people can agree on the final outcome of a transaction without the assistance of any intermediary. Bitcoin is open to everyone, and no one can change its operating rules. The operating mechanism of Bitcoin (such as the scarcity and openness of Bitcoin) is written into the program, which ensures that the operating mechanism of Bitcoin will not change again. Different from traditional finance, in traditional finance, the government will increase the liquidity of funds in the market through large-scale money printing for macro-control, but this will depreciate the assets of individual users.
Ethereum is like Bitcoin, the rules don't change for you, and everyone can get it. The use of smart contract technology can also make this digital currency programmatic, so that its functions are not limited to savings and transactions.
Decentralized finance and traditional finance
The best way to learn about decentralized finance is to understand the problems with the current financial system.
Some people are unable to open bank accounts or access financial services from the banking system.
Lack of access to financial services can make it difficult for people to find jobs or start businesses.
One hidden charge for financial services is user data.
Governments and central agencies can close markets.
Transactions are usually during limited business hours.
Transfers can take a long time due to the manual process.
There is a premium in financial services because of the intermediary agencies' share.
Compared
| decentralized finance |
traditional finance |
| The money is kept by the users themselves. |
Funds are held by financial institutions. |
| Users can control the flow of funds by themselves. |
Financial institutions may mismanage funds, such as transferring funds to risky borrowers, resulting in depositors losing funds. |
| Transfers are made within minutes. |
Transfers can take several days if there is a manual process. |
| Anonymous transaction. |
Transactions are closely tied to the user's identity. |
| Decentralized finance is open to anyone. |
Not everyone has access to financial services. |
| The trading time is 24 hours without interruption. |
Some transactions are subject to business hours. |
| Built on a transparent infrastructure, anyone can view funding data and verify system operations. |
The user cannot view the loan history, asset records, etc. of the financial machine. |
What Decentralized Finance Can Do
As a Genesis decentralized computing platform, Ethereum creates unlimited opportunities for creating entirely new financial products.
1. Unlike the geographical restrictions of traditional financial institutions, assets can be transferred globally.
2. Obtain digital stable currency or loans, or even unsecured loans, by pledging digital assets.
3. Carry out cryptocurrency deposit business on the blockchain.
4. Unlimited trading of various digital currencies.
5. Enrich personal investment portfolio and manage it conveniently.
6. Seek financing for your own projects.
7. Buy insurance and buy lottery tickets.
Ethereum and Decentralized Finance
Ethereum provides a good foundation for decentralized finance.
Smart contracts deployed on Ethereum are not controlled by any person or organization, which means that no one can change the existing operating rules. DeFi products all use the same platform. This means that many products can be seamlessly integrated. Users can lend tokens on one platform and trade them through another app entirely, or even on a different marketplace. Tokens and cryptocurrencies are built on the Ethereum network, recording transactions and asset ownership is the business of the Ethereum network, that is, all applications based on the Ethereum network can share the security of Ethereum.
We can think of decentralized finance as a multi-level structure: 1. Blockchain: a decentralized network that contains transaction history and account status. 2. Assets: Ethereum and other digital tokens based on Ethereum. 3. Protocol: A smart contract that provides the core logic of the application. 4. Application program: the program used by the user to manage assets and access product agreements.