DeFi (Decentralized Finance)
Decentralized Finance (or DeFi for short) refers to the collection of open financial apps made possible by blockchains like Ethereum. These apps allow anyone in the world to borrow, save, lend, invest, trade, etc. in a decentralized and transparent way.
DeFi is a completely new field of tech/finance that is rapidly evolving: here are some of my favorite resources for learning more about it.
Given Bitcoin and Ethereum's volatile price movements, one of the first ideas for products to build on Ethereum were stablecoins. Stablecoins are tokens that are pegged to real-world currencies like the US-dollar, meaning they are always worth exactly one dollar. This allows people to store their money in crypto while not being exposed to its volatility, and still able to interact with applications in the Ethereum ecosystem.
For the millions of people in countries with unstable currencies, having access to US-dollar pegged stablecoins in Ethereum means protecting their savings from volatility or inflation.
Here are some pieces that talk a bit more about stablecoins:
So far I've been talking about "apps" on Ethereum: the name we actually use for them are protocols. Learning how the most important DeFi protocols work is the best way to understand a lot of the mechanics in DeFi. For a really solid understanding of everything DeFi, I recommend doing a deep dive on the most influential ones:
- Intro to Uniswap
- A Short Story of Uniswap and UNI Token
- How do Liquidity Pools work?
- What Is Impermanent loss?