In our previous article we briefly defined DeFi and explored its origins and prospects for the future. Now, we will look into the benefits that DeFi offers, discuss some of the hottest projects and how you can get started.
Let´s dive right in
The journey to monetary freedom can feel intimidating with so many options and potential outcomes. When it comes to DeFi in particular, it can be more overwhelming for a non-technical person who just recently learned about Bitcoin.
But wether you are looking to getting a better interest rate than what the banks are giving you or generate returns from your crypto while HODLing, DeFi has something to offer you.
Ethereum and DeFi
According to the World Bank’s Global Findex latest report, 1.7 billion adults are left unbanked. Technology, innovation and digitalization will play a vast role in reducing this number.
Ethereum is a fine example of a project that has created a new game-changing financial system with the potential of transforming our society for the better by making finance more accessible to millions of people around the world.
Nowadays, DeFi runs mostly on Ethereum. The programming language of the Ethereum blockchain allows anyone to write immutable smart contracts, automated lines of code that execute transactions on the network.
The benefits of DeFi
Smart contracts enable solutions for complex tasks and make possible to write DeFi applications.
But how can you benefit from them ?
- Lending and borrowing
Cheaper and faster lending/borrowing processes with peer-to-peer lending and borrowing solutions. Smart contract integration that eliminates intermediaries such as banks and provide cryptographic verification mechanisms that protect your transactions.
Savings has taken a new shape with the rise of DeFi and given birth to terms like “yield farming” describing users moving their idle crypto assets around in different lending protocols to get higher returns. People can lock their crypto assets into lending protocols such as Compound and start earning interest on them.
Crypto tokens are digital assets that exist on a blockchain and can have various properties and uses. The vast ecosystem of tokens can range from utility tokens, security tokens, real estate tokens etc. For example, artists can now tokenize their art with NFTs (watch NFTs artist Carina Dorthy Krehl as she explains that process).
- Stablecoins (ARYZE)
Stablecoins aim to reduce the price volatility of cryptocurrencies and they are widely used across the space to enable remittance, lending/borrowing, and other DeFi services.
For example, the RYZE token, ARYZE´s native currency is a stablecoin. Whenever users use Digital Cash on an Open Source system or transfer deposits directly from MAMA to MAMA, ARYZE collateralizes with assets backed by government guarantees.
Peer-to-peer trading of digital assets is increasingly becoming the new way to exchange goods and services online. A good example of this is Idoneus, which provides a digital marketplace, that makes it simple and easy for luxury assets, goods and services to be purchased, sold, rented or otherwise experienced.
Hot DeFi projects
The universe of DeFi is always expanding. For the purpose of this article, we have only chosen a few of the most popular ones.
With AAVE you can borrow assets and earn interest on deposits. In contrast with other projects, it offers flash loans that provide broad liquidity to DeFi instead of simply locking assets. AAVE has interest-bearing tokens that accumulate interest directly in the user’s wallet and in real-time (aTokens).
Compound is best described as an open money marketplace. You can deposit cryptos and borrow assets against them or earn interest with an automated platform capital management and storage based on smart contracts. In contrast with AAVE it focuses on the total locked asset amount and does not reuse locked assets.
Uniswap is a protocol that uses liquidity reserves to support asset exchange. Its decentralized architecture eliminates digital asset exchange intermediaries and facilitates ERC20 and ETH trading.
The token’s price of Maker (MKR) is free to change because it’s not pegged to any specific price. Holders of the MKR token can govern the platform using it.
DAI and Maker are projects by MakerDAO. They complement each other because DAI is a stablecoin with a fixed price, approximately around a dollar. This prevents volatility meaning that holders of DAI can be certain in its value never dropping.
Polkadot facilitates interoperability between independent blockchains which means that it allows blockchains to speak to one another. Polkadot is like a universe in itself offering an ecosystem of blockchains, similar to Ethereum with a twist : sharding.
Essentially, sharding aims to solve the scalability problems of blockchain.
How to get started
- Buy cryptocurrency from a fiat-to-crypto exchange.
- Create a software wallet to store your cryptocurrency.
- Transfer your cryptocurrency from the exchange into your wallet.
- Transfer your cryptocurrency from your wallet to a crypto-bank to earn interest.
1. Buy crypto from fiat-to-crypto.
You can buy crypto with fiat money (USD, GBP, EUR etc.) using a fiat-to-crypto exchange. Some of the most popular ones in the market are Binance and Coinbase. Continue your journey into DeFi by buying Bitcoin/Ether given that the number of cryptos on fiat-to-crypto exchanges is limited due to regulatory requirements.
2. Create a crypto wallet.
The most popular types of crypto wallets can be either hot wallets or cold wallets. Hot wallets refer to software wallets that can be created in minutes and are connected to the internet (Metamask, for example). Whereas cold wallets are not connected to the internet (ledger).
Once you examine the pros and cons of each type and go for the one that best suits your needs, now you can receive cryptocurrencies by transferring them from your crypto exchange account.
3. Transfer from the fiat-to-crypto exchange account into your crypto wallet.
Make sure that you are sending crypto between compatible blockchains, for example, Bitcoin into a Bitcoin wallet address, Ethereum into an Ether wallet address etc. Keep a small amount of cryptocurrencies to pay for network fees for any crypto transfers.
4. Transfer your crypto to a crypto bank to earn interests.
Research and upweigh the pros and cons amongst different crypto banks. They differ from one another in the terms of the interest generated and the security they provide.
Compound and Celsius are popular options. These options are known for their stability and security (the funds are insured). However, there is always a risk of a security breach with crypto.
It is no doubt that DeFi has emerged to play a pivotal role in the digital asset economy of the future. As the adoption of crypto becomes more mainstream, there will be an increase in demand for crypto-based financial services, particularly lending.
At ARYZE, we are thrilled about DeFi’s future and we are eager to contribute to the sector’s success. In a broad sense, our solution is aimed at digitizing cash and creating the interoperability to whichever systems our users prefer.