DeFi: what is it and how you can make money on it (Part 1)
What is DeFi
Decentralized finance or DeFi is a movement that allows you to use financial services such as borrowing, lending, and trading without having to rely on centralized organizations. These financial services are provided through decentralized applications (Dapps), most of which are deployed on the Ethereum platform. DeFi has become a key topic for Ethereum development between 2019 and 2020. At the moment more than $10 billion in cryptographic currency is in decentralized financial applications.
Methods of earning in the system of decentralized finance
With such rapid development it would be impossible to cover in this article all that DeFi can offer. This explains why we have chosen several categories that we think are important for beginners to understand before taking the first step in the DeFi ecosystem.
It should be noted that DeFi in their current state is still in the nascent and experimental stages. Many projects are rapidly improving day by day and overtime DeFi may develop into something completely different from what we see today. However, it is useful to understand the early origins of DeFi to get the most out of the opportunities offered by decentralized financial applications today.
Decentralized lending and borrowing
Traditional financial systems require users to have bank accounts to use their services, a luxury that 1.7 billion people currently do not have. Obtaining a loan from a bank is accompanied by other restrictions such as having a good credit score and sufficient collateral to convince the bank that the borrower deserves the loan and can repay it.
Decentralized lending and borrowing remove this barrier by allowing anyone to use their digital assets as collateral to obtain credit. It is also possible to generate income from their digital assets in the credit market by contributing these assets to credit pools and earning interest on them. With decentralized lending and borrowing there is no need for a bank account or credit checks.
How to make profit: Interest on liquidity provision for credit pools, participation in liquidation of collateral positions with a discount.
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