Crypto Academy Week 7 Task by @gbenga: Introduction To DeFi
Hello Steemians, this is my assignment for week 7, on Decentralized Finance Ecosytem and its Project/Protocol by Professor @gbenga. It a very very interesting topic to the point I had to edit it based on the correction made by Prof. @gbenga on its first post. I hope you enjoy it again.
Question/Task
Write on a Decentralized Finance Ecosystem as well as a Project/Protocol in the Ecosystem.
Decentralized Finance (DeFi)
DeFi is a holistic term for different applications and projects in the public blockchain space aimed at disrupting the traditional finance world. DeFi is referred as financial applications built on blockchain technologies, example using smart contracts.
DeFi comprises of applications and peer-to-peer protocols developed on decentralized blockchain networks that needs no access rights for easy borrowing, lending, and/or trading of financial tools. Lots of DeFi applications now are built using the Ethereum network, however, many alternative public networks are coming up with superior speed, scalability, lower costs and security.
Stablecoins(One of DeFi ecosystem)
Stablecoins came up as an attempt to come up with a cryptocurrency token that has a stable price.
A stability achieved by pegging the token to an asset such as fiat, gold etc.
As it is backed by traditional investments, the market has a greater confidence in their price.
Categories of Stablecoins
Stablecoins can be categorized based on their working mechanisms:
1.Fiat-Collateralized/backed Stablecoins
They are stablecoins backed by sovereign currency such as the US dollar. Which means for a user to obtain a token of a given cryptocurrency, the user must offer dollar reserve that worth same amount as collateral.
Gold as a commodity can be used also (some do regard it as commodity backed cryptocurrency). The reserves is usually maintained by custodians that function/runs independently and are also audited for compliance regularly.
One of the cryptocurrencies that are backed by US dollar is TrueUSD(TUSD)
TrueUSD
This is a transparently verified, fully collateralized,and legally protected ERC-20 token that is pegged on US dollar. TUSD holds US dollars as collateral in bank accounts of different fiduciary partners that have signed escrow agreements. These banks are subjected to monthly audits to ensure trust/transparency in TUSD.
Protocol
TUSD tokens are issued on the Bitcoin network through Omni Protocol which ensures that no one is in charge of issuing tokens. However, these tokens is based on Ethereum network advanced issuance framework.
2. Crypto-Collateralized Stablecoins
Crypto-collateralized stablecoins vslue is pegged on the other cryptocurrencies. That is cryptocurrency backing another cryptocurrency as an underlying asset, which means it is not conventionally safe and maybe highly volatile also.
3. Non-Collateralized (Algorithmic) Stablecoins
These are those stablecoins that do not involve the use of the reserve asset. However, their stability comes from the working mechanism, as that of a central bank.
Hello, Thanks for being a part of this week's class and participating in the assignment.
I read your post over and over to make sure you were going to elaborate on one protocol but you picked several ones withoutexplaining in details.
Rating 4
Thanks prof. for making out time to go through my assignment. I had to re-do it. I hope you have time to go through it again. Thanks
I swear learned something from this write up....cool...
Very informative @ericanthony. You'll make your Mother very proud. I wish you success with your homework. Have a blessed day.