Crypto Academy Season 3 | Advanced course : CeFi - DeFi - Yield

Introduction: hello friends i greet you all, I am so glad to be here today, to discuss with you all about my homework task given by Professor @stream4u in the homework task i made some researched in which i simplified and elaborated on all the given questions.

(1•) What is the important of the Defi system?

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• Defi give it's participants the full right to control and manage their asset or money without external intervention.
In Defi users have full control of their money, without any intervention like fund advisor or mediator it enable user to invest in their asset at the end make better profit.

• Defi system is a very open financial ecosystem, in which user, know how the ecosystem work, and know nothing can interfere with the process of financial service because it's mode of operation is Decentralized.

(2•). Flaws in centralized finance

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(i• ) in centralized finance users do not have control over their assets or money It is mainly control and manage by fund advisor and their are not always right at all times, also they may face some challenges at the market.

(ii• ) in centralized finance Participants may also have some limitations on their fund, since users do not control their money by themselves, they may not make good profit.

(iii•) centralized finance, has remote control of power, only the central authority have power and control to circulate currencies.

(iv• ) in centralized finance users get small amount of profit and the central authority get huge money with using participants money.

(3•) Defi product ( Explain any 2 products in detail)

Defi products are Lending product, Decentralized Exchange etc.

I will explain the lending products and the Decentralized Exchange

(i•) Lending products
Defi allow users to take out or supply a loan without approval from a third party. in Defi smart contract act as a mediator which perform the loan pattern and connect lenders and borrowers the lending products of Defi give users some benefits such as Collateralization for loan default. Lending and borrowing of digital assets.

(ii•) Decentralized Exchange (Dex)
Decentralized Exchange Dex is a peer to peer (p2p) market place that connects Cryptocurrency buyers and sellers. Dex allow users to be in control of their private keys. It offer user great opportunity such as user are anonymous which means participant are unknown, no verification, or personal identity. no fees involved and there is no need for sign up.

( 4•) Risk involved in Defi

(i•) Smart contract risk
Smart contract vulnerability can be a big challenge for many Defi projects, if there is slightest flaw in the code of a smart contract, it can lead to loss of funds. smart contract is a very important aspect of Defi any mistake can lead to lost of money.

(ii•) Low Liquidity Risk

Liquidity is also an important factor for Defi token based projects and blockchain protocols and the total value locked in Defi is is over $12.5billion this is a low amount when compared to the traditional financial system.

(iii•) Uncertainty Risk
If the blockchain that host a Defi project is unstable, the project inherit this unstability from the host blockchain which can be a very big challenge for crypto-holders.

(iv•) Over-collateralization Risk
Over-collateralization occur when the value of the staked asset ( by borrowers) is higher when compared to the loan amount itself, Defi project have high collateralization, in order to counter the removal of obstacle such as credit rating.

( 5•) What is yield farming ?

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Yield farming is a process that allow crypto-users to end more money by lending their fund through the aid of smart contract, here users earn reward for holding in their assets. It allow crypto-users to hold to earn reward on their holding.

(6•) How does yield farming work?

Yield farming work in a similar way to bank loans, when bank loan someone money the person pay back the loan with interest yield farming operate in the same way but in the yield farming process crypto-holders are the bank, yield farming functions base on a liquidity provider and a liquidity pool where by the Defi market get power.

(7•) What are the best yield farming platforms and why they are best. (Explain any 2 in detail).

The best yield farming platforms are SushiSwap, Uniswap, Venus, Bearn, Pancakeswap, Autofarm, Pancake Bunny etc.

I will like to explain SushiSwap and Uniswap.

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(a•) SushiSwap

The Reasons why SushiSwap is one of the best yield farming platform are as follows:

• SushiSwap is one of the best yield farming platform it basically used for lending, staking and solving a lot of yield farming problems.

• BentoBox is a lending and borrowing platform on SushiSwap that provide a highly competitive yields on stable coin paring and other popular assets.

• through the SushiBar, participants can stake their SUSHI token in return for XSUSHI, which can also be used to interact with other Ethereum protocols.

• SushiSwap provide it's users with trading and liquidity pool options on over 1000 pairs, which is rising in volume and TVL, it's TVL is about $4bn.

•SushiSwap is a very great platform for both skill (experience crypto-users) and novice Defi users.

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(b•)Uniswap

The Reasons Why Uniswap is one of the best yield farming platform are as follows:

• Uniswap is one of the best yield farming platform on the Ethereum network, Uniswap major function are for trading and swapping many assets using the AMM method.

•On Uniswap investors can supply their asset to the vast liquidity pool and earn reward and yields.

• On Uniswap liquidity provider are paid in proportion to their share of the pool's. liquidity. here Uniswap has no native token, but each liquidity pairs is represented by ERC-20 token. All fees (0.3% per trade) are added to the relevant liquidity pool.

(8•). The calculation method in yield farming Return.

• Annual percentage Rate (APR)

Annual percentage Rate (APR) Is the annual rate of interest charged to borrowers and paid to investors.

Here is how i calculated APR
Simply, multiplying the periodic interest rate by the number of period in a year
Example: 500 no of periodic interest rate
365 no.of days in a year
100%
500x365x100= 18,250,000
APR = 18,250,000

(9•) Advantages and Disadvantages of yield farming

Advantages of yield farming

( i•) It is the best alternative for storing funds in saving accounts, it enable users to earn higher interest through yield farming more than the traditional banking system.

(ii•) It is a very good source of passive income, for instance crypto-holders whose fund are idle in their wallet can also lock their fund in the Defi protocols to earn more Cryptocurrencies.

Disadvantages of yield farming

(i•) Smart contract risk

Yield farming is controlled by smart contract that remove the middle men in traditional finance, smart control risk is high due to the malicious hacker can explore bugs in the code.

(ii•) Price Risk

is a big problem in yield farming Price risk is a loan, suppose the price of the collateral fall below a specific price the platform will liquidate the borrowers before they get the chance to return the loan.

(iii•) Liquidation Risk

Liquidation risk occurred when the price of participants collateral price has dropped beyond the price of loan which causes a liquidation penalty to users collateral. Liquidation can happen when the value of users collateral drop or the price of loan increases.

(iv•) Strategy Risk

Yield farming strategies include participating in loan pools, Lending, or arbitrage trading, yield farming strategies may change over time the method which are better use today may not work tomorrow due to certain difference condition.

(10•) Conclusion on Defi and yield farming.

Defi
Defi is a finance platform that operate on a blockchain that is online method of finance that does not rely on Central financial intermediaries such as bank, brokerage or even Exchange to provide financial instrument for it users, by making use of smart contract on the blockchain. the most popular one been Ethereum. Defi platform enable participant to lend or even borrow money from others.

Yield farming
Yield farming is a process that enable crypto-holders to end more money (fund) by lending their fund through the aid of smart contract. Here crypto-users earn rewards for holding in their assets.

Finally I sincerely thank professor @stream4u for his wonderful lecture also i appreciate you all for reading my post.