Crypto Academy / Season 3 / Week 4 - Homework Post for @stream4u | Cefi-Defi-Yield by @monz122

Hello everyone this is Monz from India , hope you all are doing great and enjoying this season of homework. I'm so happy that I'm getting a chance of doing this homework of season 3 week 4. Happy to see more and more students participating in SteemitCryptoAcademy .
First of all I would like to thank professor @stream4u for giving the details of of Cefi- Defi- Yield by going through the details of your post I got to know more about this system.

So let's start with our today's homework

Q1 What Is the Importance Of the DeFi System?

Importance of DeFi System

Before coming to the importance of DeFi system, first let's understand DeFi System . DeFi system or decentralized finance system utilizes smart contracts on blockchain and does not depend on any Central authorities. Some of the Decentralized finance applications also provide high interest rates but then they are also subject to higher risks. Moreover it allows people to lend or borrow fund from others and also speculates on the price movement of range of cryptoassets .

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Coming on to importance of decentralised finance system which are given below:

•Elimination of Central authorities and speed of growth: DeFi does not include any Central Authorities and it strive to fulfill the services of traditional finance transparent manner. Moreover decentralised finance system is a highly scalable and global ecosystem and as it proves its utility as whole or specific DeFi application exponential growth as possible to a large extent.

•No existent of third parties and enables to borrow or lend money on a large scale: no third parties or intermediaries are required for the purpose of transactions made on centralised finance system which in turn helps in saving time and also micset safe to perform transactions. DeFi also enables the speciality of lending and borrowing money on a large scale between unknown parties without an intermediaries.

• Entry without any identity barrier: unlike centralised system in DeFi system one can perform transactions without providing any types of identity like KYC verification etc. Which can be called a benefit for the user as he or she totally has the freedom of choice which makes Decentralised finance system attractive for investors.

•Development of necessary platform for facilitation of flows between borrowers and savers and with total control: decentralized finance system helps in connecting the savers and borrowers with the development of decentralized exchanges . Moreover users has the freedom of making transactions anytime without any hindrances.

So these are the few importance of decentralized finance system which helps in shaping the ecosystem of cryptocurrencies.

2) Flaws in Centralized Finance.

There are many flaws associated with centralised finance system and I will be mentioning some of them below.

•Existence of Central authorities: approval from Central authorities is required for every transaction in centralised finance system which inturn limits the users as Central authority's permission is required.

•Results in delay in work: in a centralised finance system all the records of the work and transactions are sent to the head office which takes lots and lots of time and also employees cannot take their own decisions and have to to rely on the decisions given from the top level and sometimes there are delays in in relying the records which is a loss of man- hours as the employees have to wait for a longer period for the decisions given from the top level.

•Presence of intermediaries lacking total freedom to users: the users in a centralised finance system does not get full freedom of due to the presence of intermediaries. As third parties are involved which gives rise to the fraudulent and also delays in transactions.

• Problem of providing identity for verification:
In a centralised finance system verification of documents are required before making any transactions, your transaction cannot be completed lack of proper documents as verification is a must in in centralised finance system unlike decentralized finance system where you can make transactions without any verification aur identity proof.

So these are the flaws of a centralised finance system.

3) Two DeFi Products

For this task I will be explaining about 2 DeFi products which are exchange and lending , so let's understand more about each of the products.

i)Decentralized Exchanges

Decentralized exchanges can be referred as financial applications built on blockchain technologies which offers users in buying/selling , lending/borrowing, swap/exchange and it also provides liquidity of the coins anytime. It does not involve third party transactions and here the users can perform transactions with full control and and has freedom of their choice.
It consists of peer-to-peer protocols most applications of decentralised finance system are built using Ethereum network.

AMM ( Automated Market Maker) is the technology which is used to quote prices on decentralized exchange without the need of authorisation and trades here are executed using liquididity pools . Prices of assets are determined by mathematical formulas .
Automated Market Maker in turn helps in improving the space of decentralized finance system.

Examples of decentralised exchanges are Uniswap, PancakeSwap, Sushiswap ,JustSwap and many more.

Now let's understand what is JustSwap

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JustSwap: it's a market automatic liquidity protocol launched by JUST, a foundation committed for developing decentralized finance system protocols .

JustSwap allows users to swap TRC-20 tokens of their choice. It has a trading fees of 0.3% and also helps the users in buying and selling and swap/exchange of TRC-20 tokens without any third party involvement.
The trading fee of 0.3 % goes directly to the liquidity provider and rest there is no additional fees.
Just a cost effective which is the best feature of Tron blockchain. As it is Tron-based decentralized exchange we need Tron wallet for making the transactions.
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JustSwap DEX's screenshot.

ii) Lending

Lending as a function of decentralized exchange where a person can lend his or her cryto to on certain rate of interest in APR or APY without the involvement of any intermediaries. A person can also get Crypto loans directly through the decentralized platform p2p lending and will pay back the cryptos with certain interest rates.

Through the function of lending one can earn large amount of money by providing Crypto loans to the users. Yeah the borrowers can also take loan in the time of need. Decentralized finance system which offers lending and borrowing is JustLend , so let's know what is JustLend in detail .

JustLend:Just Lend can be defined as a lending platform which is also a TRON- powered money market protocol which allow users to provide their assets to lending pool in return of certain percentage of interest over a period of time. In JustLend the fund pool's interest rates are determined by an algorithm based on supply and demand of Tron assets.
JustLend first accepts TRX, USDT, USDJ, SUN, WIN, BTC, JST and WBTT as collateral for loans. JustLend provides transparency and effective pricing based on market demand.

Supplying assets in JustLend on lending pools enable users to acquire JTokens (a TRC-20 token balance) for the time till which they have supplied their assets, moreover suppliers can withdraw their asset anytime without any waiting for any loan to expire. JustLend only asks users to specify the borrowing asset and there is no other requirement like expiry date etc. The transaction fee of justlend is very low which is an advantage for the user. JustLend is able to provide loans to the user in seconds as it is powered by the superior speed of TRON network.

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Supply and Borrow market on Justlend

4) Risks involved in DeFi

•Risk of Liquidity: In case decentralized exchanges the liquidity compared to centralised exchanges are lower which leads to to excess transaction fees in decentralized financial system.

•Technical Risk: these types of risk in decentralized financial system arises from the issues with protocols hardware and software . Moreover technical risks depends on factors like API, handling of I/Os . Due to improper evaluation and testing of API affects the functionalities.

•Injection risks: these types of risks are associated with the entry of malicious codes into decentralised finance system software with popular injection risk which is in form of SQL from web applications.

•Risk of Impermanent Loss: nice type of breasts are concerned with liquidity pools in DeFi where the value of assets supplied in liquid pool differs from the user's crypto wallet or we can refer it as difference between the funds held in AMM and the funds held in your wallet ,it occurs when the value of both Liquidity pool and wallet fluctuates.

•Smart Contract Risks: operations on DYFI are done through smart contracts which are codes which are responsible for storing and transferring the assets these codes are suspectable to hack which can in turn results and loss of assets which is not safe for the user.

5) What is Yield Farming?

In DeFi ecosystem Yield Farming is a method of earning passive income , in this users lock their assets in liquidity pool in order to generate high returns and they earn from exchange fees. These returns are expressed as an annual percentage yield (APY). They are also known as liquidity providers.
It is also risky and volatile .

That put as its locked up in yield farming can also be used for lending purpose to other users for earning rewards based on a APR .
So, the one who seeks for earning more in decentralized finance system can choose Yield farming to earn more .
Most Yield Farming protocol rewards liquidity providers with governance tokens which can be traded on both centralised and decentralized exchanges.

6. How does Yield Farming Work?

Yield Farming works similar way as bank loans as when we take loans from Bank we have to payback the loan with some rate of interest similarly in yield farming the Crypto holders can be considered as bank but then Yield farming uses cryptos that are lying idle wasting on an exchange so despite of keeping them idle one can earn some money by provid.ing their assets.

Or rather we can say that the users lock there assets in the pool of tokens of their choice . These assets are referred as Liquidity which enhances liquidity on DEX .

Let's take an example and understand it.

Suppose Mr A is a providing liquidity on an ETH based decentralized exchange . He supplies ERC-20 tokens so here he will get ERC-20 tokens as reward based on APR or APY .

How to add liquidity on PancakeSwap.

Here on the landing page of pancakeSwap and liquidity on the pool I am choosing the pair CAKE-BNB and entering the amount of 0.05 BNB and 1.28223 CAKE . Click on supply

On the next interface, click Confirm and the asset was successfully gets supplied.

Here, acquired LP tokens earned from adding liquidity into pool of paired asset (E.g CAKE-BNB) can also be staked at the farms section of the PancakeSwap to even earn more at 65.68% APR.

The acquired LP tokens can be further harvested and can be used to stake in the farms and earn more. The LP tokens are the ones acquired from adding liquidity into a pool with a pair of two tokens (CAKE-BNB) earlier.
The screenshots are taken from src
Shown the steps and the percentage of APR earned.

7)What Are the best Yield Farming Platforms and why they are best?

Here , I will be discussing about two decentralized exchanges on different blockchains offering yield farming . PancakeSwap (Binance Smart Chain) and SushiSwap (Ethereum Blockchain).So let's know them in details.

Pancake Swap

Pancake Swap can be defined as a decentralized exchange which allows users to trade cryptoassets and tokens without any without the involvement of any third parties or Central intermediaries . It offers Yield Farming and is deployed on Binance Smart Chain. It is run by Crypto exchange Binance. It came into existence in the year 2020. Moreover PancakeSwap is built on AMM (Automated Market Maker) system. It relies Liquidity pool to enable crypto trades.

PancakeSwap's current rate is $ 11.23 with a 24 hours trading volume of $328,979,563.92 according to coinmarketcap.com and stands at #34 rank and its TVL is $3,763,455,463 .

Moreover users can state their tokens and earn rewards by locking them up.
It PancakeSwap (CAKE) can be bought and sold on
•Binance
•VCC Exchange
•BKEX
•KuCoin
•MXC.COM

Liquidity pool available on PancakeSwap are: Auto CAKE, Manual CAKE, Earn TRX Stake CAKE, CAKE-BNB and many others each with differing APY/APR.

Why PancakeSwap is among the best?

Reasons for pancake swap being the best are:

•PancakeSwaps has its own native token called CAKE.

• The transaction fees of PancakeSwap is low and provides fast transactions.

• No KYC or any documents verification required for PancakeSwap.

• No intermediaries or third parties required for transaction of PanSwap.

So above are the reasons why I chose PancakeSwap as the best DEX .

SushiSwap

SushiSwap is a decentralized exchange built on ethereum blockchain for the buy/sell or swap/exchange of ERC-20 tokens which enable users to trade directly with one another without the involvement of any intermediaries or third parties. SushiSwap is based on Uniswap’s code.
It relies on smart contracts or code that automates processes—and liquidity .Sushi swap also provides the ability to stalk SUSHI coins and on rewards

SushiSwap was launched in August 2020.
The current price of SushiSwap is $6.21 now at this time of mine making the homework.
24-hour trading volume of $195,150,261 USD.
SUSHI's CoinMarketCap ranking is #74, with a live market cap of $789,668,701 USD. It has a circulating supply of 127,244,443 SUSHI coins.
SushiSwap was founded by Chef Nomi.
It also entitles users to governance rights.

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Swap Interface of SushiSwap

Why SushiSwap is among the best?

Following are the reasons for SushiSwap being among the best.

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current market price of SushiSwap

•provides the feature of Stalking and Farming

•Low and most affordable fees of 0.3 % unlike other centralised exchanges

•presence of substantial liquidity

• Helps in generating passive income by giving back the majority of fees in the form of rewards to the users.

So following above are the points which makes Sushi swap best among other decentralized exchanges.

8. The Calculation method of Yield Farming Returns.

Yield Farming returns are calculated in two ways which are APR ( Annual Percentage Rate) and APY ( Annual Percentage Yield)
So let's understand both the ways in detail .

(APR) Annual Percentage Rate

Annual percentage rate does not compounding and
so it is termed as annual return investment. APR only includes multiplication of periodic interest rates with number of periods within a year.

APY (Annual Percentage Yield)

Annual Percentage Yield is the total annual return on investment considering the compound interest which is also the power of compounding differentiating between APP and APY . Annual percentage yield (APY )is calculated by adding 1+ the periodic rate as a decimal and multiplying it by the number of times equal to number of periods that the rate is applied, then subtracting 1 and it is also used for calculating returns in yield farming .

Here's how APY is calculated:

Let's take an example and understand

Suppose I have CAKE token of $ 400 in Manual Cake Pool of 100% APR

Therefore
$ 400's APR is equals to 1*400$ = $ 400

So initial investment + APY equals $400 + $400 = $800

My total investment value after 1 year is equals to $800

APY Calculation

Using the formula, (1 + r/n)n -1

Where we have; r = int rate , and r = 100% ~ 1

n = the compounding period, and n = 365 days

Now, let's put the value

(1 + r/n)n - 1 <---> (1 + 1/356)365 - 1,

(1 + 0.002740)365 - 1,

(1.002740)365 - 1,

(2.717) - 1 = 1.717,

Now the APY = 1.717 X 400 = $686.8

Investment after a year =

Initial Amt +$ 400 + APY $686.8 = $ 1086.8

So returns after 1 year = $ 1086.8

9) Advantages & Disadvantages Of Yield Farming.

Advantages of Yield Farming

•Highly profitable: Yield Farming is highly profitable as it brings investor good amount of profit by providing attractive interest rates then other traditional banks.

•Passive Income Generator: Yield Farming provides us a way to earn passive income through locking the assets into the mining liquidity pool.

•Does not involve any intermediaries or third parties so chances of fraudulent are less: Yield Farming does not include intermediaries like centralised exchanges any user can make transactions anytime and and so the chances of fraud reduces.

•Involvement in Governance of a Protocol and no requirement of verifying any KYC's or documents:
Yield Farming does not require any type of KYC investors can take direct entry without verifying any documents which in turn is time saving and it also provides involvement in governance of a protocol as seen in the case of SushiSwap.

Disadvantages of Yield Farming

•Risk of price volatility: Price volatility of cryptocurrency markets can affect the value of the asset which is supplied into Farming pool so there always lies a risk of price volatility.

•Smart Contract Risk: as we all know that DeFi runs on smart contracts which includes stored codes on blockchain and as it removes middlemen , hence smart contracts risk is high because bugs can be explored by malicious hackers.

• Increased Gas fee:Increased Gas fee are one of the risk associated with Yield Farming in Decentralized Exchanges .

• Rate of Returns: During new pool options the rate of returns gets decreased most of the time due to price fluctuations.

Conclusion

Yield Farming is the most effective way of earning higher incomes from decentralized finance system.
The best part of Yield Farming is it does not include any third parties or intermediaries or does not require any verification like centralised banks which in turn saves our time. The transaction fees are comparatively lower and the speed of transactions are also speed . So according to me e if one's Crypto is lying idle so locking it up in Yield Farming can give good rate of interest . Through this lecture I came to know more about sushiSwap and its features so I would like to thank our professor @stream4u for providing us this wonderful lecture.

Cc
@stream4u