Introduction

Source

Question 1:
What Is the Importance Of the DeFi System?

1. Absence of central authority
   
   There is no central authority of any form in the DeFi system. The system is design to operate without any central body giving it an instruction to work on. All nodes in the DeFi system are design to work alone without any form of interference.

2. Absence of a third party
   
   The absence of the third party in DeFi system is one of the most important feature of the decentralized finance system because with the third party out in a transaction process, transaction become more faster and very transparent as well.

3. Absence of any form of limitation
   
   In the DeFi system, there are no restriction as to how and when you should make your transactions. More also verification of identity doesn't hinder one from performing a transaction as it is in the case of normal banks.

4. Total Control
   
   Here in the DeFi system, users have total control over their asset and resources and can withdraw or trade it at any time. This implies that there are no limits or restriction to which one can go with his Transaction in the DeFi system.

5. Transparency
   
   The DeFi system is very transparent because what ever transaction carried out on the blockchain has to be updated on the ledger and this record are not usually altered hence there is no any form of false claim that can't be proven otherwise.

Question 2:
Flaws in Centralized Finance.

1. Presence of central authority
   
   In any centralized finance system, there is always a central authority and this central authority happens to be the main attribute of a CeFi system. This implies that for a transaction to go through it must be approved by the central authority for it to be executed.

2. Presence of third party
   
   Transactions in a centralized finance system makes use of third party. The presence of third party in transactions slows the process of the transaction as every thing between the sender and receiver has to pass through the third party before it will get to both sender and receiver respectively. This acts also gives room to some form of fraudulent activities by users.

3. Limited access
   
   In the case of CeFi system, users are given some limited boundaries over their asset. This implies that users dosn't have complete authority over their asset. The authority they have will be given to them by the central authority.

4. Verification issues
   
   Another issues associate with the centralized finance system is the verification issues. All centralized finance system requires certain verification for a transaction to be done and hence this may take a whole lots of time and resources to achieve.

5. Cost of Transaction
   
   The cost of performing transactions in the centralized finance system is quite more expensive because you pay for eventually all transactions carried out on the system. For instance I am to transfer money to 100 workers in my company, I have to pay for charges for carrying out this transactions most especially when I am transferring to a bank that is different from mine.

Question 3:
DeFi Products. (Explain any 2 Products in detail).

I. Decentralized Exchange (DEX)

II. Lending

Question 4:
Risk involved in DeFi?

• Smart Contract Risk:- As earlier explained that the various transaction in the DeFi system is done strictly using the smart contract. And we earlier said smart contract are written programs or code that works on the blockchain and enables both buyers and sellers make proper transaction without no third party interference. The risk here is that since it is a program code it can be hacked or change by anyone who has access to the code thereby rendering all our resources useless.

• Impermanent Loss Risk:- This is when the amount of asset deposited in the pool drops drastically at the time of withdrawal of the said asset. For instance, you deposited 200 Steem in the liquidity pool when the price of 1 steem is $70, at the time of your withdrawal the price of 1 steem later dropped than to $20. You will notice an impermanent loss at that stage.

• Price volatility Risk:- Since the price of an asset is not stable, there are instance where you can lock some of your asset and at the end when you want to withdraw the asset you discover that the price has completely gone below what you initial have.

• Instability of the blockchain:- Challenges encountered in the blockchain most often than known causes instability to the Defi block hain. Hence projects connected to this Defi are usually affected because of this instability.

Question 5:
What is Yield Farming?

Question 6:
How does Yield Farming Work?

Steps to add liquidity on PancakeSwap

• From the landing page of PancakeSwap, I selected liquidity on the liquidity pool screenshot below

• I chose the pair of choice which is BNB-CAKE See the screenshot below.

Follow the rest procedure to complete the task. I can't progress from here because of lack of funds.

Question 7:
What Are the best Yield Farming Platforms and why they are best.

Uniswap

Why uniswap is among the best

Pancakeswap

Why pancakeswap is among the best

Question 8:
The Calculation method in Yield Farming Returns.

To calculate the interest accumulated by yield farming, you can either use the APR or APY.

Annual percentage rate (APR):- Annual percentage rate in Yield farming is the interest rate given to liquidity providers or users for locking or deplsiting their asset for a period of time. The interest here is base on the investors initial capital. For instance, Professor @stream4u decides to invest $100 with an APR of 50% for one year. What will be his interest.

Solution

This can be calculated thus,

50% * $100 = $150,

this implies that the professor @stream4u gets $50 extra for investing within a year.

Hence to calculate his interest per day will be
$50/365 = $0.137 every day.

Annual Percentage yield (APY):- Annual percentage yield is similar to the annual percentage rate the only difference here is the the interest give is been compounded. This means that liquidity providers will lock their asset for a period of time and the end the will receive their interest in a compound interest format. For instance, Professor @sapwood decides to invest $100 with an APY of 50% for one year. What will be his interest.

Solution

Using the formula

(1+r/n)n-1

From the formula given above,

APY= (1+50%/365)365-1

=(1+0.5/365)365-1

= (1+0.00137)365-1

= (1.00137)365-1

= $1.648

= $1.648 * $100

=$164.8

Hence APY = $164.8

If we remove the initial capital of $100, the remaining becomes our APY for the year that is $64.8.

Question 9:
Advantages & Disadvantages Of Yield Farming

Advantages of yield farming

• Yield farming provides you with the opportunity to earn passive income. Instead of keeping your asset in the wallet where it dosen't add any value to it you can decide to earn some passive income by becoming a liquidity provider.

• As seen above in the calculation of APY, it implies that you are eligible for reinvestment and this gives more reward than the initial usual APR.

• Unlike other financial institutions that offers the loan services, here in yield farming you earn better reward than the one you earn in the other financial institutions.

• There is no protocol to follow before locking up your asset and earning your reward all you need to do is just to provide the tokens to the pool and then sit back and watch.

Disadvantages of yield farming

• There is no short term locking of an asset as the yield farming always calculate it's interest yearly.

• Impermant loss is one problem that is faced by yield farming because we can not completely analyse the price of an asset for a whole year, hence all we do here is risk.

• Price instability most often affects the yield farming and that has prompted theft in the decentralized system because people now produce a look alike coins which buyers seeing the price being suitable for them can horrible purchase it.

• Yield farming is a way most people earn their passive income and because of that, platform that offer this services are open to hacking and hence assets are not too serve in the platform any longer.

Conclusion

Thanks for your time...