Crypto Academy Week 4 // An Introduction to Decentralized Finance (DeFi) // Submitted to @yohan2on // by @simonnwigwe
It's really a pleasure to be a partaker of these lecture again these very week. It's week 4 already, to be sincere be sincere with you, the past few weeks has really been very educative and these week another interesting topic has just been delivered by our own very professor @yohan2on.
On these week 4 I have been able to learn from the lecture delivered by professor @yohan2on on Decentralized Finance (DeFi). A Decentralized Finance refers to the use of funds without a need for a central control body. To day I will be working on few task as given by the professor.
Homework task: Briefly explain each of the following DeFi Dapps
Maker is an application responsible for the building of DAI, i.e the number 1 decentralized stablecoin that was built on the Ethereum Blockchain. It is actually a permissionless lending platform. It's important to mention here that the platform gives access to loan to its users as it uses digital assets as it's collateral. They digital assets it uses can be any of the crypto currency like Ether (ETH). More also, all lending taking place in these platforms are not been controlled by human. These implies that it is been performed by what we call smart contract.
Maker which is abbreviated as MKR, MKR is mainly used for two purposes one of them is as governance tokens and the other to pay for a stability fees. It is also sold to ensure maintenance of DAI.
Just like other DeFi applications, compound is also one of the most widely use applications in the DeFi Dapps. These is a place where you as a user can borrow or lend crypto currency. It doesn't deal with third part so no fear of loosing your resources. They requirements are very simple, just an Etherum wallet and a little token.
Users can connect to compound using a web 3.0 wallet such as MetaMask and others to earn interest for them selves. We earlier said that DeFi Dapps are permissionless protocol and so the same thing with compound. These also implies that anyone in any where around the world who have a crypto wallet and an internet connection can freely interact with it.
Importantly, compound is useful because unlike the traditional ways where both suppliers and borrowers will meet and negotiate, in these case they both will negotiate with the protocol with the protocol handling the collateral and interest rate. These is otherwise handled in what we call smart contract. As earlier explain smart contract is a process where human doesn't interfer in the running of the business rather the computer carries out all the actions.
Synthetix can be seen as an Ethereum-based protocol that is responsible for the issuance of synthetic assets. Actually, synthetic assets are financial instruments which present their selves in the form of ERC-20 smart contract. Importantly, synthetic also support other synthetic commodities such as gold, silver and also synthetic crypto currency.
Since synths are used on the Ethereum Blockchain, we can as well make deposit on other DeFi platform since they are all under the Ethereum Blockchain. We can make our deposit on uniswap and also use it as liquidity and gain our interest.
There are two methods you can use to trade in synths. And below is the both steps.
Purchase ETH on an exchange
Exchange ETH for sUSD on Kwenta
Then exchange for other Synths, such as sBTC
Alternatively you can:
Obtain SNX tokens on an exchange
Stake them on Mintr, a decentralized application (dapp) created by Synthetix
Create synths and begin trading them on Kwenta
bZx like other DeFi Dapps is also a lending platform that is meant for traders and it is built on the Ethereum Blockchain. These is also managed by smart contract i.e no human interference is involved. Furthermore more it is decentralized in nature, meaning no one company has a complete authority over it.
The bZx system is made up of three different tokens among which include pTokens, iTokens and the BZRX token. These three tokens are all ERC-20 tokens with each of them playing a very important role in the bZx functions.
bZx was founded by Tom Bean and Kyle Listener in the year 2017.
These is a decentralized application, these implies that unlike other exchanges, uniswap doesn't take control of the user funds. It is also important to mention here that uniswap is one of most popular decentralized exchange we are having presently. In uniswap, a pricing algorithm is always incharge of determining the price of the assets in question.
There are two most important feature of uniswap and we will be looking at them very briefly.
SWAP:- These feature allows users to swap between Ethereum (ETH) and other different ERC-20 tokens.
POOL:- These feature allows users to earn by providing liquidity, i.e tokens into a smart contract and then at they end you will receive a pool tokens as your reward.
Merit of using Uniswap
There are several reasons why people tend to use Uniswap but for the want of time I will brief summarize few of them.
- Self custodial:- These implies that you funds present here is full in your custody i.e when ever you want to have access to it, you are very much free.
- Low trading fees:- They trading fees charged in uniswap is very low just about 0.30% for any trade carried out.
- New coins accessability:- Access to new coin is a lot more easier in uniswap since it is a decentralized applications. We all know that once a new coins enters they market, there are lots of fluctuations on it hence users of uniswap will want to be the first to have access to these coins.
Demerits of using Uniswap
Everything that has an advantage also has a disadvantage. In these case we have looked at they better view of uniswap, let's now consider the rough side of it.
- Failure in Transaction:- During the process of swapping in uniswap there is a high risk of failure in the transaction due to many factors.
- Fake Coins:- Since uniswap is a decentralized application, many people can decide to bring in their fake coin to transact it on the platform.