Defi also known as decentralised finance refers to financial technology that manages monetary exchanges through the use of digital currency. Built on the blockchain system, defi replaces centralised financial institutions otherwise known as middlemen with decentralised peer-to-peer transactions that operate on smart contracts.
Smart contract is simply a mutual agreement written as strings of code between the two individuals doing transaction. It is a computer-based program with protocols or transparent codes for both parties to understand before completing a transaction.
DEFI KEY FACTORS
- Ultimate control is moved from traditional financial institutions like banks to regular individuals.
- The absence of middlemen and replacement of smart contract (mutual agreement written as lines of code between the buyer and seller
- Easy transference of assets between two parties without the reliance on banks.
- Immunity from bank charges and governmental laws
SOME EASY DEFI OPERATIONS
Just like bank operations, it is possible to send money or exchange currencies on defi but the difference is the elimination of intermediaries (middlemen). Anu can easily exchange his digital money to fiat or send this digital money better known as cryptocurrency to Jamal in Kenya, Lota in UK, Sandy in Spain or other people he might know across borders. This can be effected in real time without the limitations of geographical distance, time or currency difference.
Invest in stablecoins
Stablecoins are digital coins designed to have stable prices and whose market value is attached to a particular fiat money.
This means, 1USDC⇌1USD, if exchanged 1USDC is equivalent to 1 US dollar. Examples of stablecoins are Tether, USDC, BUSD.
Stablecoins is designed to be less volatile and less risky, thereby making it possible for low-risk takers to invest or stake.
By owning a cryptocurrency that uses the proof of stake model, an individual can stake his /her crypto. This is dependent on the coin in the digital wallets as not all coins can be staked.
Since not all coins can be staked, an instance will be cited on the ARDOR coin, the main chain of NXT that uses a 100% proof of stake algorithm. Staking Ardor is safe and the ability to permit multiple chains to be formed makes it have rich functionality.
In this case, this is a first- step explanation on how to stake your coin.
Chuka is interested in staking his Ardor coin
He chooses 2ARDR as the amount he wants to stake, joins a staking pool and he locks the 2ARDR till the transaction is validated, however, the coin is still in his possession until he is ready to trade. In validating the transaction the proof-of-stake is needed which also makes it successful.
WHAT ELSE TO KNOW ABOUT DEFI
Decentralised application is an open-source application built on the blockchain technology that support peer-to-peer transactions and gives users authority over their own data. Unlike every other traditional app, DApps do not serve as middlemen between two parties, their data is public and are not not controlled by governmental policies or other entities. Examples of Dapps are uniswap, compound, decentraland, opensea, etc.
Defi currency are cryptocurrencies or digital currencies designed or mined for decentralised platforms. Subjectively, transactions on the blockchain can only be done through cryptocurrency.
Distribted Ledger Technology is a consensus of replicated, shared, and synchronized digital data geographically spread across multiple sites, countries, or institutions. Often referred to as blockchain, it is a digital system where transactions are documented publicly with cryptograhic seal called hash.