DeFi (short for “decentralized finance”) refers to financial services provided by public blockchains, most notably Ethereum. You can earn interest, borrow, lend, purchase insurance, trade derivatives, exchange assets, and more with DeFi, but it’s quicker and doesn’t need paperwork or a third party. DeFi is worldwide, peer-to-peer (directly between two people, not through a centralized system), pseudonymous, and available to everybody, just like crypto in general.
What is DeFi?
DeFi applications use bitcoin to replicate conventional financial systems such as banks and exchanges. Most of them utilise the Ethereum blockchain.
DeFi lending allows users to lend bitcoin and earn interest in the same manner that a traditional bank would. Borrowing and lending are two of the most popular DeFi use cases, but there are also many more complicated alternatives, such as being a liquidity provider for a decentralized market.
What is the significance of DeFi?
DeFi extends on Bitcoin’s core idea – digital money — to provide a comprehensive digital alternative to Wall Street, but without the accompanying fees (think office towers, trading floors, banker salaries). This has the potential to build more open, free, and fair financial markets that anybody with an internet connection may access.
What are the advantages?
You are not required to apply for anything or to “open” an account. You just need to create a wallet to gain access.
You don’t have to give your name, email address, or any other personal information.
Flexible: You may relocate your assets anywhere at any moment without obtaining authorization, waiting for lengthy transfers to complete, or paying high costs.
Fast: Interest rates and incentives are often updated (as often as every 15 seconds), and they might be substantially higher than those on traditional Wall Street.
Transparent: The whole set of transactions is visible to everyone engaged (private corporations rarely grant that kind of transparency)
How does it work?
Users interact with DeFi using software known as dapps (“decentralized apps”), the majority of which are presently based on the Ethereum blockchain. There is no need to fill out an application or create an account, unlike a traditional bank.
Here are some current DeFi interactions:
Lending: Earn money and prizes every minute, not just once a month, by lending out your cryptocurrency.
Getting a loan: Instantly obtain a loan without having to fill out paperwork, even extremely short-term “flash loans” that traditional financial institutions do not provide.
Trading: Make peer-to-peer crypto asset trades, much like you could buy and sell stocks without using a stockbroker.
Invest in the future: Put part of your cryptocurrency into alternative savings accounts to receive greater interest rates than you’d get from a bank.
Investing in derivatives: Place long and short bets on certain assets. Consider them the cryptocurrency equivalent of stock options or futures contracts.
Why is Polygon gaining all the hype?
Polygon (CRYPTO: MATIC) has experienced rapid growth this year and appears to be on its path to compete with major blockchains for a larger share of the DeFi ecosystem.
Polygon (CRYPTO: MATIC) has grown rapidly in the last year, and it seems to be on track to compete with other blockchains for a bigger part of the DeFi ecosystem.
Based on The Block statistics, Polygon noted enormous development in the total gross worth locked (TVL) in the reasonable contracts that DeFi protocols work on: from just over $151,000 at the start of the year to over $6.31 billion now, a gain of at the very least 4,178,708%.
The fact that the protocol’s native coin is increasingly being used — rather than simply being speculated on — is further evidenced by the fact that, according to Glassnode data, MATIC’s market share has fallen from 24.6 percent at the start of 2021 to 2.27 percent as of Aug. 2.
While Polygon’s TVL of $6.31 billion is a long way from Ethereum’s (CRYPTO: ETH) $61.28 billion, it’s not far off from Binance Good Chain’s (CRYPTO: BNB) $15.18 billion — the second-place finisher. Polygon even surpassed Solana (CRYPTO: SOL), whose TVL topped Polygon’s at the start of the year but subsequently slowed and remained at $1.23 billion.
Polygon’s number of active addresses, as shown by Glassnode statistics, has increased from 489 at the start of 2021 to 4,509 this week, proving its growth. Furthermore, the number of Polygon unique addresses tripled in June alone.
Why Is It Important: Polygon’s success may be due in part to how quickly and cheaply transactions are processed on the network: performing a transaction on Polygon is hundreds of times cheaper than on its larger sibling Ethereum, and it takes seconds rather than hours.
Polygon also appears to be benefiting from the positive impact of community outcomes encouraged by the merger of major DeFi platforms such as SushiSwap (CRYPTO: SUSHI), Aave (CRYPTO: AAVE), Curve (CRYPTO: CRV), 1inch (CRYPTO: 1INCH), and others, as its growth has accelerated. Polygon now runs over 350 decentralized applications (DApps).
These projects originated on Ethereum, but when the community began to make working with the protocol more and more slow and expensive for its users as a result of increased site traffic, they began to look for alternatives. In reality, these jobs did not completely move; instead, they began offering a companion platform based on the less expensive and faster Polygon protocol.
One of the main reasons for the increase in individuals investing in DeFi tokens is to prevent missing out on their exponential development. In practice, many tokens are worth nothing or nearly nothing, therefore we’re witnessing a lot of excessive enthusiasm.
It doesn’t matter whether we like it or not, we are on our way to a new financial system that will be more liberalised and decentralised than the one that existed before.. The key challenge is how to effectively steer its growth with checks and balances that minimize dangers while spreading potential rewards widely. That is the task before us in the next few years. Learn DeFi to become an expert DeFi developer and kick start your journey in the crypto world.