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What exactly is DeFi (What is the most popular use of DeFi)

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What exactly is DeFi Editor\’s Note: This article comes from the Windwheel Commu

What exactly is DeFi (What is the most popular use of DeFi)

What exactly is DeFi Editor’s Note: This article comes from the Windwheel Community (ID: FHBT18), author: Peipei, authorized reprint from Odaily Star Planet Daily.

Hello everyone, I am Peipei. These days, I have seen many people asking what exactly is DeFi? I think I have multiple answers to this question because many users have used various currencies, so this kind of question often arises. And this is basically a question related to exchanges that are not widely noticed. For example, there is a saying that the decentralized lending protocol Compound will issue the governance token COMP, and then other projects have emerged to do similar operations. But in fact, these tokens are also belongs to DeFi projects. So can DeFi be called decentralized finance as well? Currently, it is still a concept. If you carefully look at its mechanism, it may be a bit like ICO, but after all, it is a very complex thing. So what needs to be noted here is that we all know the smart contract development language on Ethereum, the most important point for developers is to understand how it works as a system. As a developer, besides being able to directly integrate these applications into their own platforms, they can also perform various functions such as trading and payment. Of course, there is also a technology solution called “Oracle”, for example, the main function on Ethereum is to automatically obtain off-chain price data through algorithms. However, from the current point of view, DeFi does have some risks. For example, most of the current projects have not launched their mainnets, so it cannot be determined which specific aspects will affect the use of funds by users, or whether it can guarantee the stability and security of the platform. But if you really want to understand this, you should first understand the core value behind DeFi. I. What is DeFi, in simple terms, DeFi is a way for ordinary investors to gain profits, which is the so-called trustless mode, allowing them to freely choose their own preferred service providers or asset types to achieve portfolio diversification. Some of the core functions in DeFi are not very obvious, and they do not have definite boundaries with each other, but there are some differences. II. The incentive model in DeFi mainly targets different projects for rewards. Some projects’ incentive models do not even require participation in mining, such as Sushiswap, and there are also parts that provide token incentives to liquidity providers in the incentive pool. III. Token economics mainly used to incentivize early participants in mining activities, such as locking a certain amount of ETH or ERC-20 Tokens, and adding certain additional incentive measures to them, such as airdrops for depositing certain assets into a platform, and other incentives. IV. How to define token economic design includes the token economic system, such as the total token supply limit, circulation limit, etc.

What is the most popular use of DeFi

The most popular use case in the DeFi field is as a decentralized financial network. In the past two years, DeFi protocols have created tremendous value for crypto assets, and Ethereum has received a lot of attention and support as a result.

According to the data from DappRadar, the total value locked (TVL) in DeFi has exceeded about 2 billion US dollars so far, including platforms such as Uniswap and Synthetix. This indicates that the number of users of DeFi applications is growing in many cases. Although DeFi is still in the early stages of development, there are still some noteworthy developments.

In terms of the number of users, DeFi projects allow users to earn additional income and improve investment returns. In the first half of 2020, during the period of rapid and vigorous growth of the DeFi market, as investors were exposed to more and more DeFi services and their ability to help us solve problems, the scope of DeFi applications continued to expand.

In addition, according to statistics from DuneAnalytics, the total value of locked assets in DeFi protocols has reached 1 billion US dollars as of the end of June. Compared with the peak level in 2018, this corresponds to a peak increase. (AMBCrypto)

However, although the usage in the DeFi field has increased in recent weeks, most users have not flooded in as originally anticipated. In the past three months, the daily average transaction volume of decentralized lending platforms has reached 800 million US dollars.

According to data from dapp.review, the daily trading volume in the first and second quarters of 2019 showed a sharp increase, but the third quarter showed a significant decline. However, in the second quarter, as the price of Bitcoin fell below $30,000, this trend continued to steadily rise.

Due to the increased demand for decentralized exchanges in recent months, DEX trading volumes have sharply decreased, which may be a major risk factor for DeFi applications.

According to CoinDesk, since early February this year, with more and more large companies entering the DeFi field, the daily trading volume of decentralized lending platforms has increased significantly.

In the past year, the average daily active wallet number of DeFi has reached 57,000, an increase of about 30% compared with the same period last year. Moreover, since the beginning of the year, the number of active wallets on DeFi platforms has declined. Various products in the DeFi ecosystem, such as loan tools, insurance libraries, and stablecoins, have made significant improvements, making them more suitable for daily activities without high costs and complexities.

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