Introduction to DeFi Protocols
Back when blockchain technology was still in its developing stages, the emphasis was specifically placed on the community and how it could efficiently develop blockchain networks. Regardless, Ethereum arrived and changed the game almost dramatically, paving the way for developers to pursue the initiative or creatine decentralized applications or D’apps. Ethereum’s innovative contract and tokenization abilities have lit a tinderbox in discourses regarding how the traditional finance industry should proceed from then on.
The emergence of blockchain tech has revolutionized how the financial sector works. Now, we see widespread applications or significance of this via crypto casino or crypto marketing, among others. As this goes on, we continue to witness wave after wave, especially with the rise of DeFi and its top protocols, which garnered traction in recent years.
However, what is DeFi, and how do these protocols work?
What is Decentralized Finance or DeFi?
DeFi technology is a new finance tech rooted in distributed ledgers akin to what cryptocurrencies use. This means that notable entities such as institutions and banks no longer have control over financial services, products, and money.
If you want to understand what DeFi protocols are and how they work, you first need to have a good grasp of what DeFi is in itself. It’s synonymous to peer-to-peer financing, which alludes to the transition from the traditional and centralized finance systems and mechanisms to peer to peer funding. Besides stable coins and tokenized digital assets, DeFi has also successfully made a borrowing and lending platform in its ecosystem. Gradually, it has seamlessly transformed into a huge network with built-in protocols and various financial instruments.
Knowing what DeFi Protocols Are
DeFi protocols have witnessed a massive surge for the past two years, with the assets reaching a staggering value of over 12 billion dollars in 2020 which has made it one of the most promising times for the company. In a nutshell, DeFi protocols refer to specialized, stand-alone programs specifically designed to tackle issues that are related to the conventional finance industry. The objective of the DeFI protocol is to change this situation for more than half of the entire global population without needing to access a bank account.
DeFi protocols allow the introduction of different and useful finacial instruments. In fact, they have now made an integral part of a rather complex ecosystem with sevearl projects and tokens up their sleeves. Startups specifically see more opportunities in this area, considering the significant rise in the value of these DeFi protocols as well.
From where it stands, a promising industry that has access to a widespread financial market can easily tap into more than half the planet’s entire population – an aspect where many venture capital firms are trying to consider and emulate. Its projects have now generated almost hundreds of millions of dollars in terms of funding, with the industry holding over nine billion dollars in mere locked assets alone.
Besides providing accessible lending solutions for everyone, projects in DeFi protocols also make room for liquidity between several blockchains and make on-chain assets like shares and stocks to further boost the adoption of cryptocurrency. DeFi protocols offer better programmability, transmutability, transparency, and self control which are vital in managing one’s assets or data and in making secure transactions.
