Getting into DeFi
Decentralized Finance or DeFi is the movement that allows users to utilize financial services such as borrowing, lending, and trading without the need to rely on centralized entities. DeFi is not a single product or company but is instead a set of products and services that acts as a replacement for institutions ranging from banking, insurance, bonds and money markets. These financial services are provided via Decentralized Applications (Dapps).
What are Dapps?
You can think of a dapp as an app that is built on decentralized technology, rather than being built and controlled by a single, centralized entity or company. DeFi Dapps enable users to combine their services to open up multiple possibilities. In order for DeFi Dapps to work, it usually requires collateral to be locked into smart contracts. The cumulative collateral locked in DeFi Dapps is often referred to as the Total Value Locked. The large growth of Total Value Locked serves as an indicator of the rapid growth of the DeFi ecosystem.
How Decentralized is DeFi?
The degrees of decentralization can be separated into three categories: centralized, semi-decentralized and completely decentralized.
Centralized
Characteristics: Custodial, uses centralized price feeds, centrally-determined interest rates, centrally-provided liquidity for margin calls
Semi-Decentralized (has one or more of these characteristics but not all)
Characteristics: Non-custodial, decentralized price feeds, permissionless initiation of margin calls, permissionless margin liquidity, decentralized interest rate determination, decentralized platform development/updates
Completely Decentralized
Characteristics: Every component is decentralized. No DeFi protocol is completely decentralized yet.
Most DeFi dapps are sitting in the semi-decentralized category.
The Ecosystem
One of the prominent players in this new DeFi ecosystem is Pangolin, a “community-driven decentralized exchange for Avalanche and Ethereum assets with fast settlement, low transaction fees, and a democratic distribution”. Adoption of this DEX is already growing rapidly.
At Vee Finance, we are leveraging the low cost of transactions on the Avalanche network, opening up the DeFi ecosystem to smaller players and entry-level investors while providing a faster, more intuitive user experience. The faster transaction rate and higher throughput of the Avalanche network, opens the door to minimal price slippage and instant trades, bringing the experience of trading on DEXs closer to that of their centralized counterparts.
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