These can be pegged to fiat currencies like the US dollar (USD) or Euro (EUR), or to other assets like gold or a mixed basket of assets - like Facebook’s upcoming Libra stablecoin. Stablecoins are a type of digital asset that have their value pegged to another asset in order to reduce volatility and keep the price as stable as possible. Failing this, the collateral will usually be sold to reimburse the lender if the collateral falls below a certain threshold, known as a loan-to-value (LTV) ratio. These are usually simple decentralized applications ( DApps) that allow you to either lend your digital assets out to other users to earn interest or borrow digital assets from other users - paying interest on top.īorrowers typically need to deposit collateral worth substantially more than the loan amount and maintain this collateral above a certain value threshold to protect the borrower. One of the most common use-cases for DeFi is open lending platforms. As with all things crypto, due diligence is heavily advised before interacting with any DeFi platform and protocol. Here, we cover the most popular DeFi use cases, helping you get up to speed on the rapidly changing DeFi in no time. With more than $11 billion locked up in Ethereum-based DeFi protocols and well over 100,000 users, the industry has grown considerably in the last year. With DeFi, you can manage your own digital asset finances without relying on centralized financial institutions, potentially helping to bank the unbanked and unlock new revenue streams - but it also has its fair share of potential risks. Now, there is a DeFi alternative for many traditional finance services, and more are emerging rapidly. Due diligence is highly advised before interacting with DeFi protocols.ĭecentralized finance, or DeFi for short, is a rapidly emerging sector that promises to disrupt the traditional financial industry with blockchain-based tools and services that mimic banking, investing, and trading services. – Though many DeFi platforms provide true utility to users, there are also numerous scams. – Open lending platforms, decentralized exchanges, and digital asset staking are among the most common use-cases, but new tools and platforms are emerging regularly. – There is now more than $11 billion locked in Ethereum DeFi platforms and more than 100,000 users.
– Decentralized finance (DeFi) has witnessed staggering growth in 2020.
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