Getting into the next stage of the Blockchain Cryptoverse - Understanding DEFI

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Crypto is a token of Blockchain Technology with a real world use case

There is more to the world of Blockchain than mere cryptocurrencies that people like me just like to keep track of their price movements. It is true that most of us are into crypto for investing(HODLING), that’s because the use case of blockchain is still not explored on a large scale and most of the world’s populace are not aware of the emerging uses of Blockchain but that may not be for long. Decentralised Finance is of late growing and this is exciting as it brings to fore a real world use case of Blockchain technology.

Use case of Blockchain Technology beyond that of transfer of value

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In the early days, the Blockchain technology underneath Bitcoin, provided for a limited use case of peer to peer, cross border remittances with low fees, without needing the services of banks. Bitcoin(BTC) was the first crypto currency powered by this early kind of Blockchain technology.

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This digital currency is also free from Government control and can be held in wallets, owned by people, instead of it being in control of banks.

True the allure of Bitcoin stays relevant today, but there are more evolved blockchain technologies than that of bitcoin for quite a while ever since Ethereum introduced the smart contract feature into Blockchain and Decentralised Finance is made possible thanks to this added smart contract element into Blockchain technology.

Hot use case of Blockchain Technology - DEFI

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Decentralised Finance Service protocols referred to as DEFI, make it possible for anyone to lend, take loan without the need of the services of a centralised bank.

The word “trustless” also holds true here, as parties enter into a contract and that’s embedded into smart contracts which will automatically execute when a criterion is fulfilled.

For ex, a borrower party’s collateral is locked into a smart contract with the lender. Now when the borrower pays back the loan he has availed, the locked collateral is released and goes back to him. However in case of loan default, his collateral will be liquidated and sent to the lender party. All this happens due to smart contract capabilities of Blockchain.

Best part for the lenders these days, is that there are many DEFI applications out there where they can lend their stable coin or crypto and receive interest, since the interest earned here is more than what one earns in banks of many advanced countries of the world like US and other European countries these days , this is indeed an attractive avenue for people to lend out their idle crypto or stable coins that are pegged to US dollar.

More to explain in the next part

Here ends my introduction to DEFI, I will venture into this a little more in the next part. It will mostly be where readers can go to, do their own research and find out about various DEFI projects that are out there.

I am trying to upgrade my crypto knowledge here, learning about DEFI myself after being familiar with cryptocurrency HODLING practices as a crypto investor who is no longer a novice hopefully. Therefore I understand if this article on DEFI is looking like a kindergarten level knowledge but I am starting at the base. Someday, I will have more valuable insights on DEFI like I have gained on cryptocurrency through reading mostly on BTC and ETH.