DeFi, or decentralized finance, is a system where financial products are made available on a public decentralized blockchain network, making them open for anyone to use, rather than having to go through intermediaries like banks or brokerages. More specifically, DeFi refers to a system where software written on blockchains makes it possible for users to interact peer-to-peer or with a decentralized software-based intermediary instead of a company or institution facilitating a transaction.
Multiple protocols are used to achieve decentralization. A decentralized system can consist of a mix of open-source technologies, blockchain, and proprietary software. Smart contracts that automate terms between users make these financial products viable. Most importantly, DeFi systems are designed to remove intermediaries between transacting users.
Most current DeFi applications are built on top of Ethereum, the world's second-largest digital asset blockchain. It is unique because it's blockchain easier to use to create other types of decentralized applications beyond simple transactions.
This is because of Ethereum's ability to integrate smart contracts, which automatically execute transactions if certain conditions are met. The Ethereum blockchain offers much more flexibility for DeFi applications than other blockchains. Ethereum programming languages, like Solidity, are specifically designed for creating and deploying smart contracts.
Decentralized exchanges (DEXs): DEXs are online trading platforms that help users exchange currencies for other currencies. It is a new type of exchange that connects users directly in a peer-to-peer manner to trade digital assets with one another without relying on an intermediary.
Stablecoins: Digital assets pegged to a fiat currency or a non-digital asset to stabilize the price.
Lending platforms: Platforms that utilize smart contracts to replace traditional intermediaries such as banks that manage lending.
"Wrapped" bitcoins (WBTC): A way of transferring Bitcoin to the Ethereum blockchain so users can use the bitcoin on Ethereum's DeFi ecosystem. WBTCs allow users to earn interest on the bitcoin they lend out via decentralized lending platforms.
Prediction markets: They are market places for betting on the outcome of future events, such as elections. The goal of DeFi prediction markets is to offer the same functionality but without the middleman.
Decentralized finance is still in the beginning stage of its evolution. This means that trading DeFi project tokens is still quite risky. The DeFi ecosystem still has infrastructural challenges to overcome and hacks to mitigate. There are also scams in the rapidly evolving DeFi space. DeFi "rug pulls" are when hackers drain a protocol of funds, leaving investors unable to trade, though there are well-established Defi projects that significantly reduce this risk.
DeFi on AscendEX:
Ascendex offers trading of several DeFi project utility tokens, as well as ways to earn rewards on DeFi tokens like Bonfida and Curve through Staking and Yield Farming.
Staking on AscendEX
The term “staking” comes from Proof-of-Stake (“PoS”) blockchain networks. PoS blockchain networks rely on validators to operate full-nodes in order to participate in various consensus mechanisms, thus promoting network security and resilience. In return for their contribution, validators earn block rewards. Individual holders can also delegate assets to validators for a pro rata allocation of block rewards earned. AscendEX’s innovative staking product allows users to participate in staking and earn rewards directly on the platform. AscendEX aggregates users’ staking interest and delegates assets to trusted validators on their behalf. Simply click the “Delegate” button, and users will begin earning staking rewards.
Yield Farming on AscendEX
A new mechanism that has emerged within the DeFI movement is "Yield Farming", also known as liquidity mining. This is a resource-intensive process where a user allocates capital to a supported DeFi protocol and is rewarded for their liquidity contribution. The rewards are granted to the user in various tokens depending on the operating DeFi protocols. Right now, one of the easiest ways to participate in yield farming is through AscendEX. The AscendEX team handles all backend integration with DeFi protocols, allowing users to simply click and “farm” our high-quality projects and enjoy a timely distribution mechanism with no predetermined lock-up period.