What is DEFI in 2021? Colony. DAO
The topic of DEFI (decentralized finance) has gained tremendous momentum over the last year. It is interesting to people because everyone can get interest from their cryptocurrencies. Coins not just stay in your wallet, but also bring passive income. Sometimes this interest can be up to 100% per year! For this reason people are more and more interested in cryptocurrencies and bitcoin. You can also stake in defi project stablecoin, such as USDC, USDT, DAI, etc., which are always stable and secured by dollar 1:1. Interest on such currencies is not as high as the new cryptostarts, but they can reach up to 20–30% per annum, which is much higher than any bank deposits and overtakes inflation!
The pluses of DEFIs are that cryptocurrencies are decentralized, nobody can steal your deposit. The only risk is code contract hacks. But often only new unverified and unaudited projects are exposed to this risk. Another plus is that DEFI service is written on smart contracts (code that cannot be changed and thereby affect the operation of the system).
Most of the time it uses protocols such as Ethereum to write the code. Ethereum is the largest smart contract platform. It is the oldest and most reliable. But due to its popularity it is quite expensive in transactions. Binance Smart Chain(BSC), Polygon. They came to replace them. They are relatively new blockchains but transaction costs are only cents!
The largest DEFIs are Maker and Curve. There are about 100 billion dollars circulating in DEFI and you can check it easily for example via https://defipulse.com/.
Staking (income from timeblocked funds) is not the only way of making money at DEFI. In fact the applications are much wider and new ways will be found. The main DEFI examples I will bring below.
Loan protocol — you can borrow or lend your money in a decentralized way. Without anyone’s consent or approval. Everyone can be their own bank. Thanks to smart contracts you can know in advance how much yield you will get on your coins. The main projects in credit are Aave, Compound, Curve. They are very similar but can still be different, for example Curve uses liquidity pools and peg curves to provide highly efficient trading of stackablecoins and low risk liquidity returns.
Exchanges. DYDX is a decentralized exchange. Your funds are always safe. No one has access to it, unlike centralized exchanges. On DYDX you can use your own or borrowed funds (leveraged trading). There are DEX (decentralized exchangers) 0x Protocol, 1inch (aggregator of all DEX, selects the best and most profitable way to exchange) uniswap (leading exchanger for ETH). All exchanges are fully decentralized. You can exchange even 1$, even 1 million, no one will ask you for KYC and other unnecessary procedures!
Insurance is also a good use of DEFI. The Nexus Mutual protocol, for example, protects your funds if the defy protocol gets hacked. There are also leading insurance protocols such as Unslashed Finance, Cover Protocol.
There are some more interesting ways to use DEFI. For example, Augur is a prediction marketplace on Ethereum. Make your predictions and earn on the results. Everything is decentralized — high payout percentage. Synthetix — synthetic asset protocol. Trade financial derivatives. Wallets — Argent, Metamask. (no one but you have access to your assets).Zerion, Zapper.fi protocol — track and sort all transactions by wallet. Get the information you need through a user-friendly interface. Thanks to decentralization this is transparent and fully possible! Another way to use blockchain and defi is gambling. Casino fans now know their chances of winning in advance thanks to smart contracts. No more unfair gambling!
But probably the coolest way to apply DEFI is DAO (decentralized autonomous organization). It’s an organization which is only managed by the community. It is transparent thanks to smart contracts. Any changes to the DAO must be agreed upon by a majority. Generally, who has more tokens of this project DAO has more voting power. Everyone can create their own proposal to improve the DAO.
In the colony.io project everyone can create a DAO! Issue tokens and give them power. Unlike many other DAOs in Colony you’ll be able to take into account the reputation of the participants. Every time a contributor gets paid in your colony’s native token, they earn Reputation in the Domain they earned the payment from.
That Reputation gives them ability to stake on Motions, and vote in debates in the Domains in which they have notoriety. Award Reputation
Sometimes you need to be able to award reputation to members without also paying them in your DAOs native token. This is for that. If they abuse the trust the community has placed in them, Smite them to burn away their reputation.
From the above it is obvious that DEFI has more pros than cons. You can make money or reduce your risks. I think DEFI is one of the major breakthroughs in the economy for today!