Defi Library NewsLetter - 1
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Hello,
We have established this project to spread the knowledge related to DeFi ecosystem and to increase the awareness. This is quite exciting for us. Detailed review about projects, guides for related tools and important news will be shared mostly. We might dive in technicals about software developments for Solidity and Smart Contracts. In addition, we’ll share articles and videos which is believed to be beneficial.
In order to be over language barrier, this newsletter will be in both Turkish and English.
Let’s make a soft start!
What is DeFi*?
*DeFi : Decentralized Finance
Decentralized finance can be described as a living ecosystem where decentralized applications offer financial services on Ethereum blockchain. One of the main purposes of the DeFi is to enable easy access to financial services without any 3rd party control mechanism by using only a digital wallet. In classical finance, you are required to provide a control mechanism with related documents and to defeat a bureaucracy wall to access certain services. This new finance mechanism is only requires a digital wallet and internet access by offering equal opportunities for everyone. And it’s getting wider in terms of services provided.
DeFi is becoming hotter since you always have full control on your assets due to non-custodial structure among applications. The codes living on the Ethereum blockchain and web interfaces or APIs are the main elements of the DeFi. The only thing you need to do to start using DeFi services is to interact with codes via these interfaces by using your digital wallet. The smart contracts in the codes ensure that you don’t need to rely on any middle man to use certain services.
At this point, some questions may arise;
What if these codes change?
It’s known that the developer team have access of full control of the smart contract by using admin keys. In order to balance this power and to prevent misuse, there exists some precautions. Multi-Signature approval mechanism requires that more than one person with admin access needs to approve a proposal in order to change the application.In addition, Time-Lock feature might be implemented which delays approved change for a predefined period of time before related the parameter is updated. This gives users to enough time to interact with the smart contract if any malicious change has been approved. There might be different and more detailed precautions other than this too, of course. The important thing is to be sure that the codes have been audited by a trusted third party. Audits does not guarantee a risk-free environment but it’s an important step to identify certain control mechanism in the systems.
Some communities like Maker and Compound released governance tokens to truly decentralize the control over smart contracts and to distribute admin power among people who holds these tokens. Any proposal can be submitted by these people and the decision is made by voting on the platform.
What if these smart contracts are hacked?
To be honest, this is more risky and uncontrollable situation than above. It is certain that there can be some bugs or vulnerabilities in the codes and people who realizes this may try to take advantage. A person might hack or exploit the contract and can possess the tokens stored in the contract. Again, being audited is very important to prevent this type of actions however there will be always risks.
The fact that DeFi applications are not run by a third party gives freedom and speed to transactions. For example, let’s say you lend your USDCs on interest on Aave, the only thing you need to do to withdraw your earnings is to click on the necessary buttons and run the responsible functions through web or API (preferable for more professional operations, web interfaces would do just fine) interface of the application you use. After that, your transaction will be approved on the blockchain. For Ethereum, this process is performed under 30 seconds most of the time. If you want to perform this process on a centralized exchange or organization, you would have to wait for the middleman to approve the transaction while you are out of the equation and have to wait.
Let’s talk about practice; “What does DeFi do for us?”
DeFi is growing day by day and the ecosystem surrounding it is hard to catch. Therefore, it is possible to see different use cases to see every day. We will talk more about use cases, applications and corresponding interfaces in upcoming articles more detailed.
For now, let’s talk about use cases in general shortly;
Lending/Borrowing
You can earn interest with your savings or provide collateral your assets to borrow.
Sample platforms: Aave, Compound, Maker
Consultancy
Without giving your assets to anyone, via smart contracts, you can pay some commission to make trade on behalf of you.
Sample platforms : SetTokens
Trade and Swap
You can get access to DeFi trade platforms via your digital wallet without sending your tokens another wallet which you don’t have the private key.
Sample platforms: Kyber, Uniswap, dYdX
For dYdX, is possible to margin trade on Bitcoin.
Lottery without Loss
A lottery platform that creates a prize pool that you can participate with your savings via smart contracts picks a random participant who joined the prize pool to give the person its reward. Anyone can always withdraw their shares from the pool.
Sample platform: PoolTogether
Bitcoin
It is possible to benefit from DeFi opportunities on Ethereum if someone provides collateral of owned Bitcoins.
Sample platforms: wBTC, tBTC
The list goes on and on and hopefully we’ll provide more detail on upcoming newsletters.
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E-mail : defilibrary@gmail.com
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