What is DeFi?
DeFi stands for decentralized finance and refers to a new financial system built on blockchain technology that aims to eliminate intermediaries and create a more open, transparent, and accessible financial system.
How does DeFi work?
DeFi applications are built on top of blockchain technology, typically on the Ethereum network. They use smart contracts to automate financial transactions and remove intermediaries, enabling anyone to participate in financial activities such as lending, borrowing, trading, and investing.
What are the most popular blockchains for DeFi investments?
Visit defillama.com/chains. The more TVL, the greater the popularity.
What are the main benefits of DeFi?
- DeFi offers greater returns on investments in stablecoins compared to bank deposits and bonds. For example, in 2022-2023, the profit in USDT and USDC in Yield Farming ranged from 3 to 40% per annum (depending on risk), while the profit on bank deposits was 0.5-1% per annum.
| Investment Type | Investment | APY (Annual percentage yield) |
|---|---|---|
Bank deposit | USD | 0.5-1% |
DeFi | USDT or USDC | 3-40% |
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DeFi enables anyone to participate in financial activities without relying on traditional financial institutions. It is not a bank, not a person, but an automated contract that conducts the money transfer.
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DeFi operates 24/7 and is NOT subject to the same regulations and restrictions as traditional finance.
What are the risks of DeFi?
As with any new technology, there are risks associated with DeFi, including the potential for smart contract vulnerabilities, regulatory uncertainty, and price volatility.