In my previous article, I made a general introduction to Defi and mentioned its distinctive features. I want to deepen the subject today.
Traditional crypto investments were carried out in buying cryptocurrency from a central exchange and waiting for it to rise over time. Later, cryptocurrencies that can be staked appeared as an important innovation. When we keep these cryptocurrencies locked on the relevant blockchain for a certain period of time, you can earn the same cryptocurrency. A brilliant example of these applications was Steem, which has blockchains that use a proof-of-stake consensus algorithm instead of proof-of-work, which allows cryptocurrencies to increase over time.
As I mentioned in my previous article, bank-like applications have emerged in the crypto world in the last three years. These applications perform basic functions such as deposits, loans, currency exchange, and money transfer expected from a bank. Decentralized financial practices were born and developed primarily as part of the Ethereum ecosystem. Currently, the highest volume and variety of transactions are found in the Ethereum network. But high transaction costs make it difficult for small investors to trade on this network.
Defi applications, which operate on the Binance Smart Network, are currently the platforms where the highest number of investors trade. Although they vary depending on the transaction, transaction costs on this network are around half a dollar. In the Polygon network, which has just become widespread, you can trade with near-zero transaction costs. Polygon ecosystem may be ideal for those who want to understand the system by making tiny investments.
To see the diversity and track statistics in the Defi world, I use https://defillama.com/home. Among the sites I've reviewed, it gives the most comprehensive data. Another favorite site in this area is https://debank.com/. This site reports user numbers as well as monetary volumes. Also, Debank's Defi classification is more detailed.
Speaking of Defi classification, I want to talk about the basic types of Defi applications.
Decentralized Exchanges(Swap Apps)
Decentralized exchanges(DEX) allow cryptocurrencies to be traded, just like traditional exchanges. Dexes are revolutionary infrastructures in terms of preventing cases such as central exchange owners taking cryptocurrencies and disappearing. Uniswap, which started this category, was originally used to buy and sell tokens generated within the Ethereum network. Cryptocurrencies in other networks, such as Bitcoin, were then traded in this Dex.
In Turkey, swap applications have become popular with Pancakeswap, which operates in the Binance smart network in parallel with the whole world. The ability to invest in liquidity pools of cryptocurrency pairs makes swaps attractive to investors. Many investors achieved significant returns by mid-May with a high return on investments in these pools combined with rising crypto prices. These applications also have pools invested with a single crypto unit (similar to stake logic).
Lending Applications
In lending applications, you can withdraw credits up to a certain proportion of your collateral. The question comes to mind why I should withdraw a loan if I have crypto money that can be used as collateral. Let's say I have Bitcoins that you hold for a long time and definitely don't want to cash in. But you needed money for a while. By showing your Bitcoin as collateral through applications such as AAVE, Compound, Venus, I can draw USDT as credit. Of course, in this case, I need to pay interest on this loan. Continuing with the same example, by showing your Bitcoin as collateral, you can buy USDT and get more Bitcoins with it to increase the Bitcoin position you are carrying. It is also possible to earn interest by investing cryptocurrencies in these applications.
Yield-Aggregators
Efficiency practices allow us to execute certain investment strategies automatically. Usually, each swap application has a productivity application that works in collaboration with it. Examples of popular DeX-yield-farming pairs are Pancakeswap-Bunny, Quickswap-Polycat, Apeswap-ApeRocket. Along with Bunny, several efficiency apps were subjected to flash loan attacks, so the dropped prices reduced the popularity of this category.
So what exactly do these apps do? One of the important things they do is automatically add a pool's return to the principal. At first glance, this seems like a simple transaction. Still, given the transaction costs, adding returns to the principal in an optimal number and with the right timing for maximum efficiency is necessary. In addition, these apps offer models in which they provide additional returns to savers with their own cryptocurrencies.
Apart from these categories, there are many different types, such as insurance applications, perpetuals, option applications, and indexes. Maybe I'll mention these categories in detail in other articles.
I believe that the Defi area has significant growth potential. Innovations that are emerging every day in this field also confirm this potential.
Thanks for reading.
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