What is DeFi: The Complete Beginner's Guide

What is DeFi: The Complete Beginner's Guide

What is DeFi: The Complete Beginner's Guide

In recent years, crypto has really taken the world's attention. Everywhere you go, you'll find someone discussing cryptocurrencies, though often from a very different angle. However, among all this discussion, you will often hear the question: what is DeFi?

DeFi is indeed one of the most popular aspects of the crypto industry, but it is still a mystery to many people out there. If you're accidentally looking for a way to invest in DeFi, you might be interested in the philosophy behind the phenomenon. Well, the question 'What is Defi' we will still find out!

While the concepts may seem complicated, there are several ways to understand them from a beginner's perspective. In this guide, we will do just that. let's just talk about it!

What is DeFi: Basic Knowledge

For starters, it might be worth answering this core question first, before we move on to more complex discussions. So, what is DeFi crypto?

The acronym "DeFi" stands for decentralized finance. As the term implies, Decentralized Finance is a kind of umbrella for a very broad financial infrastructure with an emphasis on a decentralized system.

However, this decentralization did not appear out of nowhere. DeFi is closely related to cryptocurrencies, or rather, the blockchain technology that develops cryptocurrencies.

Most blockchains are decentralized. Yes, there are exceptions, but in order to keep the discussion in this article simple and to minimize confusion, let's discuss it by exploring just a few general sections.

The decentralized system allows the blockchain to function without intermediaries. In financial terms, the intermediary in question could be anything or anyone such as a bank, an individual acting as an escrow, a developer writing code for the dApp you use, and so on.

Based on these guidelines, the main benefit of DeFi is that it allows trustless financial processes to take place within its ecosystem.

Pioneers in the DeFi Universe

Ethereum is one of the largest cryptocurrencies in the industry. More specifically, this cryptocurrency is constantly competing with Bitcoin to become the biggest crypto project. Some Ethereum enthusiasts believe that there will be a moment where Ethereum will surpass Bitcoin in popularity.

Many factors are involved behind the popularity of Ethereum, one of which is that Ethereum is the main blockchain that houses DeFi products.

Most of the DeFi projects you will find on the market were initiated using the Ethereum blockchain system. Currently, there are also other blockchains that are making similar efforts to Ethereum. When learning what DeFi is, you'll likely come across projects built using the Polygon, EOS, or TRON blockchains. Even so, Ethereum remains the undisputed leader.

There are several reasons that support this fact, but the main one is that Ethereum is the launch pad for smart contracts. Smart contracts are the core tool behind everything DeFi-related.

Smart contracts are agreements that have been coded into the blockchain. Of course, this explanation may be a very primitive point of view, but the core concept is more or less like that. The main feature that makes this contract attractive is the fact that the existence of this contract is impossible to breach. Once the contract has been submitted to the blockchain, there will be no way to change or reverse its settings.

Thanks to smart contracts, you can use DeFi applications with a trustless system, and with no third party interference. The app can be a loan, gambling or anything related to NFT, you can use the dApp and can rest assured that no cheating is going to happen.

What is DeFi: The Complete Beginner's Guide

Types of DeFi Apps

In the previous section in the guide "What is Crypto DeFi?" In this, I have mentioned several types of concepts, such as NFT, lending platforms, and so on. These concepts are just a few examples of using the DeFi project.

Well, it's worth investigating some of the most popular types of DeFi projects, so you can have a general idea of ​​what to expect from the DeFi project itself.

• Stablecoins - If you have ever dealt with cryptocurrencies or crypto-related projects, in general the term "stablecoin" may be familiar to you. A stablecoin is a cryptocurrency that is pegged to (and often backed by) the United States dollar. This means, 1 stablecoin will always be worth US$1. Stablecoins are used in several types of DeFi projects, and Stablecoins are also considered DeFi projects themselves.
• Lending/Borrowing dApps - These projects work in the same way as traditional credit institutions, and the main difference is that these apps have no intermediaries. You can borrow assets using your cryptocurrency (usually - Ether or stablecoin) as collateral, or lend crypto and earn interest over time.
• Yield Farm - A yield field is a DeFi venture where you will invest (risk) some of your crypto assets, and then receive passive returns in return. Recently, these types of dApps have become very popular on all types of blockchains used in DeFi (especially on Ethereum and TRON).
• Decentralized Crypto Exchange -  If you've ever used Uniswap, you probably know what a DEX (decentralized crypto exchange) is? DEX is a crypto exchange that does not require you to pass KYC verification checks, and allows anonymous cryptocurrency trading.
• Gambling dApp - If you wanted to find out what DeFi is just to make sure that your favorite gambling dApp is under DeFi's protection or not, you're in luck, because in fact it is. Many gambling projects claim to be trustless, and allow users to stake their assets in a decentralized, anonymous and transparent manner.
• Wrapped Coins - This project is probably one of the most complicated aspects of DeFi. In layman's terms, a wrapped coin can be used (sent, received, transacted, etc.) on a different blockchain than its own. So, for example, a wrapped ADA coin could be used on Ethereum, and it would still retain its value from the original ADA coin.

The previously mentioned example of DeFi, namely the DeFi system that prevailed in several important elections, is also a basic use of DeFi, commonly referred to as the "prediction market". Apart from that, of course, there are many more decentralized finance related projects out there. The ones mentioned above are just a few of the popular and more common types of DeFi.

How to Use DeFi?

After reading this article and finally figuring out what DeFi is, I assure you you've made the decision you'd really like to find out for yourself, and have already decided to delve into some of the more interesting projects.

Well, you need to know a few things first. Two important things, you have to get yourself a proper cryptocurrency wallet, and then buy some crypto coins to start getting acquainted with the DeFi system.

Wallet-wise, the best recommendation for you is to use a hardware wallet. While you can use other types of wallets, or even software wallets, you won't find better protection for your cryptocurrencies and tokens than you can get with hardware.

In this regard, Ledger and Trezor are unquestionably superior leaders. You should check out the Ledger Nano X, or the Trezor Model T.

Both wallets are leaders in the DeFi world. Both are safe and reliable, and offer advanced functionality to their users. You can store a wide variety of crypto assets on the Nano X and Model T, and also enjoy their highly professionally crafted wallet features.

Once you've selected a wallet (or two, if you want to be extra careful), the next step is to find a cryptocurrency exchange that you can use to buy some crypto coins (most will choose ETH).

Currently, there are many crypto exchanges circulating in the market. With centralized and decentralized system, AMM based platform, P2P exchange and so on. However, two crypto exchanges that stand out quite significantly from the pool of exchanges are Binance and Coinbase.

Binance and Coinbase are two of the strongest pioneers in the crypto market. Both have managed to build a reputation as a trustworthy platform and comply with all standards and regulatory requirements that may interfere with the continuity of activities on the platform. This is good news if you want to keep things simple and official.

In order to register on any of these crypto exchange platforms, you must pass the KYC verification check. Once your identity is verified, your trading limit will be increased, and you can purchase some Ether coins by first depositing fiat money into your account, via bank transfer, credit or debit card, or otherwise.

Once you have the coins, and have transferred them to your separate wallet from the previous crypto exchange platform, you have completed the procedure. All that's left to do now is find the DeFi project you're interested in!