Getting Started with Blockchain What is DeFi (Decentralized Finance) that has been hotly debated recently?

Recently, many people in the industry and the media are discussing DeFi and discussing the ecosystem and future development prospects of DeFi.

So what is DeFi? Is it the same thing as FinTech? If not, what is the difference? Today, let's take a look at DeFi.

01

What is DeFi and how is it different from FinTech?

Let me talk about FinTech, which was reported by traditional media a few years ago. FinTech (Financial Technology) is mainly through Machine Learning and Artificial Intelligence to make better predictions and judgments.

The core of FinTech is credit . Based on the user's historical consumption record, FinTech uses machine learning and artificial intelligence to perform big data analysis, calculate the credit level of different users, and then launch different financial services, such as loan services, according to different credit levels. For example, the giant Ants in the FinTech field, through the various transaction data generated by Alipay every day, after calculation and analysis, launched different amount of flower garden services for people of different credit ratings.

Unlike FinTech, DeFi (decentralized finance) refers more to decentralized financial derivatives and related services, behind distributed ledger and blockchain technologies.

Because it is decentralized, DeFi does not have a credit system. FinTech will evaluate the user's credit rating based on historical data. DeFi mainly exists in the decentralized blockchain. Most of the DeFi products are not tagged. The users are basically anonymous or semi-anonymous.

DeFi's vision is that all assets can be tokenized and freely traded in a globally open market.

02

Currently well-known DeFi: Maker DAO

From stable coins to decentralized Token exchange platforms and lending, there are currently thousands of DeFi projects, and the entire ecosystem is booming.

▲ DeFi products on Ethereum

Source: theblockcrypto.com

Below, through the well-known DeFi on the Ethereum network – Maker DAO, help everyone understand the operation of DeFi.

We can simply understand Maker DAO as a decentralized bank that can issue its own stable currency – Dai, Dai and the dollar 1:1 anchor.

One of the most important businesses in traditional financial services is lending. Assume that the cryptocurrency investor Zhang Sanquan bought a house and met a true love plan to get married, but did not have the money to do a wedding, and planned to go to a bank loan. The bank will investigate Zhang San’s credit history and use Zhang’s assets (such as a house) as collateral to be loaned to him.

How to achieve this in the decentralized "Bank" Maker DAO? In fact, it is very simple, Maker DAO does not need to check Zhang San's credit record, or even know that he is Zhang San (anonymity of the blockchain). Maker DAO will ask Zhang San to mortgage the blockchain assets, assuming that Zhang San has $ 50,000 worth of ETH, all of which are mortgaged to Maker DAO through smart contracts , and Maker DAO will give Zhang three up to 100,000 Dais (worth $100,000). Because Maker DAO stipulates that the value of the collateral is at least 1.5 times the amount of the loan. With Dai, Zhang San can be converted into legal currency (such as US dollars) for use in life.

After waiting for Zhang San, he can buy Dai in the market, pay Maker DAO and pay interest, and redeem the mortgaged ETH assets. Assuming the market fell, Zhang San’s original ETH worth $150,000 has shrunk, which is already 1.5 times lower than the loan amount. Maker DAO will force Zhang San’s ETH to repay his loan, ensuring that Maker DAO itself “does not Will go bankrupt."

03

Conclusion

Ethereum founder V God once said that finance and games will be the first two areas of blockchain technology. Compared to traditional financial services organizations, DeFi does have many advantages, such as decentralization, high transparency, low cost, and so on.

Just as many people can't understand the blockchain technology, DeFi also has cognitive thresholds, and the science road has a long way to go.

Which financial products do you most expect to launch in DeFi? why? Welcome to leave a message in the message area.

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『Declaration : This series of content is only for the introduction of blockchain science, and does not constitute any investment advice or advice. If there are any errors or omissions, please leave a message.