“What is DeFi?”
This is a question I hear often when the topic comes to finance or cryptocurrencies. Some people know “Bitcoin” because of its media presence, that’s it. But the crypto industry offers so much more and especially the decentralized financial economy or “DeFi” mentioned in the heading. When you hear or read about the possibilities and profits that are possible there, many shows interest but it is not always quite imaginable.
DeFi considered one of the fastest growing sectors of the crypto industry and is often referred as the future of finance. Anyone interested in blockchain and cryptocurrencies should at least be familiar with the term “DeFi”.
The fundamentals
The acronym DeFi stands for “decentralized finance” and is usually used to describe all applications and companies that offer financial services based on decentralized blockchain technology. Sometimes you can also find the term “Open Finance” for it.
The concept of decentralization contrasts with traditional financial services, which are usually centrally organized, that is — controlled by a single entity such as a central bank or financial institution. DeFi is generally expected to overcome many of the common disadvantages of centralization, such as central vulnerabilities, monopoly positions, and bureaucratic obstacles.
Decentralization of financial services is possible thanks to smart contracts, where computer code automatically enforces the rules and all transaction data is kept in a distributed ledger. No actor has sole control over transactions, this preventing censorship and corruption.
If a conventional bank grants loans to customers, then it alone can decide who receives how large a loan and under what conditions. In a decentralized network anyone with a smartphone and Internet access can get a loan governed by a smart contract. The terms are transparent to everyone, and anyone can check them. In this way, financial services of a decentralized financial economy become more accessible and inclusive, for everyone in the world. Another step of globalization and development.
The main services offered by DeFi companies include stablecoin issuance, loans, trading, peer-to-peer payments, and insurance. Users can use such services through decentralized applications (Dapps), which are now mostly based on Ethereum.
Current state
DeFi is still a new and fast growing sector, so there is hardly any reliable data available for a market analysis. At the time of writing, the market capitalization of DeFi coins is about USD 20 billions. The market capitalization has increased very sharply in recent months, crossing the USD 2 billions at the beginning of June 2020, after rising above USD 1 billions just a few weeks earlier. According to Dune Analytics, the number of DeFi users is growing exponentially in August 2020 and has already exceeded 250'000, a fivefold increase year-on-year. The DeFi sector is still in its early stages, but reading such numbers already suggests what unimaginable potential and opportunities it has to offer.
Loans have accounted for a large part of the DeFi market to date. Companies like Compound offer crypto owners the ability to borrow money with crypto assets as collateral or lend their crypto assets to other network users to earn interest. Most platforms automatically assign lenders and borrowers to each other, and interest rates based on supply and demand.
Another important area of decentralized financial services is what are known as stablecoins. Stablecoins, such as DAI or USD Coin, are cryptocurrencies backed by a fixed reserve value, designed to cut their price volatility. Stablecoins are pegged to a fiat currency or commodity price or managed algorithmically. The general purpose of stablecoins is to give users with a more stable asset, similar to a fiat currency.
The future
Decentralized Financial Services (DeFi) is undoubtedly a very hot topic in the crypto economy and has been one of the fastest growing sectors in the past year. The exponential growth and general hype around DeFi has attracted many new crypto investors and crypto developers, as well as attracting the interest of traditional financial players. DeFi’s future prospects depend on creating value for users and delivering on the promise of accessible and open services.
At the time of writing, DeFi offers more than very competitive returns compared to traditional financial markets and other crypto options. For example, lending rates are much higher than savings rates offered by most conventional banks. Within the crypto economy, competitive opportunities arise from staking, which allows crypto users to earn regular interest.
The competition in the DeFi sector could drive developers to offer new services and more user-friendly products, lower transaction fees (through second-layer solutions), and improve security. In fact, this has already happened, a little more on this below.
Is DeFi the future of finance? Many crypto enthusiasts convinced that decentralized finance is the future, as decentralized financial services (such as lower costs, faster settlement, and innovations like fast loans) generate a lot of added value compared to the conventional banking system. It also offers the great advantage that it will be accessible to everyone with an Internet connection regardless of their origin of wealth.
WISE Token — the evolution within the DeFi revolution itself
As mentioned above, the competition keeps bringing new ideas and products to the market. One of these projects highlighted here in more detail.
The still very young DeFi project WISE Token from the WISE Foundation solves in an actually very simple way, several problems and uncertainties within the also still very young DeFi industry. This consequently attracts envious people and of course competitors who then badmouth such a project. As everywhere where there is money, there are also in crypto and especially in the DeFi sector many scammers and “scam” projects. But WISE is absolutely no such project — on the contrary, it has a lot of advantages over many other DeFi tokens.
To understand this you first have to understand what the WISE token is and what it does:
The WISE Token based on an ERC-20 compliant smart contract developed on the Ethereum blockchain. As a blockchain token, WISE is a decentralized, trustless and highly liquid cryptocurrency.
WISE’s financial ecosystem rely mainly on staking to generate profits in the form of interest, among other things. For staking (locking) tokens into the contract, investors will earn interest from their own private wallets. At the time of WISE’s launch, investors helped create a massive liquidity pool by sending their ETH to the contract.
Interestingly, all those holding WISE tokens must have purchased. There are no “team tokens” or other PreSale benefits for anyone. There was an auction where everyone could take part with ETH and feed the liquidity pool. This automatically created a correct and fair market price.
The created liquidity pool is ownerless and the team around the WISE Foundation has no access to this pool, because the access tokens (LP) sent to a burn address when they were go to the decentralized exchange Uniswap. This 100% prevents a so-called “RugPull” i.e. the withdrawal of liquidity — this unfortunately happened far too often in the past. WISE has solved this problem in a very simple way. You don’t need any trust in the sense of the WISE Foundation, because the audited Smart Contract can’t be changed anymore and therefore guarantees absolute security — this is not usual in the crypto and especially in the DeFi industry. Something similar can actually only be found in the Bitcoin itself.
Furthermore, it is very interesting that the ownerless and constantly growing Ethereum liquidity pool supports/backed the WISE token this mean WISE grow together with Ethereum! However, WISE is not pegged to ETH it backed by it — a big difference to a stablecoin.
Very interesting for investors is also the “price floor” which results from the amount of locked tokens. This means that even if all owned and liquid tokens sold, the market price of WISE cannot fall below this number.
It is worth mentioning that Ethereum is the largest cryptocurrency next to Bitcoin and has a higher growth rate than Bitcoin itself. Currently (24.01.21) ETH has a market capitalization of USD 150 billion and is constantly growing. This is mainly because ETH is constantly being developed further and, unlike Bitcoin, has a real use and is not just used as digital gold. The potential of “Ethereum” is to say it conservatively: huge! This means that whoever invests in WISE, also invests in Ethereum at the same time and profits in two ways. WISE is the only cryptocurrency that you can buy without losing the advantages over ETH! Small example: If WISE 10x and ETH 2x then you have just made 20x! (Much more if staked for interest).
So WISE relies on existing strengths in the DeFi sector such as complete decentralization, staking (good interest rates) but at the same time brings many novelties such as security (ownerless liquidity), a Price Floor and very importantly a high stability through the high liquidity on Uniswap and is simultaneous backed by Ethereum.
For interested investors it makes sense to invest in WISE instead of letting the money sit in a savings account. This way I earn money while I am sleeping! Isn’t that everyone’s dream?
An overview of many current and interesting DeFi projects can be found here on DappStats
If you are interested in WISE you can get more information HERE (WISE Foundation) and after buying WISE tokens you can staken directly on the dashboard. It almost can not be simpler!
Buy WISE directly on UNISWAP? Then just click HERE
If you want to learn more about Ethereum, it’s best to visit the developers’ multilingual website: CLICK ME
