The cryptocurrency world began with Bitcoin, which is well-known even to those who have been living in isolation for the past few years. However, the emergence of the ether blockchain, with its ability to create smart contracts, led to the growth of the decentralized finance (DeFi) ecosystem.
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However, Ethereum's limited throughput has led to the development of alternative blockchains such as Solana, Tera, and Avax, which support thousands of transactions per second and reduce transaction costs significantly. As a result, the share of Bitcoin in the total funding of cryptocurrencies has decreased from 90% in 2017 to about 40% today.
The DeFi market, which comprises various applications and services based on smart contracts, has a total investment capitalization of around $230 billion and has grown tenfold over the past year. One example of a DeFi implementation is staking, where you buy tokens and give them to validators in exchange for part of the fees paid by blockchain users and potential earnings or losses from token value changes. The staking yield for LUNA tokens is currently 7% per annum, making it a relatively conservative form of return in DeFi.
An example of a real-world DeFi implementation is the CHAI payment card in South Korea, which is accepted by taxi drivers and offers faster and cheaper transactions compared to other cards. The card is connected to the Terra blockchain, and fees paid by card users contribute to the income of LUNA token stackers.
This shows how DeFi is starting to expand beyond cryptocurrency speculation and impact traditional finance systems. Self-custody and low cost are two advantages of DeFi, but also come with the risk of scams and hаckers. DeFi also offers a global market for financial services and capital, without any geographic restrictions.
Why would someone provide $250 worth of LUNA token as collateral to get a loan of $100 and pay interest on it? Why not sell half the tokens on an exchange to get the same amount of money without taking a loan?
Personally, there is a psychological barrier towards cryptocurrencies, as they seem to exist in a parallel universe while I am living my daily life buying necessities like bread, milk, and paying for transportation. Until these worlds intersect, my personal situation is unlikely to change.
The main concept of DeFi is to create an autonomous and transparent financial ecosystem that operates independently from regulators and human intervention. DeFi enables finance to be accessible to everyone, allowing users to conduct transactions and address financial issues directly with each other without intermediaries such as banks or brokerage organizations.
The decentralized system allows buyers, sellers, lenders, and borrowers to interact through software, program codes, and encryption algorithms. The distinction between centralized (CeFi) and decentralized financial systems is the reliance on either people or technology to achieve their objectives. Despite the recent major attack on Poly Network, DeFi has boomed during the coronavirus pandemic, with billions of dollars added to the market monthly. Vitalik Buterin, founder of Ethereum cryptocurrency, stated that the accessibility of a system where anyone around the world can make transfers and select financial risks is a powerful idea that was previously unavailable to many.
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