More specifically, DeFi protocols typically require three components: How does DeFi work?īlockchain, the technology underpinning Bitcoin (BTC), enables decentralized finance’s trustless, peer-to-peer exchanges. The first DeFi savings account alternative of its kind, Gelt High-Yield Savings offers 100% fund cover on deposits of up to $100,000 and unlimited free deposits and withdrawals. This excludes them from government FDIC and SIPC protection. Most importantly, cryptocurrencies, including stablecoins, are not legal tender. Stablecoin risks: Though stablecoins do not have the same volatility as non-stablecoin cryptocurrencies, there is a small risk that a coin could ‘lose its peg’ to its underlying asset.Applications (like Gelt High-Yield Savings) that have been audited by reputable, third-party blockchain auditing firms and those with open-source code are the least likely to have vulnerabilities. Protocol risks: Products vary in terms of quality.Blockchain risks: Though the majority of DeFi protocols are built on Ethereum, a massive, well-adopted ecosystem, it is impossible to fully negate the risk of a blockchain bug. There are always risks in using new technology. **Average savings account interest rate in the United States is 0.06% APY at the time of writing. Yield generation activities occur behind closed doors Yields generated through open-source protocols on public blockchains What is DeFi? It's a fast-growing ecosystem of alternatives to traditional high-yield savings accounts, borrowers and lenders, currency exchanges, and currencies themselves exists within decentralized finance. If the borrower were to default, the protocol would automatically take their collateral, thus preventing any losses for the lender. *Over-collateralized loans are a form of smart contract-officiated lending in which the borrower must lock up more funds (their collateral) than they borrow. What is DeFi? For the financial world, it is a paradigm shift the likes of which we have never seen before. In exchange for providing liquidity, mStable participants (Gelt users) earn financial rewards. For example, the mStable protocol (with which Gelt High-Yield Savings integrates) crowdsources liquidity from its participants to enable stablecoin swaps. This translates to a higher interest rate for the lender.īy the same token, anyone in the world has access to loans without credit checks, currency exchanges, and the say-so of gatekeepers – all without putting lender funds at risk.ĭecentralized finance also innovates on other cryptocurrency market needs. With DeFi, you can now lend funds to anyone in the world in the form of an over-collateralized* loan through an automated protocol. Since the Babylonian Empire, interacting with third-party financial institutions has largely been necessary in order to earn interest on funds or receive a loan.įor the first time in human history, this is no longer true. By replacing middlemen with automation, decentralized finance offers more capital efficiency, which translates to higher interest rates for lenders, more equitable access to capital for borrowers, and hassle-free global exchanges.In other words, these protocols replace the ‘middlemen’ necessary in traditional finance-banks, brokerages, and other institutions-with smart contracts (automation software).Just as blockchain's first application, Bitcoin (BTC), allows users to send funds peer-to-peer (without a third party's involvement), decentralized finance enables users to access financial products without entrusting their funds to a third party.DeFi refers to alternative financial products built on a blockchain.Otherwise known as decentralized finance, DeFi is a catch-all term for financial applications built on public blockchains, the technology underlying cryptocurrency. High-yield savings account alternative with deposits covered up to $100,000 Get started No fees.
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