1. Well kept billion dollar secret at your fingertips If you are not in to these days you probably missed the news that there is something (a billion dollar company). Cryptocurrencies called DeFi that became a Unicorn It’s a bit of a joke, because DeFi is not a company or a startup, but some kind of a pool of independent and interconnected . financial services built on blockchain The term or goes back to the late 2018, when a decentralized projects set a common goal of creating a more open financial system that doesn’t need traditional banks. Decentralized Finances (DeFi) Open Finance movement of fifteen 2. So what is DeFI? Long story short: It brings decentralization and digitalized trust to finances. DeFi is to finances what cryptocurrencies are to money. A bit more complex: DeFi is a set of services, protocols and technologies that offer various ways to handle your cryptocurrency funds. 3. So what can you do with DeFi? , but the difference is that you and you don’t have to deliver any proofs or have any papers signed. Same things you do you with your money and finances don’t have to use banks or financial companies You don’t even need an ID or additional proofs. Everything can be done online with your phone and computer. All these proofs and trust is made by blockchain technologies and you for verifications. don’t need any middle-men 4. Where’s the catch? There is none. Smart people around us created technologies like programmable money, smart contracts and blockchain (and some others). The point of these technologies is that they should provide safe and and financial operations. trustworthy environment for managing and exchanging your crypto funds 5. Ok, good, can you give me more context? Today we use , so we borrow money, we invest, or we keep pile of our hard-earned money at some safe places (usually bank). traditional financial services Now when we need to borrow, we go to the local bank, then we fill out some simple and demanding papers and if everything is well, we get the loan. And then we have to be the good guys and make sure we pay it back. Similar with our investments. When we want to invest we have to find accredited company, where our money is entrusted to some smart and nice people with an expectation they will take good care of it. DeFi has the same purpose. It provides us with an opportunity to take care of our funds. Where things are , without anyone else having any control over what you have and what you agree upon. So no entity can take anything away from you or interfere with your funds. different from classic finances is that in this case we are in full control of our funds and investments 6. Why would I jump on this train? DeFi makes sense if you: want to a bit with exciting tech and appear smart in bar experiment lying around and you want to earn some interest without risk (theoretically) have some cryptos want but don’t have time to go with all the paper work and institutional providers to invest don’t have or financial services access to banking play with real investing schemas (for advanced users) 7. What’s the minimum funds i need? . You can start with 1 USD or so, but makes sense to start with at least 10 USD not to spend everything on gas (transaction cost) and exchanges. It's really up to you 8. Interesting. It’s time for more advanced explanation. Remeber, DeFi is built on the blockchain, mostly on Ethereum . Central part of blockchain is where all the data is stored. What data would be written to this ledger is taken care by some algorithms (officially called ). Shared database (Ledger) Consensus Algorithm Important part is, that once something is written to ledger, it . So, if consensus algorithm made an agreement you paid 10 units to someone, then this can’t be changed by anyone. can’t be changed without new consensus Furthermore, all the data and transactions that get stored into ledger are . So the ledger is distributed to all the computers. synchronized to thousands of computers If one (or more) computer fails (or is taken down by government, service provider or bad people), system still works. So, your payment of 10 units is distributed and not written in every single computer (node). means that there is no central authority (bank, company, government…) needed to take care of what is written into this ledger, because digital consensus takes care of it. Decentralization This means we , or put trust mechanism in the hands of technology. Sounds spooky I know, but it comes with many benefits. One of them is that we can automate many things. digitalize Trust are digital money that are built on blockchain, so decentralized technologies, this means that there is no central organization having any control over them. So they can’t decide whether you can spend your money or block your actions in any way. Cryptocurrencies are digital contracts that act similarly as paper contracts but they programmed online and protected by advance encryption technology and distributed over blockchain, so decentralized. They are triggered by some actions and executed on decentralized manner, meaning no central entity or bad actor can prevent their delivery. This comes with many benefits. Smart contracts 9. Huh, wait, stop. Can we go back to DeFi like I am 5 year old? You can easily imagine DeFi as shared (financial) Legos. Imagine that red Legos represent coins and tokens (so crypto money), yellow Legos represent some crypto lending services (banks) and then we have different colours of legos for all the different things we know from classic finances (investments, liquidity providers, insurances and other more or less complex financial instruments). In , so you have to go to one provider and fill up and verify papers (ie credit score, earnings) and then take them to some other provider for some other services. classic finances every piece of Lego is isolated . All you need is (imagine like pocket wallet, but for cryptocurrencies) and crypto funds. From there on you can do everything on pretty much automated way, because these Legos are verified, trusted and shared between each other. With DeFi all this becomes unnecessary Wallet So once you have funds in a wallet . For example you can use this finds as collateral to borrow some new funds directly from other DeFi service and then you can lend these funds further to some other person and you take margin in interest rates. And as next Lego you can put interest rates instantly to some DeFi service, say prediction funds. you can start putting Legos together There are million combinations how you put Legos together and how you take care of your funds. And new service are popping up every day. But what’s even more exciting is . how new DeFi services are created In the . So you can create tokens or build protocols that enable lending or some financial options (like futures). The beauty is, that anyone can build on a top of other services without any permission from these services, because, smart contracts and data is shared and always available. DeFi world anyone can issue or create their own Legos 10. I am confused with these new issued tokens and coins. How can they have value? True. There has been a lot of bad blood and scams in this crypto world. And it would be an illusion thinking that we are way over that. We will cover more in the next episodes. 11. And this shared data? Can other people see how much I have in wallet and how much I borrowed? Yes, they can see how much is some wallet, or how much of the funds is locked in smart contract. What they don’t know is who is the owner of that wallet. So if you don’t advertise your wallet publicly, you are pretty anonymous. 12. Also, these smart contracts are a bit confusing. True. As we said, smart contracts enable signing digital agreement where you pledge some action or funds into it. What you pledge in to this contract cannot be revoked, because it’s written into blockchain and distributed to thousand computers. and they can’t be taken down (eliminated). Smart Contracts are enforceable For example, if we agreed that I will pay to Joanna 10 Ethereums (cryptocurrency) on the 1st of May 2020 and we signed this into smart contract (I lock my 10 Eth to this contract), this will be executed no matter what and Joanna will get her money. The other thing is, that these , so everyone can use and reuse them. smart contracts are publicly available Now Joanna can take this smart contract and use it for another smart contract, i.e. pledging that on 1st of May I will have 10 Eth and next day I would like to use these funds as collateral to take crypto loan at lending service. All this would be automated and would execute exactly as it’s written in contract. 13. Ok, fair enough. Tell me the pluses? and everything happens instantly. You don’t need any papers or proofs to start. If you live in countries when it’s hard to open bank account, with DeFi there are no obstacles. It’s easy to start , because smart contracts are open sourced so you can check (or someone else can) exactly what the contract does. It’s transparent because you can’t really spend or lose more than you have (in theory) and you can’t gamble with more than you have. Whatever you do, you have to collaterize with something valuable (digital assets with value) It’s safe There are and financial companies have no power to cut you off or do anything unpredictable with your funds. no credit checks 14. What about minuses? If something goes wrong, there is , since no one controls the system. So you can’t run to your nice financial manager and claim money back or complain. no central entity that would protect you . At the end of the day you trust everything to technology which can be buggy, unstable and unpredictable. You have to know that when smart contract is executed, there is no way back. It’s still experimental technology It’s very . What will happen if people start to panic? Will protocols be stable, financial set ups sustainable, will entities (companies) behind some services keep their promises. experimental investment mechanism 15. So what do I need to start? Well, not much. You need some Cryptocurrency and a crypto Wallet. 16. Where can I get the Wallet? We have more Wallet types, and we will talk about that in next episodes. The thing to remember now is that you should always use . This means that you keep your funds (private keys with access to own funds on ledger) under your ownership and control. It’s like keeping your cash in your pocket not at the bank or some other financial service account. open-source and non-custodial wallets There are many wallets out there. If you want to have it on mobile phone, a safe choice would be . Trust Wallet But more about this in other episodes. 17. So what would be a first useful and simple case for me? ! Swaps If you have cryptocurrency (say ) and you want exchange it to something else (f.e. stable coin called the most common way is through . But doing that at exchanges is mostly quite expensive. Ethereum DAI ) Exchange With Swaps you can , and everything is done in your pocket (wallet). swap one token to another with minimum cost So this is a very useful way if you want to trade tokens with lowest cost possible. At Trust Wallet you can do these Swaps at DEX menu -> Swaps. (yes, we will cover that soon). DEX means Decentralized Exchange 18. What do I risk? Again, . Don’t be greedy, don’t spend what you can’t afford and don’t do things you don’t understand. you play with your own money and there is none that will give you back your lost funds Also, no matter how these things are exciting, they are still experimental technology and experimental business models We will cover more exciting things in the next posts, so buckle up!

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WTF is Decentralized Finance or DeFi?

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