Based on blockchain and cryptocurrencies, it aims to give people access to new financial opportunities, wherever they live, and more control of their assets. This post is an overview of this exciting new sector. It starts with the rise of crypto.

Introducing DeFi

The term ‘DeFi’ was first coined in 2018. It referred to the financial use cases that were beginning to emerge on Ethereum. Compared to traditional finance, DeFi removes the middlemen, increasing the potential of better returns and lower barriers to entry. It’s largely automated, censorship resistant and accessible to anyone with an internet connection. It’s also transparent and can give you provable ownership of your own assets – letting you ‘be your own bank’.

DeFi use-cases

To date, the most popular use cases include exchanging, earning interest and borrowing. But there’s so much more and it’s constantly expanding. Here are some examples:

Smart contract-based decentralised exchanges (DEX), such as Uniswap and Kyber, are a great example of a DeFi use-case. These differ from centralised exchanges (like Coinbase or Binance) as the user has full control over their assets at all times. This also comes with a number of other advantages.

On centralised exchanges users will have to petition to get a token added, whereas on a DEX like Uniswap it is possible for anyone to add a token pair. What’s more, as decentralised exchanges run on the blockchain, there is no downtime or KYC requirements.

Stablecoins are a relatively new token class that aim to keep their price as close as possible to an existing asset (most commonly, USD). This means that many stablecoins (USDT, USDC, DAI) have become equivalent to a tokenised dollar that can be easily sent, saved, and spent.

Another example is automated asset management, e.g. TokenSets, which let you hold tokens that represent trading strategies (automated or following the trades of someone else). Set’s CEO Felix Feng says Set: “inherits all the benefits of DeFi. It’s accessible, it’s 24/7, it’s global, it’s permissionless, and every trade & transaction can be tracked on the blockchain”.

How to start

Argent has integrated several leading DeFi projects, helping you to exchange, earn interest and invest through Dapps like Maker, Compound, Set, Uniswap and more. You can use these in just a tap or two from our app.

Risks

It’s important to note the risks in DeFi. This is an emerging and fast innovating space. You’re not protected as you are with many countries’ government-backed deposit protections. As with many exciting and new fields, there are scams. We strongly advise everyone does their own research into each project they want to use, and to never use more than they can afford to lose.

There are, of course, far more possibilities than just the ones outlined here – and more being explored every day! Although it might not fully replace a traditional bank just yet for most people, we are very excited about the future.

If you’d like to learn more about the differences between DeFi and traditional finance, check out our other posts.