Decentralized finance, or DeFi, is the term used to describe financial services that are available through decentralized platforms. Ethereum has a very strong presence in this field, as the blockchain on which the Ethereum cryptocurrency itself is based also offers many other associated bonuses. Mainly due to the characteristics of the Ethereum blockchain itself, this platform has become a leader in the DeFi field and has received mass adoption from the entire community. What is so special about this blockchain and what has helped it become the most popular platform for DeFi so far is its wide scalability.
The Ethereum blockchain offers sovereignly the largest range of engagement opportunities across all major financial categories. In the past year, Solana’s blockchain has admittedly taken a significant slice of the Etherea pie, but even that hasn’t been nearly enough to change the established order. Not to mention the fact that Solana itself was built on the Ethereum blockchain. Compared to Ethereum, while it currently offers a much higher volume of processed transactions, both platforms are equal in scalability. In addition, the upcoming upgrade to Ethereum is expected to scale the network to process up to 100k transactions per second, which would not only match Solana but surpass it in the volume of transactions processed per second. This is also why no other platform, at least so far, has gained such widespread acceptance as Ethereum. A basic overview of what uses the Ethereum blockchain offers can be found below.
Unlike CEX, DEX can be completely anonymous. DEX does not require any personal information from users, does not force users to create personal accounts, and does not force users to verify their identity for larger transactions.
There is no central repository for either your data or your assets in DEX. DEX operates purely within distributed databases, which increases the security of transactions many times over. This prevents a hacker from attacking the central database and seizing your assets.
With a distributed database, every node of such a database plays a role in DEX. Users participate in a voting process that leads to a mass consensus in the management of such a platform. This also eliminates outside efforts to change and run the exchange.
With DEX platforms, your private keys are only under your management. As long as you maintain all security features, no central authority can access your keys. This is not the case with CEX, where you entrust your keys to a third party to complete a transaction.”””
By not entrusting your private keys to a third party, you have everything in your hands. You don’t have to suspect central authorities of misusing your data. You manage your assets yourself, storing them in a hardware wallet, for example, which reduces the chances of them being stolen.
However, not everything is as sunny as it might seem in the case of DEX, and even in this case, the blue sky is not cloudless. When we mention the advantages of such platforms, we also need to mention the disadvantages of DEX. The main ones are:
Compared to CEX, DEX does not offer such a wide range of options. In DEX, users can more or less only buy and sell. They cannot use the loan options, leverage trading, stop-loss functionality, etc. that are commonly available in centralized platforms. At the same time, such platforms have no responsibility for your transactions. It is therefore entirely up to you where you place your assets and what happens to them afterward.
If you are a complete beginner in this field, you may be put off by the technical difficulty of getting involved in the operation of such an exchange. You may encounter requirements to connect to a dApp on the exchange, to enable dApp functionalities in your crypto wallet, or to directly set up nodes that will actively participate in the running of the entire platform.
Especially in the early days, the first DEXs had a problem with sufficient liquidity. While this has changed over time due to more mass adoption by traders, you can still see such a project today.
However, the advantages far outweigh the disadvantages, which has been positively reflected in the market capitalization of decentralized exchanges. The total amount of money invested in this segment of the crypto market grew by more than $80 billion over the past year, and the continuous growth continues this year as well.
If we take trading volume as a key criterion, the most popular platform for decentralized exchanges at the moment is the Uniswap network. This allows users to create their own “Exchange Contracts“, effectively setting exchange rates between Ether and various ERC-20s. Exchange rates that are not in line with the larger market are then subject to arbitrage until they eventually align, creating a self-regulating system without the need for a regulatory body. Other popular decentralized exchanges include Venice Swap, which boasts the largest number of visitors. OpenOcean in turn leads significantly in the volume of transactions made compared to the number of visitors. Other platforms worth mentioning are MM Finance, Biswap, and SpookySwap.
The world of cryptocurrencies is in many ways similar to the mainstream financial market. Therefore, it is perhaps not surprising that the usual forms of asset appreciation based on lending and borrowing have also gained ground here. The Ethereum blockchain has also contributed significantly to the development of this functionality in the DeFi world. In fact, in the DeFi world, there is no need for an actual bank to be involved. This opens up financial services to those who, for whatever reason, don’t have or don’t want access to conventional bank loans. This is thus a significant step towards the cryptocurrency mantra of “banking for the unbanked”.
However, even this method of obtaining loans is not without risk for lenders. With DEX, you don’t know who you’re lending to, what the profitability is, or if you’ll ever see your assets again. Therefore, for the time being, this is mainly the prerogative of central exchanges, which have more visibility of their users.
The value of DeFi
With the above in mind, projects are emerging that specialize in lending directly. One such project is the Aave platform, which seeks to both simplify and speed up the process of obtaining loans for potential buyers and to provide interest to lenders. Basically, anyone can put funds into a larger liquidity pool and start earning interest. By being a pooled liquidity fund, lenders diversify the risk of losing all their assets. Similarly, almost anyone can take out a loan for a small fee and with pre-set repayment terms. A similar project, Nexo, then even allows loans in the form of fiat currencies using a wider range of cryptocurrencies as collateral. As with DEX, there are multiple alternative projects. Compound or BlockFi, for example, can all be mentioned.
Consumers already have many payment apps at their disposal, but they all generally still put their trust in a centralized company. Once again, DeFi comes to the rescue. These services give users control over their payments, privacy, and usually much better fees. Nexo is at the imaginary forefront of innovators in this area too. It has in recent days entered into a strategic partnership with one of the biggest players in the credit card world, Mastercard. Potential buyers can now use the first credit card that is backed only by cryptocurrency assets for their purchases. Payments with this card work on the principle of a so-called “secured loan”. Essentially, you are guaranteeing the loan to Nexo for the card payment with your cryptocurrencies, and you can spend the equivalent of up to 90% of the fiat currency from your collateral in the form of cryptocurrencies. Thus, card payments at merchants continue to be in the form of fiat currencies but are secured by your cryptocurrency.
Venice Swap is built on Ethereum blockchain. That means it is built on the best and most secure blockchain. Start on Venice Swap today.