What exactly is DeFi?

Decentralized finance (DeFi) is an emerging financial technology based on secure distributed ledgers similar to those used by cryptocurrencies. The system removes the control banks and institutions have on money, financial products, and financial services.

In DeFi, those middlemen are replaced by software. Instead of transacting through banks and stock exchanges, people trade directly with one another, with blockchain-based “smart contracts” doing the work of making markets, settling trades and ensuring that the entire process is fair and trustworthy.

DeFi, shorthand for “decentralized finance,” is a catchall term for a group of financial tools built on a blockchain. The idea is to allow anyone with internet access to lend, borrow and bank without going through middlemen. DeFi is one of the fastest growing areas of the blockchain and decentralized web space.

Bitcoin is a store of value, much like fiat currency, that operates on its own blockchain. On the other hand, DeFi allows you to lend, borrow and trade cryptocurrencies, like Bitcoin, akin to quintessential financial institutions, such as banks.

While Bitcoin is a decentralized digital currency that operates on its own blockchain and is used mostly as a store of value, DeFi is a concept that describes financial services that are built on public blockchains, such as Bitcoin and Ethereum, that for example, enable users to earn interest or borrow against their ...

According to the Commodity Futures Trading Commission (CFTC), peer-to-peer DeFi-based products and derivates may be illegal as per the Commodity Exchange Act regulations.

Key Takeaways. DeFi Products May Be Securities. Through its prior reports and pronouncements and most recently in Commissioner Crenshaw's article, the SEC and individual commissioners have made clear that DeFi products and services are viewed through the lens of existing securities laws.

People who lend money via DeFi networks typically enjoy much higher interest rates than those paid by traditional financial institutions. Increased transparency and security: Smart contracts published on a blockchain, along with all records of completed transactions, are available for anyone to review.

Defi is not supported by Coinbase.

The simplest way to earn a passive income through DeFi is to deposit your cryptocurrency onto a platform or protocol that will pay you an APY (annual percentage yield) for it.

DeFi runs on pieces of code visible to everyone, which means that technically-savvy people may exploit vulnerabilities in the code and run away with huge sums of money. In fact, the amount of funds lost in exploits of DeFi projects totaled $1.3 billion in 2021, according to blockchain security firm CertiK.

DeFi lending protocols are mostly good for early investors in certain digital crypto-assets, tokens and coins who otherwise mostly just happen to necessarily hoarding them. Profits are based on how much you put up, so for example, 8 percent a year on 1000 USD may not seem as much.

Of all the advantages DeFi offers over TradFi, the ability to earn high yields might be the most significant. Though interest rates vary, it's common to earn between 5% and 15% APY on your crypto holdings, and sometimes the rates can be much higher.

Launched in September 2020, PancakeSwap is the top DeFi platform and decentralized exchange on the BNB chain. It's by far the most popular DeFi platform boasting over 3.3 million users over the past month, speaking to the sheer scale of its ecosystem.

Ethereum

Ethereum is the leader in DeFi but some blockchains will take some market share.

The next cryptocurrency to consider buying in 2022 is PancakeSwap. In its most basic form, PancakeSwap is a decentralized exchange that was launched in late 2020. The exchange allows users to buy and sell digital tokens without going through a third party.