DEFI DEFINED AND EXPLAINED

Decentralized finance, or DeFi, aims to recreate traditional financial systems on public blockchains. In a few short years, DeFi has exploded into a sprawling ecosystem offering a multitude of services without relying on centralized entities. Here are some of the most popular types of DeFi services available:

Lending & Borrowing Platforms

DeFi lending platforms allow users to supply crypto assets like stablecoins to liquidity pools and earn interest or borrow assets from the pools by providing cryptocurrency as collateral. Top DeFi lending protocols include Aave, Compound and MakerDAO. They provide algorithmically determined interest rates and instant access to loans without credit checks.

Decentralized Exchanges (DEXs)

DEXs enable peer-to-peer trading of crypto tokens directly between users (via liquidity pools) without needing an intermediary third party. Popular Ethereum-based DEXs include Uniswap, Sushiswap and Curve. DEXs tout advantages like user custody of assets, low fees, transparency, interoperability across blockchains and composability with other DeFi services.

Yield Aggregators

Yield farming aggregators optimize returns across multiple DeFi protocols under one portal. Yearn Finance pioneered automatic yield redistribution, saving users constant manual compounding. Other vaults like Badger DAO allow utilizing tokenized BTC for yield optimization while eliminating wraETH gas costs.

Insurance Services

DeFi insurance platforms like Nexus Mutual and InsurAce provide coverage against smart contract risks and protocol exploits. Users can either purchase policy protection against technical failures or provide capital to underwrite coverage pools and collect premium fees based on risk models.

Payment/Remittance Services

DeFi payments render borderless, near-instant remittance of fungible and non-fungible crypto tokens to any recipient globally. Solutions aim to disrupt traditional remittance, global payroll and payment network technologies with lower fees, quicker settlement and censorship resistance.

As DeFi continues maturing, more embedded financial products like on-chain investment funds, debit cards, robo-advisors, Prediction markets, identity/reputation systems and real-world asset tokenization will likely emerge to decentralize legacy platforms. Interoperability and compliance upgrades will also expand DeFi adoption into the mainstream.