To decentralized finance or not to decentralized finance; that is a mouthful.
I get it. I mean I know what it means. Decentralized finance is the unabbreviated form, but what do normal people do with it?
The other day I read an article that referred to “hobbyist Defi users”, and it broke my brain.(I struggled to find it again, but when I do I will post it in the comments of this post)
What is it about Defi that I’m missing? Are there traditional finance hobbyists? Is there a club that I can join? Do they have a special handshake?
I understand that it’s a financial technology based on secure, distributed ledgers and blockchain technologies, and therefore throws cryptocurrencies into the mix, but what makes it most attractive is that this system removes all of the control banks and institutions have on the financial products and services they offer, and of course money itself.
Banks and other financial services fees are eliminated, which I find to be a particularly attractive quality to have in a financial service provider.
The traditional financial system is chocked full of third parties. Their intention was to “facilitate” money movement between parties, but usually it feels more like they are doing everything in their power to complicate and convolute the process. And the most distressing factor of all is that each one charges you fees for using their slow, exclusive services.
With Defi, and cryptocurrency in general, you essentially become the custodian of your own money. If you have an internet connection you have full control of where you send it, where you spend it, where you invest it, and you don’t have to request permission or approval from anyone.
Decentralized finance does away with intermediaries, allowing us to transact through financial peer-to-peer networks that use secure blockchain protocols and smart contracts.
All that is required is an internet connection, and you have the ability to lend, trade, and borrow money using software that has recorded and verified any financial actions in distributed ledgers and databases. These databases are accessible across various locations. All of the data is collected and aggregated from all users on the network and is verified by various consensus mechanisms.
Decentralized finance essentially eliminates centralized finance models by providing anyone with the ability to use financial services anywhere in the world regardless of who they are.
Unfortunately it’s not all rainbows and pots of gold yet. The majority of the sector is unregulated, and as a result the ecosystem is peppered with infrastructural woes, multimillion dollar hacks, and many, many, many scams. So many scams.
So in my quest to become a “hobbyist” Defi user I had to navigate the oceans of information on the interwebs to come across the following islands of knowledge:
This link comes to us courtesy of Investopedia. It’s always a great place to find definitions and start searching for information about topics relating to finance.
I always enjoy a good Medium article, and this one is great as a short read for getting the gist of it. It’s great if you only have 5min to read before you throw money at a smart contract.
This is an older piece, written at the end of 2020, but I found their explanations of notable protocols to be helpful and interesting. Thanks to this article I will definitely be looking into Yield farming in greater detail sometime soon.
This does exactly what it says on the box. It is for beginners, but it is also a great resource for those of us that might need a bit of a cryptocurrency or blockchain refresher.
This is a great read from Forbes Advisor. I very much enjoyed the sections titled: “How Defi is being used now” and “Risks and downsides of Defi”.
The Cointelegraph shows us why they’re one of the top most trusted resources in the crypto space. This is a fantastic resource. It is a comprehensive, deep dive guide to Defi. It is titled as a beginner’s guide, but I am quite certain that there is a little something in there for everyone.
This is a very interesting read about how traditional banking regulation is insufficient for Defi protocols and how we will need something far stricter and robust when we do regulate the industry more seriously.
This is arguably the best resource for information about Defi. It comes straight from the horse’s mouth, so to speak. Straight from Ethereum, comes the most comprehensive source of information regarding Defi technology.
This is just a starting point, mind you. Defi is a vast ocean of protocols and resides on a wide array of networks. From what I’ve learned, for me, I don’t know that it’s safe to be a “”hobbyist” Defi user just yet. There is still too much uncertainty out there and I haven’t developed the risk tolerance for hobbyist investing yet. I am still building my wealth.
I do hope I have given you something to think about, provided you with some actionable information, and that you learn a little something about what’s on offer in today’s landscape of decentralized finance. Defi is an enormous part of the future of cryptocurrency. It will be very interesting to see where these technologies go and what they will enable us to do in the future.
Happy Defi-ing and see you in the next one.
Disclaimer:
Nothing in this article should be considered financial advice. I am not a financial advisor. I am a person looking to grow and maintain their wealth in order to provide a good livelihood for their family. Everything I have provided is for educational and entertainment purposes. Do your own research before making any investments
