The Rise of DeFi
Decentralized Finance, commonly known as DeFi, has taken the crypto ecosystem by storm in recent years, and is set to only grow larger. The total amount currently invested, or locked, in DeFi is fractions of the traditional financial system. We all have an opportunity to learn and become early adopters to this revolutionary space. Start learning today to gain this first mover advantage and to capitalize on the upcoming exponential growth of DeFi.
DeFi gives us the ability to build our wealth using our crypto in financial products. Similar to how the wealthy in today's financial system do not let their cash go idle, we too do not need to sit and let our crypto do the same. We can instead utilize DeFi products to compound our HODLed crypto. Of course with new technology comes new terms. Names like Yield Farming, Liquidity Pools, Wrapped Assets and others can make it all sound confusing. When it comes to investing your hard-earned money, confusion is the last feeling you want to have. While the names might be unfamiliar, the core concepts oftentimes come from the traditional world of finance.
In this section of our site we will review the following DeFi concepts and how they relate to the Flare Network:
Like all of the content on this website, we will go over the basic concepts from a beginner level without getting too much into the technicals. We will try to keep the articles short and concise, and relate them to the Flare Network as much as possible. Oftentimes having a deep understanding for the basics of any topic can make you a master of your trade; DeFi is no exception. This is especially relevant when you are dealing with your own wealth, don’t get ahead of yourself, read and understand the concepts again and again until you can teach it to someone else. Some of the terms are actually taken from the traditional finance world, but you may never have heard of them before because you weren’t able to participate as a retail user...until now!
Liquidity Pools are typically one of the first concepts you will learn about in the DeFi. If you have ever traded crypto or any asset on a centralized exchange, you may have taken for granted that a seller (or buyer) is on the other side of your trade to fulfill your order. A centralized exchange often employs market makers to provide liquidity to facilitate order fulfillment. In the decentralized world, you (and others) are the market makers who provide liquidity, or capital, while gaining the ability to earn fees for doing so.
It is important to understand the risks when participating in DeFi products. Because most of us will be utilizing Liquidity Pools as an additional income stream, we should talk about the risks associated with them. Impermanent Loss is not the most intuitive concept, but is a core concept to learn. After reading this and other articles, watching videos, and looking at examples you should have a good idea of what it is and how to maximize your profits.
The reason most of us are here is because we are interested in the Flare Network in some form. One of the first ways for us as Spark (FLR) and F-Asset holders to participate in DeFi on the Flare Network is in the Flare Finance ecosystem. Flare Finance brings with it an entire suite of DeFi products from Liquidity Pools, to Yield Farming, to Loans and Mutual Funds. We will cover some beginner concepts and offerings of Flare Finance.
You may have seen or used stablecoins on an exchange to trade out of a position. In doing so you were probably looking for a value that remained constant, or “stable”, in volatile times. As the name implies, stablecoins are tokens that are stable in value and typically “pegged” to the value of an underlying asset, for example the US Dollar. Stablecoins thus far are usually pegged to the US Dollar because the value of USD remains constant in value and is the most widely used fiat currency. Stablecoins can be centralized (managed by an entity) or decentralized, managed by a smart contract. One of the first stablecoins set to be brought trustlessly onto the Flare Network is Aurei, by Trustline Inc.