DeFi is a growing ecosystem of protocols and applications, which are delivering value to several thousands of users, and transacting the equivalent of hundreds of millions of dollars in digital assets, every day.
The very foundations of a new financial system are being laid, with applications that enable everything from simply making transfers and payments, to lending, borrowing, trading, portfolio management and insurance.
Here’s an overview of the DeFi ecosystem being built on top of the Ethereum network.
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The DeFi ecosystem consists of the following categories:
Custody: Ethereum wallets which allow for the self-custody of users’ private keys and digital assets. This means individuals are in control of their funds at all times, and don’t need to trust a centralized entity, reducing the risk of hacks. These wallets are the gateways through which users can interact with DeFi applications.
Lending: DeFi lending protocols provide users with the ability to lend their digital assets in exchange for return on their deposits, and borrow cryptocurrencies against collateral, without intermediaries.
Trading: Decentralized exchanges or DEXs are platforms which enable the exchange of digital assets on-chain and without relying on centralized intermediaries. These platforms are open for anyone, anywhere to use without, and users retain control of their private keys and assets.
Derivatives: Derivatives platforms in DeFi offer the issuance and trading of digital assets which are representations of financial instruments, from fiat currencies to indexes and options.
Insurance: These projects offer protection against smart contract vulnerabilities or price volatility, aggregating community funds to use as cover.
Asset Management: Protocols enabling users to better manage and visualize their portfolios, via an array of tools including automated strategies and routing funds to highest-yielding lending pools.