What are DeFi protocols?
DeFi protocols are known for more transparency and accessibility than conventional financial systems
Decentralized financial protocols, or DeFi protocols for short, are a whole new class of financial platforms that use blockchain technology. The use of intermediaries such as banks or other financial institutions is no longer necessary for users to obtain financial services and products that were previously only available through traditional banking institutions. DeFi protocols are known for more transparency and accessibility than conventional financial systems, which are often accused of being private, complicated and limited. DeFi protocols run on a blockchain, a distributed database system that enables secure, accessible and irreversible record keeping. DeFi protocols can create highly programmable financial products and services that can be executed autonomously without the use of mediators by leveraging the blockchain.
One of the most popular decentralized finance protocols is Ethereum, which is a blockchain platform that allows developers to create decentralized applications (dApps) that operate on top of the network. Many DeFi protocols are built on top of the Ethereum blockchain, making it a hub for decentralized finance. Defi protocols offer a wide range of financial products and services, including lending and borrowing, trading, insurance and more.
More famous examples of DeFi are A decentralized exchange (DEX), Uniswap enables users to trade cryptocurrencies directly with each other. It uses an automated market maker technology to provide liquidity for trading pairs and runs on the Ethereum blockchain. As of April 2023, Uniswap had more than $119.8 million in trading volume, making it one of the most widely used DeFi protocols. Users can lend and borrow digital currencies using the Compound protocol, which facilitates the borrowing and lending of cryptocurrencies. It uses a smart contract mechanism and runs on the Ethereum blockchain to enable lending and borrowing. Supply and demand determine interest rates on Compound, with prices fluctuating according to the amount of liquidity on the platform.
A DeFi protocol called Yearn Finance offers users production techniques for returns. It uses the Ethereum blockchain to operate and automatically distributes user funds to the platform’s best agricultural prospects for returns. Yearn Finance automates the process of finding the highest yielding farming opportunities to maximize users’ profits on their investments. Users can buy and sell insurance plans using this decentralized insurance protocol. It uses a system of smart contracts to facilitate the buying and selling of insurance and runs on the Ethereum blockchain. By providing more transparent and easily accessible insurance solutions, Nexus Mutual seeks to compete with established insurance companies.
