Now you must remember that the DeFi ecosystem is ever-expanding and our knowledge base about it is increasing daily; for example, NFT’s have come out as a new aspect/application of DeFi that has really shaken up the world of digital authenticity. I won’t dare go into the metaverse because it’s still like a red-hot iron that can be bent and twisted into any shape. Its use is still growing and expanding, what awaits us in 2024 and beyond will be sensationally awesome. For now, let me leave you with the following aspects of the fifth part of the series.

1.Stablecoins: having a cryptocurrency that brings stability with it is very important, that’s why USDT, BUSD, USDC, etc. were created, however, you need to trust that these ones are actually backed by real fiat. That’s where DeFi steps in. Having stablecoins that can easily be audited by anyone makes them more trustworthy. The stablecoin market capitalization sits at over $150 billion, controlling 15.22% of the total cryptocurrency market cap at the time of writing this article. The largest asset in this category, Tether USD (USDT), dominates almost half the entire stablecoin market, controlling a 44.58% share that correlates to a $67.92 billion market cap.

Photo via Pymnts.

Stablecoins are a fundamental pillar in the decentralised ecosystem, created to bring about stability to an often time volatile market. Primarily used as a medium of exchange, a role which most cryptocurrencies cannot play well due to their volatile nature.

Stablecoins are cryptocurrencies that attempt to peg their market value to some external reference.
Stablecoins are more useful than more volatile cryptocurrencies as a medium of exchange.
Stablecoins may be pegged to a currency like the U.S. dollar or to the price of a commodity such as gold.
Stablecoins pursue price stability by maintaining reserve assets as collateral or through algorithmic formulas that are supposed to control supply.
The types of stablecoins are fiat-collateralized, crypto-collateralized and algorithmic stablecoins.

For more on stablecoins, visit Investopedia and Medium

2.Exchanges: the top crypto exchanges are centralized; Binance, KuCoin, Coinbase, Gate.io, etc. They offer great liquidity and have many assets on their platform; however, they have custody over your assets. If they were to get into a sticky situation, do you think your funds are really ‘SAFU’? There, is always the possibility of human negligence, corporate corruption and political restrictions that could affect these exchanges, Just think back to the witch hunt Binance went through this year. DeFi exchanges can solve these issues. Because they are decentralized, they are not controlled by an organization and they run on smart contracts. So, the only thing to look out for is if DEX is well-audited by various people and auditors. If so, then you can use an exchange and trade your assets fully under your control.

3.Derivatives: this is one aspect that is still being built in the DeFi ecosystem. An example of derivatives is the futures contracts you may trade on centralized exchanges (Binance perpetual and quarterly contracts serve as a good example here), or even through forex brokers. Derivative refers to a type of financial contract whose value is dependent on an underlying asset, group of assets, or benchmark. A derivative is set between two or more parties that can trade on an exchange or over-the-counter (OTC).

4.Lending and borrowing: how many people have a credit score that enables them to borrow money hassle-free from a bank? Apart from credit ratings, the paperwork needed to borrow money from banks and other financial houses is another stressful activity. With DeFi though, no need for any identification, a credit score, or even a bank account, you can simply borrow against your collateralized digital assets. This opens up more credit lines to investors and entrepreneurs who want to expand their business reach. In DeFi, the safest form of lending is over-collateralization; putting down collateral that is worth more than the value of the asset being loaned. This way, there is a cushion effect against volatility in the market and there is a larger incentive for borrowers to repay their debts.

5.Fund management: investors are always looking for vehicles to put their money to work in, some seek the help of ‘experts’ in getting a great investment. With DeFi, there are some really fantastic funds management dapps that offer great percentage yields for investors. However, in the crypto space, this is usually referred to as “staking”. Instead of earning a dividend or an increase in the value of your asset, in crypto staking, you earn more of the asset you staked, while also benefitting from its price increase. Yield farming and Liquidity providing are the two common methods of fund management in DeFi.

6.Lottery: ever bought a lottery ticket? What did you think would happen? You probably felt like it was a waste of time, a scam perhaps? That’s because you might feel that there is no actual prize pool to be won or the winner will have a connection to the hosts of the lottery, after all, na Naija we dey. Well, DeFi is making all those fears disappear. Decentralized lotteries have the total collateral locked in a smart contract, which can be audited by anyone, to check and confirm the authenticity of the prize pool. The lottery will also get a winner at random; everyone has a fair chance (fair chance that no connection will help anybody, someone with 1000 lottery tickets will always have an advantage over another who has only 1 ticket).

7.Payments: I’ve already touched on payments and remittances in part 3, you can re-read it here. DeFi is changing the way we make purchases and transact with one another. No more annoying intermediaries or transaction fees.

8. Insurance: do you know you can even insure your assets against loss? That’s right, you can protect your digital assets from an unfortunate situation, such as a hack. Most smart contracts that people invest in are well audited, but sometimes a bad code may leave that particular Dapp exposed to fraudulent attacks.

9.Governance: some decentralized systems have embraced the use of community votes to decide on crucial topics. They decide on the contributors/validators based on the amount of the native coin (governance token) each one holds. Thus, handing over authority over the Dapp to enthusiasts and hodlers (yes you saw that right, HODLERS). These communities are called Decentralized atonomous Organizations, DAO for simplicity.

The DeFi space has so much to offer all of us, being built for you and me to take back control of our own money and assets. There’s still so much more for us all to learn, thus I advise you to DYOFR (do your own further research). In the fifth installment of this series, we will look at blockchains and smart contracts.

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Till next time.