DeFi
Decentralized finance, automated market makers, and where the risk sits in lending and yield.
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Lessons
- 01What is DeFi?DeFi, short for decentralized finance, is trading and lending run by smart contracts on a public blockchain instead of by a company. You use it straight from your own wallet, with no account to open, at any hour. The same code that makes it open to anyone also makes its mistakes and losses final.
- 02What is an automated market maker?An automated market maker, or AMM, is a smart contract that holds a pool of two tokens and quotes prices from a formula instead of matching buyers with sellers. You swap against the pool, and every trade moves its price. The people who supply the tokens earn fees and carry a risk called impermanent loss.
- 03DeFi lending and yield: where the risk sits.In DeFi lending you lock more crypto than you borrow, and a contract sells part of your collateral if its value falls too far. Lenders earn the interest borrowers pay, minus a cut for the protocol. The risk sits in the collateral price, the code, the price feeds it trusts, and yields paid in new tokens.