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The future of DeFi

DeFi saw huge growth in the middle of 2020 but declined a bit later in the year. Despite drops in the token value of popular DeFi projects, their usage and development continued well into 2021. Now, many are speculating a “DeFi Summer 2.0” as the Ethereum blockchain is slated to release an important upgrade in July 2021.

The new upgrade, EIP-1559, is expected to help lower gas fees substantially. What’s more, mainstream adoption is steadily on the rise with the popularity of NFTs , the recent Coinbase listing, and the surge in the price of Dogecoin.

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Borrowing

Qualifying for a loan in the first place is uncertain, usually requiring a high enough credit score and good debt-to-income ratio. Once approved, on average you can expect to pay 10%-30% in interest.

DeFi let’s you collateralize your crypto holdings in order to pull a loan against it.

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Yield farming

Lending mechanisms on DeFi platforms have opened up the practice of yield farming, which is where crypto holders routinely seek the highest interest rates on the market to earn passive income.

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History of DeFi

From smart contracts, a blockchain project called Maker was able to create a stablecoin known as DAI. And with DAI, holders of ethereum were able to collateralize their tokens in exchange for the stablecoin.

Another big innovation that Ethereum enabled were ICOs.

While the ICO craze l...

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DeFi is the name given to the suite of financial tools that blockchain technology enables. These tools include lending, borrowing, and yield farming. Blockchain technology allows these tools to be utilized without needing permission from a centralized entity (i.e. banks).

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Smart contracts

So how is all of this facilitated on decentralized platforms? Through the use of smart contracts, DeFi platforms are able to process transactions without the need of a middleman or centralized entity holding funds in custody and keeping track of ledgers. Instead, crypto traders lock tokens into l...

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Lending

With DeFi, you may also opt to lend your crypto and earn interest on it. Most DeFi platforms and decentralized exchanges (DEXs) have a staking mechanism or liquidity pool where you can lock your crypto into the platform and earn interest. Lending helps DeFi platforms to continue facilitating tran...

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