Basically, DeFi or Decentralized Finance is one of the newest technologies that makes life easier. This digital financial technology comes after the explosion of the cryptocurrency investment trend in the previous decade.
The Decentralized Finance (DeFi) token itself is a digital asset that is gaining popularity among crypto enthusiasts and enthusiasts. This is due to the many benefits and uses of this token. In addition, this token can also be used on top of the Decentralized Finance application.
Want to know more about this token and the Decentralized Finance app? The full description is in the following article.
What Is DeFi and How Does It Work?
In general, Decentralized Finance is a blockchain-based financial application ecosystem that can operate without a central authority such as banks/institutions and other financial institutions and this is where the development of digital technology plays an important role.
The workings of this technology started with the development of various Decentralized Finance applications which basically started with the invention of the Ethereum blockchain with smart contract technology—a term for computer programs written on the Ethereum blockchain.
When a certain condition stated in the program is met, the smart contract will execute the programmed command automatically, both for the transfer of tokens between Ethereum addresses and for carrying out other types of transactions.
Through this smart contract technology, the Ethereum blockchain gives birth to a more complex level of programming, giving developers the freedom to experiment with their own code, and create applications known as Decentralized Applications (DApps). Basically, Decentralized Finance is a DApps focused on making traditional financial services decentralized.
Advantages of Dealing with DeFi
Transactions through digital financial technology have several advantages, including:
- Transactions made can be more efficient, flexible, secure, and processed automatically than traditional financial systems in general.
- Decentralized Finance also eliminates the distinction between ordinary customers and wealthy individuals or institutions who have access to more financial products.
- Anyone can join the Decentralized Finance loan pool and lend money to others.
Requirements for a Token to Run on the Decentralized Finance Application
So, what are the conditions that must be met by a token to be able to run in this application? Here is the review.
This token runs in a software protocol consisting of programmed smart contracts, in the sense that these smart contracts will describe the features and functions of the token, including its rules, in a pre-programmed computer language.
No Permission Required
The inclusive nature of this token is part of a decentralized system. In a sense, anyone can get it without requiring certain permissions.
No Need for Trust
The presence of this smart contract feature not only allows transactions without a third party, but also makes transactions between parties who do not know each other possible. Therefore, here there is no need to trust each other to execute transactions using the token.
Running on the blockchain, every transaction of this token will still be recorded in a published ledger. This is what makes the Decentralized Finance token an asset that is transparent in carrying out its functions.
List of Popular Tokens in Decentralized Finance Application
These are some of the popular tokens that can run on the Decentralized Finance app.
With a supply of up to 16 million coins, this token serves to run the lending and borrowing protocol on its blockchain platform.
It is a derivative protocol supported by the native SNX token or Synthetix Network Token. That is, the platform issues synthetic assets that can be transacted.
These assets will be guaranteed by SNX which can be locked in a smart contract protocol. When locked, the protocol can issue Synths, the synthetic assets in question.
The scheme was created to solve liquidity problems on decentralized exchanges. The total supply of SNX has now reached 190 million tokens.
With a total token supply of 1 billion, Uniswap is one of the leaders in decentralized exchange services in Decentralized Finance. You can earn UNI, Uniswap’s token by providing liquidity in certain pools.
SUSHI tokens from Sushiswap currently total 250 million. Those of you who like to grow crops and can get SUSHI by becoming a liquidity provider. You can also do staking at the Omakase Bar so you can get a protocol fee. Meanwhile, SUSHI holders have voting rights to determine the next obsen partner and other projects.
Benefits of Using the Decentralized Finance Application
The following are the benefits that can be obtained when using the Decentralized Finance application:
- Easy access to financial services for anyoneIn the traditional financial system, the presence of an intermediary institution, such as a bank, is important to generate profits. This makes financial services not always accessible to all levels of society, especially for those with low incomes.However, with the presence of Decentralized Finance, the cost of using financial services will be drastically reduced and it will then open access for all levels of society to take advantage of financial services.
- The realization of financial inclusionBasically, financial inclusion is a condition that allows anyone to have access to take advantage of financial products or services.
This is important because financial inclusion has been proven to be able to help people get out of poverty, reduce social inequality, and encourage economic growth.
How to Use the Decentralized Finance Application
The steps for using Decentralized Finance are as follows:
- You must have an Ethereum wallet that can interact with dApps, such as MetaMask.
- Next, you must have sufficient ETH in the wallet so that you can transact on the Decentralized Finance protocol that you want to use
- Given that currently most of the DeFi protocols are built on top of the Ethereum blockchain, you will have to buy ETH or ERC20 coins to use them.
- Study the application you want to use first before you buy tokens and make transactions in that application.