1. What is DeFi?

Introduction to DeFi Cryptocurrency

What is DeFi?

DeFi (Decentralized Finance) is a new generation of financial system that operates through smart contracts, eliminating traditional financial intermediaries such as banks and brokers, allowing users to engage directly in various financial activities, including trading, borrowing, and insurance.

Features of DeFi

1. Decentralization: DeFi removes intermediaries from traditional finance, enabling peer-to-peer financial transactions.
2. Smart Contracts: DeFi uses smart contracts to automatically execute financial transactions and agreements.
3. Transparency: DeFi offers high transparency, with all transactions and agreements recorded on the blockchain.

Common DeFi Projects

1. Aave: Aave is a decentralized lending platform that offers features like flash loans and collateral swapping.
2. Compound: Compound is a decentralized lending platform that provides dynamic interest rates and support for various assets.
3. 1inch Network: 1inch Network is a decentralized exchange (DEX) aggregator, offering enhanced liquidity and trading rates.

Risks of DeFi

1. Smart Contract Risk: There may be vulnerabilities in DeFi smart contracts that can lead to loss of funds.
2. Scam Risk: The DeFi space has various scams, such as rug pulls and airdrop frauds.
3. Regulatory Risk: The DeFi space lacks regulation, which may lead to legal and compliance issues.

Conclusion

DeFi is an emerging financial system that provides decentralized, transparent, and automated financial services. However, DeFi also entails various risks, including smart contract risks, scam risks, and regulatory risks. Investors need to assess risks carefully and conduct thorough research.

2. Who created DeFi?

DeFi (Decentralized Finance) was not created by any specific individual or organization but is a financial services concept based on blockchain technology and smart contracts. It is driven by multiple projects and communities, primarily based on blockchain platforms like Ethereum.

Although there is no specific founder, the concept of DeFi started gaining popularity in 2018 and rapidly developed in 2019 and 2020, attracting significant funding and attention. Thus, DeFi is not founded by a single person or organization but is collectively promoted by the entire cryptocurrency and blockchain community.

3. Which venture capital firms invested in DeFi?

Here are some venture capital firms and projects that have invested in DeFi cryptocurrency:

1. Dragonfly Capital: Invested in nearly 80 companies, including several DeFi projects.
2. Multicoin Capital: Invested in dForce, a decentralized finance super network.
3. Digital Currency Group: The most active crypto investment firm globally in 2019, investing in multiple DeFi projects.
4. FTX: Invested in several DeFi projects through its subsidiary investment firm Alameda Research.
5. BlockFi: Raised $50 million for its cryptocurrency lending business.
6. Polkadot: Raised approximately $43 million through an ICO for its public chain project.
7. 1inch: Secured funding for its decentralized aggregation exchange business.
8. BitDAO: Secured funding for its decentralized autonomous organization business.

These firms and projects have made significant investments in the DeFi space, propelling its development.

4. How does DeFi work?

How does DeFi cryptocurrency operate?

DeFi (Decentralized Finance) is a financial system based on blockchain technology that enables peer-to-peer (P2P) financial transactions through smart contracts, removing third-party institutions such as banks and brokers from traditional finance.

Main Features:

1. Decentralization: DeFi systems operate on multiple computer networks, using blockchain technology to store digital copies of transactions, ensuring all transactions are transparent and auditable.
2. Smart Contracts: DeFi utilises smart contracts to automatically execute financial transactions, with the terms encoded directly into the code, eliminating the need for central authority involvement.
3. Peer-to-Peer Transactions: Users can trade, borrow, invest, and lend directly, granting participants greater control over their assets.

Operational Mechanism:

1. Blockchain Foundation: DeFi applications primarily operate on the Ethereum network, leveraging blockchain technology to ensure the security of transaction records.
2. Smart Contract Execution: Smart contracts automatically execute specified financial transactions in the agreement according to the programmed code, ensuring that all participants can ascertain the results immediately.
3. Digital Wallets and Oracles: Users interact with smart contracts through digital wallets, while oracles provide off-chain or external data to ensure the proper functioning of the DeFi system.

Application Areas:

1. Trading: Decentralized exchanges (DEX) allow users to trade various virtual currencies peer-to-peer.
2. Borrowing: Users can borrow and lend directly through smart contracts, paying interest to lenders.
3. Derivatives: Providing synthetic assets, futures, options, and other derivative trading.
4. Insurance: Users can purchase insurance to mitigate losses due to hacking or technical issues.
5. Oracles: Provide off-chain or external data to ensure the proper functioning of the DeFi system.

In summary, DeFi cryptocurrency implements decentralized financial transactions through smart contracts and blockchain technology, empowering users with greater control over their assets and providing transparency.