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DeFi or decentralized finance is the use of technology for removing the intermediates used for financial transactions. Financial transactions are a significant part of our day-to-day life, and of course, it is not new to use technology for financial services. But, the technology facilitates the transactions and does not entirely remove the need for an intermediate. Here's why Decentralized finance becomes essential because it places the technology at the center and front of transactions in financial services. Defi makes use of public blockchains and software protocols for this purpose.
Decentralized finance attempts to decentralize traditional financial services, including lending, investment, payment, trading, and wealth management. This report shall put a light on Augur, Compound finance, and Uniswap V3 and try to analyze their role in strengthening the DeFi space.
It is a decentralized exchange that enables transparent access to the market. Being community-owned, Augur is a global prediction marker protocol where anyone can create a market. It is built on Ethereum and enables the users to bet on the world's events' outcomes.
Before the launch of Augur, the prediction market was highly centralized and also confined within geographical boundaries. Those would have required the use of a trusted third party to handle the funds and verify the outcomes of the events. Here, Augur enables global participation by removing the boundaries and the need for a middle man. The smart contracts in Augur handle the funds and payouts of users.
Augur also has its native token called REP, which is currently priced at $24.14 with a market ranking of #137. Reporters stake the REP on the truthful outcome after an event, and the outcome having the most staked REP is considered to be the truthful outcome. If a user stakes the REP on a wrong outcome, then the staked tokens are again distributed among the users.
Recently, Augur v2 was launched to address the UX and market-making. It has market-making tools with improved liquidity & faster orders and mobile-focused user interfaces.
Uniswap v3 was launched on May 5th, 2021, aiming to be the powerful version of the Uniswap protocol. It offers better execution for traders, concentrated liquidity offering unprecedented capital efficiency ad superior infrastructure at DeFi. It aims to provide the increased flexibility for how the market makers provide liquidity into the protocol. Uniswap is the decentralized protocol for automated liquidity provision, and its v3 version makes the functionality of automated market makers even more efficient.
To make the functionality of AMM more efficient, the concentrated liquidity allows users to lend funds to the liquidity providers, and they define a band to trade their deposits. In the usual scenario, traders pay a small fee for each trade they make from AMM pools, and this fee is shared among all the depositors of the pools. In this case, a considerable amount of liquidity remains unused. However, Concentrated liquidity in Uniswap v3 solves this problem by allowing to lend funds to a pool called LP (Liquidity Providers).
It is a protocol for borrowing and lending cryptocurrencies and is entirely decentralized. Here, the users can lend the cryptos as collateral for borrowing the crypto assets on interest. Technically, compound finance is an algorithmic money market protocol.
Compound finance is literally ruling the Defi space since its launch because it indeed makes the process of borrowing assets and earning interests relatively straightforward. With compound finance, people can immediately earn the interests via supplying the assets to the liquidity pool. Most interestingly, the interest rates adjust according to demand and supply.
It also makes the process pretty user-friendly because you can any time repay or withdraw your collateral. With compound finance, you really do not need to deposit the money to a bank; instead, you can put it in a smart contract. In this way, intermediaries are not given control of your assets, and also, the process of depositing collateral and earning interests becomes pretty more accessible.
COMP is the governance token of the platform, which is currently priced at $386.87 after a decrease of almost 16% in 24-hours.
Defi Is indeed an industry whose infrastructure is being build-out at the moment, and the time demands to develop the DeFi space. Decentralize finance not only secure the funds but also makes it user-friendly to access financial services.