Protocols of Defi

Our traditional financial system provides services for deposit transfer, lending, insurance, and securities trading, Defi replicates these services with the help of smart contracts agreements and the public chain, it is not necessary that Defi exists only on the Ethereum network, there are thousands of blockchain eligible for Defi projects, but most of the Defi projects deployed over the Ethereum network due to performance and smart contract agreements, and Ethereum is the number one choice among the Defi developers.

The Defi projects can be divided into three types of ca

1. USDT and DAI
2. A lending agreement such as Aave, Compound and Makerdao
3. Liquidity agreements such as Sushiswap and Uniswap

USDT and DAI

In order to buy food and other consumable items in any part of the world, you need to have the valid, widely circulated, and most accepted currency, which is currently the U.S. dollar, a highly stable and powerful currency, all over the world people use the U.S. dollars for storage, preservation, transfer, and investment, Defi framework which is the new entry in the financial world also need a supportive currency to execute the financial transactions, Defi needs a reliable digital asset that will be recognized by the majority of the stakeholders in the Defi based projects, therefore Defi always needs a currency with value, stability, and high acceptance.

Currently, USDT and DAI are two stable currencies for the Defi based projects, the Tether company issued the USDT against the U.S. dollar at the ratio of one by one, the USDT smart contract on the Ethereum network has the pre-requirement for equivalency for one USDT to one U.S. dollar, and the users of the system can exchange USDT with USD at any time with the ratio of 1:1.

There are other stable coins like USDC and USDK that are also anchored to the US dollar, but the USDT has the largest market share in Defi and Cefi based projects, due to the stability of the price and minimum chance of fluctuation these stable currencies often serve people’s transaction and intermediaries for loan target agreements.

As compare to USDT, the DAI also the important one in Defi based projects, but its working principle is quite different, however, the DAI coins anchored to USD with the ratio of 1:1, MakerDAO which is a protocol on Defi allows you to obtain the DAI with the help of an automatic algorithm that also calculate the interest rate for the issued currency, due to DAI value anchored to USD, the lender must deposit ETH or BAT with more than 150% of the loan value, the key point here is that whenever the collateral value of any Maker loan will fall below the 150% then issued coins must be liquidated and auctioned in order to maintain the stability of the system

Lending agreements

Compound, Makerdao, and Aave are three lending platforms, supporting the lending on Defi platform, these platforms support multiple tokens like ETH, USDC, USDT, DAI, REP, WBTC, SAI, ZRX, and BAT, the lender can mortgage his crypto asset on these platforms(smart contracts), due to stipulation of contract the lender gets the interest according to the amount of crypto mortgaged asset. If the borrower wants to borrow from these platforms they also put another token for a guarantee of the loan.

Liquidity Agreement

Due to thousands of blockchain projects in the crypto world, there is a need to exchange or swap the existing token with the needed one, therefore decentralize DEX exchanges emerge like Sushiswap and Uniswap, these exchanges gives services to replace the token with other valuable tokens, DEX exchanges have the feature of the automatic market maker to show its users the diverse crypto assets prices and available stock in liquidity pool by certain algorithms, the key point here is that every relationship between prices and stocks is completely decentralized.

Source: https://medium.com/cryptocurrencies-ups-and-down/protocols-of-defi-cc9803796086?source=rss——-8—————–cryptocurrency