Assets, Bitcoin

How Is DeFi Different From Bitcoin?

Decentralized finance—better known as “DeFi”—refers to the shift from traditional, centralized financial systems to peer-to-peer finance enabled by decentralized technologies built on the Ethereum blockchain. From lending and borrowing platforms to stablecoins and tokenized BTC, the DeFi ecosystem has launched an expansive network of integrated protocols and financial instruments.

Now with over $13 billion worth of value locked in Ethereum smart contracts, decentralized finance has emerged as the most active sector in the blockchain space, with a wide range of use cases for individuals, developers, and institutions.

Whereas Bitcoin is a decentralized store of value and medium of exchange, DeFi is about turning Ethereum into a programmable money platform—enabling anyone to access financial services that were previously only available through centralized intermediaries. By deploying immutable smart contracts on Ethereum, DeFi developers can launch protocols and platforms that run exactly as programmed and that are available to anyone with an Internet connection.

The breakthrough of DeFi is that crypto assets can now be put to use in ways not possible with fiat or “real world” assets. Decentralized exchanges, synthetic assets, and flash loans are completely novel applications that can only exist on blockchains.

This paradigm shift in financial infrastructure presents a number of advantages with regard to risk, trust, opportunity, and inclusion.

NOTE: WARNING: DeFi and Bitcoin are both cryptocurrencies, but they are not the same. DeFi is built on decentralized protocols, meaning that it is not controlled by a single entity or institution. Bitcoin, on the other hand, is based on a centralized system and is managed by a single entity or institution. Furthermore, DeFi offers more functionality than Bitcoin, such as lending and borrowing services, derivatives trading, and automated market makers. Therefore, it is important to understand the differences between them before investing in either of them.

From DAOs to synthetic assets, decentralized finance protocols have unlocked a world of new economic activity and opportunity for users across the globe. The comprehensive list of applications below is proof that DeFi is much more than an emerging ecosystem of projects.

Rather, it’s a wholesale and integrated effort to build a parallel financial system on Ethereum that rivals centralized services because it is profoundly more accessible, resilient, and transparent.

Asset management:
Compound: Compound is an algorithmic money market protocol built on Ethereum that enables users to earn interest on their crypto assets or borrow assets against collateral. Rather than having to go through a centralized lending platform like Celsius Network or Nexo, users can now interact directly with smart contracts to deposit or borrow crypto funds at variable interest rates set by the protocol. Maker: Maker is a decentralized autonomous organization (DAO) on Ethereum that backs and stabilizes the value of the Dai stablecoin through a system of Collateralized Debt Positions (CDPs), risk management incentives, and smart contracts. Users can lock up ETH or other ERC20 tokens as collateral in a CDP to generate Dai, which is pegged to the US dollar at a 1:1 ratio. They can then use Dai to trade or pay fees without having to convert back into ETH or worry about volatility.
Synthetix: Synthetix is a synthetic asset platform that allows users to trade cryptocurrency exposure without actually owning any coins.

Using Synthetix’s synthetic assets (synths), which are backed by collateralized debt positions (CDPs), users can get exposure to price movements in BTC, ETH, gold, silver, oil, and a number of other fiat currencies and commodities without having to actually own any of those underlying assets. This opens up new opportunities for hedging and speculation as well as lending and borrowing against synths using Synthetix’s decentralized exchange (Dex).
Uniswap: Uniswap is a protocol for automated liquidity provision on Ethereum that makes it easy for anyone to trade ERC20 tokens without having to go through a centralized exchange like Binance or Coinbase Pro. Using Uniswap’s interface, users can swap between any two ERC20 tokens in just a few clicks—and all they need is some ETH for gas fees. In addition to providing liquidity for token trades, Uniswap also enables developers to launch their own decentralized exchanges (DEXes) for any ERC20 token using its factory contract. .

These are just some examples for how DeFi differentiates itself from Bitcoin – while Bitcoin focuses on being a store of value and medium of exchange, DeFi focuses on turning Ethereum into a programmable money platform with many applications that were previously only available through centralized intermediaries. With over $13 billion worth of value locked in Ethereum smart contracts, decentralized finance has emerged as the most active sector in the blockchain space – presenting numerous advantages with regard to risk trust opportunity inclusion when compared against traditional fiat financial systems.

10 Related Question Answers Found

What Is Bitcoin DeFi?

Decentralized finance, often called DeFi, is a catch-all term for financial applications built on Ethereum that aim to provide users with the same kinds of services available through traditional centralized institutions, but without the need for a middleman. Bitcoin DeFi is a term used to describe decentralized finance applications that run on top of the Bitcoin blockchain. While there are not as many Bitcoin DeFi projects as there are those built on Ethereum, the number of projects is growing, and they offer a wide range of services, from lending and borrowing platforms to stablecoins and tokenized BTC.

What Is DeFi Bitcoin?

Decentralized finance, or “DeFi,” is a burgeoning ecosystem of financial protocols built on Ethereum that lets users do everything from lending and borrowing crypto to earning interest on their digital assets. While DeFi protocols have been around for a few years, they exploded in popularity in 2020 as the value of Ethereum (ETH) surged and more users began flocking to the space in search of yield. So what exactly is DeFi?

Is Crypto Different From Bitcoin?

When it comes to Bitcoin and cryptocurrency, there is a lot of confusion and misunderstanding. People often think that Bitcoin and cryptocurrency are one in the same, when in reality they are two very different things. So, what is the difference between Bitcoin and cryptocurrency?

Why Is Bitcoin Different From Other Cryptocurrencies?

Bitcoin is the first and most well-known cryptocurrency, but there are many other cryptocurrencies out there. So what makes Bitcoin different from all the others? For one, Bitcoin is the most widely adopted cryptocurrency.

What Is Bitcoin in Layman's Terms?

Bitcoin is a decentralized digital currency, without a central bank or single administrator, that can be sent from user to user on the peer-to-peer bitcoin network without the need for intermediaries. Transactions are verified by network nodes through cryptography and recorded in a public distributed ledger called a blockchain. Bitcoin is unique in that there are a finite number of them: 21 million.

What Is Bitcoin and Cryptocurrency in Simple Words?

What Is Bitcoin and Cryptocurrency? Cryptocurrency is a type of digital asset that uses cryptography to secure its transactions and to control the creation of new units. Cryptocurrencies are decentralized, meaning they are not subject to government or financial institution control.

Is Bitcoin Better Than Stocks?

When it comes to investing, there are a lot of options to choose from. But if you’re looking for something with the potential to give you a good return on your investment, you may be wondering if Bitcoin is better than stocks. There are a few things to consider when making this decision.

What Is the Difference Between Bitcoin and Other Cryptocurrencies?

Bitcoin is the first and most well-known cryptocurrency, but it is not the only one. Cryptocurrencies are a type of digital or virtual currency that uses cryptography for security. A key feature of cryptocurrencies is that they are decentralized, meaning they are not subject to government or financial institution control.

What Is Bitcoin in Layman Terms?

Bitcoin is a digital asset and a payment system invented by Satoshi Nakamoto. Transactions are verified by network nodes through cryptography and recorded in a public dispersed ledger called a blockchain. Bitcoin is unique in that there are a finite number of them: 21 million.

What Is Bitcoin in Very Simple Terms?

Bitcoin is a decentralized digital currency, without a central bank or single administrator, that can be sent from user to user on the peer-to-peer bitcoin network without the need for intermediaries. Transactions are verified by network nodes through cryptography and recorded in a public distributed ledger called a blockchain. Bitcoin is unique in that there are a finite number of them: 21 million.
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