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The New Era of Investment “LIQUIDITY”, “DEX”, “DeFi”

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The New Era of Investment “LIQUIDITY”, “DEX”, “DeFi”

Dex and The Liquidity Pool

Table of Contents

The New Era of Investment “LIQUIDITY”, “DEX”, “DeFi”

The rise of blockchain technology has divided the exchanges into two types. And these exchanges have their own pros and cons in the financial economy. In order to understand the difference between a centralized and decentralized exchange hereby is the brief scope of what they really mean.

Why Do We Need a Refine for Financial System?

 

DeFi essentially represents a broad category of financial platforms built on public blockchains. It refines and reverses the traditional financial system completely. 

 

Combines protocols, tokens, and smart contracts to provide financial accessibility to individuals, (mostly) without the need for traditional banking channels. Some of the services currently offered in the DeFi space include exchange, payment processing, funds, and lending/borrowing.

 

Centralized exchanges (CEXs) are a type of cryptocurrency exchange that is operated by a company that owns it in a centralized manner. On the other hand, decentralized exchanges (DEXs) are executed on the blockchain (distributed ledger) technology. 

 

In this way, DEX does not hold customers’ funds, positions, or information and only routes the orders of trading to a matching layer.

 

What exactly is the part of CEX causing the dissatisfaction that led to the development of DEX? From the forum Centralized Exchange (CEX) – Old-Fashioned But Still Strong has its own contradiction in its narration.

The centralized exchange also forces traders to deposit funds in the exchange. This makes it easier for exchanges to manage funds in bulk, but the customer has no control over their funds. The customers may not be able to withdraw when they want to, or may not even receive their assets when the exchange is hacked.

They further say that transactions on DEXs are slower, but it comes with blockchain on the backend with a stronger security system, granting authoritativeness to the owners, and it is a peer-to-peer operation.

Key differences:

Centralized Exchange

– Depositing fiat money (debit/credit) or cryptocurrencies.

– Giving up control over that amount of currency.

– Do not own the private key to the money.

– Work on an order book and the transactions are done using the exchange’s own database.

– Faster and no delays.

– Comes at the price of independence: you have to trust the exchange with your money.

Decentralized Exchange

– Invest in cryptocurrencies.

– Owns the private key to the cryptocurrencies.

– Full control of your money.

– Executes on the blockchain with smart contracts.

– Manageable on every transaction and depositing amount.

– Comes at the price of dependence: non-custodian, flexibility, and traceability.

Borrowing and Swapping Currencies  (DEX)

 

Let’s talk about in real life situation when you needed to borrow some money from someone you know, first you have to know if he or she has the amount or the currency that you want with them or not.

 

If the lender does not have that amount of money or specific currency you need this situation equals to the lacking of liquidity.

 

In fact it is similar to the decentralized exchange where, this exchange is well known in the title “swap” hence the swap protocol on many DeFi platforms for example Uniswap, PancakeSwap, SushiSwap, etc.

 

The sub-section of DEX is swapping which originally occurred on the Ethereum chain. It allows users to seamlessly exchange or swap tokens in hosted pools and offers yield farming incentives to liquidity providers.

 

This is the advantage of practicing decentralized exchange in cryptocurrency where users do not have to worry about the liquidity of the currency in which they need for an exchange. The currencies are stored on the respective pool and blockchain of each platform ready to be used in the exchange activities.

 

Usually, users are attracted to be the liquidity provider with beneficial returns. By providing the cryptocurrencies to the pool users “sell” the currency they own and receive yield as a return. 

 

In the exchange under a decentralized network, users are able to swap the pairs of tokens supported in the specific chain (e.i. ERC-20: DAI for ETH). The key benefit of swapping in DeFi is that it is noncustodial. 

 

The assets can be customized in a smart contract with the rights of asset owners that can be exercised at any time and is only complete when the exchange conditions are agreed to and met by all parties. If any condition is not met, the entire transaction is canceled.

Yield farmers are incentivized for provisioning liquidity or providing other value-added services to a decentralized application’s ecosystem. Yield farmers are paid with pro-rate in native governance token, granting the user a higher Annual Percentage Yield (APY) on their provisioned liquidity.

Summary

 

DEX and the liquidity pool share their relationship on the DeFi system and cannot stand alone. It probably is the new way to get involve in the decentralized finance investment to harvest income passively with an interesting return rate.

 

Lastly, SIX Network is about to launch the newest, biggest project ever on the DeFi space wherein this hour no one hasn’t heard off. SIX wanted to emphasize and encourage everyone to trade with the advancement of knowledge material and with confidence. 

 

Our participation in recreating the DeFi platform for the decentralized exchange and investing fund is the mission to help investors whether beginning or expert level to trade on our platform without the hassles with the help of experts.

Come back for more promising announcements and updates.

Stay tuned with us on these channels.

Napathsorn Unchit
Napathsorn Unchit

Passionate about financial world and is an inverstor too! Giving out news update and blog post every month.
Visit us at SIX Network for more.

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Decentralized Finance (DeFi), Will it be the End of Banks?

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Decentralized Finance (DeFi), Will it be the End of Banks?

Cover Post #4

Table of Contents

Overall, blockchain is an adapted space for Decentralized Finance (DeFi), the new trusted “bank”, that was recently fledgling but provides an evoking value

 

proposition through which individuals and organizations apply the broader use of financial applications without the need for a trusted intermediary.

 

Myra: “Be can you explain to me the scope of DeFi?”

 

Be: “Yeah, yeah sure what do you want to know?”

 

This is the first simple conversation where I opened up to Be, Mr. Thanakorn Jiravettaworn – Business Development Manager/Project Manager, on one evening when I was struggling on the topic I have to study for myself.

Purpose of DeFi and Its Benefits to Evoke the Business

 

Blockchain is truly a new innovation that evokes the crypto businesses and expanded their ability to apply its property to other transmissions other than monetary transactions.

 

DeFi is purposeful to decentralized core traditional financial use cases from the past.

 

The permissionless Decentralized Applications (DApps) can be used for financial services like trading, lending, investment, payment, and insurance on the blockchain. 

 

By running the blockchain in DApps it allows a peer-to-peer network with no intermediaries involved.

“DeFi or decentralized finance is the new space that is made for expanding the usability of blockchain allow individuals to make financial services just like traditional banking, but minus the bank.”

Napathsorn U., Writer, and Content Marketer

The application on DeFi offers customers complete control over their money without mediators; there was no involvement from a third party to examine or evaluate; all decisions are made based on customers and predetermined conditions so is this the end of the bank yet?

 

Currently, the largest functions of DeFi are:

1. Creating monetary banking services such as stablecoin. Stablecoins peg on cryptocurrencies to non-crypto currencies, such as the U.S. dollar, aiming to bring price stability.

 

In fact, cryptocurrencies are sensitive and new consumers of the market might have to face a sharper price fluctuation than fiat.

 

2. Peer-to-peer lending and borrowing platform. It is popular among lenders to connect with borrowers of cryptocurrencies. Users can make money from interest for lending out their money. The Compound algorithmically is set for the interest rates.

 

3. Advance financial instruments such as DEX, tokenization platform, derivatives, and prediction markets. For Decentralized Exchange (DEX) is proposed for exchanging currencies from U.S. dollar to bitcoin or ether for DAI.

 

Prediction markets are more precise than the traditional polling method. It runs on Ethereum where users bet on an outcome of some event to make a profit out of it. For example the U.S. election.

These are the key points where DeFi-based applications can deliver such service at a lower cost and direct to the customer. Another selling point is that it is online 24/7 and can work immediately around the world, which is truly open finance.

Who is Suitable for DeFi and What Consent Trust Do Users Rely On?

 

Myra: “Have you ever lend someone money, and how did you keep the contract?”

 

Be: “Of course I’ve done that, trusting one another is the key promise.”

 

Myra: “Wow, no contract signed?”

 

I was a little concerned how Be have lent money to someone with the solid reason that he trusts the person and will not ditch away.

 

In traditional unsecured lending, there is a legal obligation that lenders and borrowers know the identity of each other and that the lender assesses the borrower to repay the debt.

 

There are no such conditions in DeFi. Instead, it is all about mutual trust and privacy preservation.

 

Furthermore, concerning KYC/AML enforcement criteria, regulators could find the censorship-resistant products and services offered in DeFi systems problematic.

In the narrow sense of DeFi, censorship is inconsistent, since the user is the custodian of the assets and DeFi is about financial transactions, which usually encourage especially lending activities and not allowed for non-licensed entities.

 

With more and more interest from banks and fintech companies in providing DeFi, it will not be similar to the DeFi as of Ethereum. Possibly, KYC/AML will be regulated if financial institutions want to provide DeFi.

 

The answer is DeFi is open for everyone, since it is still in the early phase of innovation regulators must weigh their thoughts between stifling or failing to protect them from the risks, as individuals must be putting their money into unregulated space.

 

Often time they find themselves not fitting within the existing frameworks.

“I just heard of the decentralized finance in 1–2 years gap, I think it is a good idea to try and push this to work in real life,” said Be.

The Disruption Begin(?)

The revolution in transforming financial technology started with bitcoin 11 years ago. DeFi is based built on the Ethereum blockchain network.

 

Cryptocurrency trading on decentralized exchanges (DEX) such as Uniswap is one sector in which these decentralized apps have begun. These are purely peer-to-peer, without the network being supplied by any business or other organization.

 

Several high-street financial institutions are starting to embrace DeFi and are searching for ways to get involved. For instance, JP Morgan, ANZ, and Royal Bank of Canada, 75 of the world’s major banks are exploring blockchain technology to speed up payments.

 

With the curiosity I have I start questioning Be again if he thinks that DeFi will be the upcoming trend in the next coming year. Be showed me the statistical study where it proof that DeFi has the biggest potential to be on the uptrend in 2021.

Major asset management funds are beginning to take DeFi seriously. Grayscale, the biggest crypto investment fund in the world has handled more than US$5.2 billion in crypto assets in the first half of 2020, including US$4.4 billion in bitcoin assets.

The Future of Finance

But like it or not the world is advancing every day, decentralized finance is the movement that pushes decentralized networks to perform traditional financial services into a permissionless, transparent protocol without the involvement of the third party.

 

The scalability and usability of DeFi are likely to be foreseen as the new trusted bank system. In conclusion, it may or may not be the end of the long historical banking system but I believe leveraging DeFi will improve what was there at the beginning to surpassing circumstances.

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Napathsorn Unchit
Napathsorn Unchit

Passionate about financial world and is an inverstor too! Giving out news update and blog post every month.
Visit us at SIX Network for more.

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