Decentralized Lending

Decentralized lending refers to the process of matching borrowers and lenders through decentralized lending protocols, followed by immediate asset transfer and loan completion upon collateral confirmation. These protocols provide a standardized and interoperable technical foundation for platforms and play a role in security management during the lending process. Compared to traditional lending models, decentralized lending has the following characteristics:

1. The merger of fiat and digital asset lending (stablecoin models can be considered a combination of fiat and digital assets).
2. Collateralization based on digital assets.
3. Instant transaction settlement achieved through automation, reducing actual costs.
4. Use of over-collateralization instead of credit checks, serving a broader range of users who may not have access to traditional services. Typical decentralized lending platforms include COMPOUND and MAKERDAO.

DEX – Spot and Derivatives

DEX, or Decentralized Exchange, currently can be divided into hybrid DEXs and fully decentralized DEXs. Hybrid DEXs have a relatively lower degree of decentralization. They usually combine blockchain with traditional servers, where only the trade clearing and settlement records are on the blockchain, and order matching is done off-chain through servers or relays to enhance efficiency. Hybrid DEXs have significantly improved trading efficiency, but the user experience is not much different from traditional exchanges. Fully decentralized DEXs in the industry mainstream currently include order book and Automated Market Maker (AMM) models.

Decentralized Insurance

Decentralized insurance refers to insurance protocols based on immutable and automatically enforced smart contracts, primarily offering risk protection for common risk events in the digital asset market.

Based on the main trading products, DEXs can also be categorized into spot DEXs and derivatives DEXs. Currently, mainstream spot DEXs include Uniswap and Sushiswap, while derivatives DEXs include dYdX.

The biggest difference between decentralized finance and traditional centralized finance is its reliance on centralized institutions to address financial issues. It equitably solves lending, collateral, and other financial services. As there is no third-party intervention, DeFi is accessible to all and is more inclusive. In DeFi, the code acts as the law; all transactions are completed through smart contracts, executed without legal or institutional judgment, and are therefore more efficient, transparent, and fair.

The rise of DeFi applications initially took place on the Ethereum public chain. Since June 2020, DeFi has grown explosively, and DeFi concept coins have emerged as a new hotspot beyond mainstream cryptocurrencies.

As a new phenomenon, decentralized finance is not without risks, such as smart contract vulnerabilities leading to asset theft by hackers and investment risks due to price fluctuations in crypto-assets used for borrowing. DeFi represents a pathway for the free exchange of wealth, and although its development trend has had its ups and downs, it continues to rise. Not only are decentralized platforms developing DeFi, but some centralized exchanges have also launched their own public chains and DeFi projects. The DeFi ecosystem is flourishing widely.