Protocol Possibilities are Endless
What a rollercoaster week we have had. Huge profit taking, shaking the weak hands across most major markets and with no signs of the big buyers stepping down. TVL across the DeFi ecosystem continues its parabolic run with $6.75 billion now at stake – unreal. Each day the fundamentals of this industry grow stronger – however it is not without risks and I suggest always doing your own research before diving into anything you don’t fully understand.
What is a Smart Contract?
To begin exploring the various value chains in this DeFi ecosystem we need to understand smart contracts, arguably the most crucial moving part. A smart contract serves the same purpose and is structured the same as its traditional paper-backed cousin. Smart contracts are the digitized, coded version. Smart Contracts function on a simple “if-then” basis and possess the ability to hold assets in escrow, stipulate terms and conditions and act as intermediaries facilitating the transfer of assets between two parties. Smart Contracts are self-governed, highly programmable and function in a trustless system.
Smart Contracts execute and deliver their expected outputs based on their respective inputs, terms and conditions coded into the contract. The quality and completeness of each transaction is verified in a decentralized manner and remains transparent and traceable on the blockchain.
Smart Contracts are the fuel powering the protocols. Let’s look at two of my favourites, a brief overview of how they work and the value that lies waiting beneath their surface!
Lending a helping hand
Aave, a lending protocol allows anyone with access to the internet the ability to earn interest and borrow assets against collateral. Aave is non-custodial and supports deposits ranging from your more traditional and older cryptocurrencies such as Ether to newer coins such as Link and stable coins such as DAI and USDT. Interest is earned in the deposit currency.
Maker, also falling into the lending category but with slight differentiating factors when compared to Aave. Maker supports the collateralization of less cryptocurrencies, mainly Ether and Basic Attention Token, however interest is earned in DAI, a stablecoin pegged to the value of the US Dollar – instead of earning interest in the original deposit currency.
We’re making progress and making history and the doors are slowly opening. Next piece will see us exploring the re-invented financial pillars now living in the DeFi ecosystem as well as some risks involved with the industry.