DeFi Book

What is DeFi

December 5, 2021November 8, 2023 DeFiBook

DeFi book describes DeFi as short for Decentralized Finance. DeFi combines blockchain technologies with smart contracts to create a novel financial ecosystem. This new ecosystem replicates and complements many existing financial services and products. It also enables a completely new set of innovative services and products that are available to anyone, anywhere, at anytime!

Blockchain and smart contracts. — **Blockchain and Smart Contracts**.

In DeFi, participation is permissionless, and anyone is free to join. Anyone can also issue new tokens and trade them as they wish. These tokens can represent anything from currencies, properties, special rights or accesses, artwork, or any asset class, whether physical or digital.

What are Decentralized Exchanges

March 27, 2023November 8, 2023 DeFiBook

A Decentralized Exchange (DEX) is a service that allows participants to list and exchange assets directly and openly. DEXs are implemented on-chain using smart-contracts. Using these decentralized applications (DApps) it is possible to list, buy, and sell any type of asset, including cryptocurrencies, stocks, or any other type of securities.

Exchanges can be broadly classified into two categories:

Order book exchanges: An order book exchange is a type of exchange that operates by matching buyers and sellers based on their orders. Buyers place orders to buy an asset at a specific price, and sellers place orders to sell an asset at a specific price. The exchange matches the orders and executes the trade when the bid and ask prices cross (i.e., a buyer is willing to pay at least the same price as a seller is willing to sell). Examples of order book exchanges include traditional stock exchanges like the New York Stock Exchange (NYSE) and cryptocurrency exchanges like Coinbase and Binance.

Order book-based exchange keeps selling and buying orders books and matches these to generate trades when prices cross.

Automated Market Makers (AMMs): Automated Market Makers are a type of exchange that operates using algorithms to automatically set the prices of assets based on supply and demand. AMMs do not use an order book to match buyers and sellers. Instead, they use a simple algorithm to calculate the price of an asset based on the amount of it that is being bought and sold. Examples of AMMs include UniSwap and SushiSwap in the cryptocurrency space.

DeFi Book Automatic Market Maker — Automatic Market Makers have two pools of assets (A and B) that are balanced via a constant k ratio.

What is Web3

January 18, 2022February 1, 2023 DeFiBook

Web3 can refer to a set of technologies, services, or concepts that cross multiple levels of abstraction; therefore, its meaning can vary widely depending on who you talk to.

At the basic level, Web3 refers to a standard and its libraries. These enable the interaction between applications and smart contracts and blockchains (e.g., web3.js, ether.js, etc.).

DeFi Book - Web3 Log in — **Authentication methods for Web 1.0, 2.0, and 3.**

At the next level, Web3 can refer to applications that the foundational standard enables (e.g., MetaMask, UniSwap, AAVE, OpenSea, etc.).

What is Crypto

January 20, 2022December 21, 2022 DeFiBook

Crypto is short for cryptography. Recently, the scope of its meaning has expanded to include a broader range of definitions. These meanings can include basic cryptographic concepts or an entire ecosystem of crypto-enabled technologies, enterprises, and communities.

DeFi Book - Blockchain — **Proof of Work Blockchain using hashes and signed transactions.**

Cryptography is a multidisciplinary field that is focused on securing and validating information. It borrows and applies concepts from mathematics, computer science, electrical engineering, and physics.

What are NFTs

May 30, 2022December 21, 2022 DeFiBook

The acronym NFTs refers to Non-Fungible-Tokens. NFTs represent unique assets with properties that are not replaceable. These tokens contrast with Fungible Tokens that can be easily interchanged with another equal or similar asset (e.g., a cryptocurrency).

DeFi Book NTFs Assets Web3 — **Smartcontract** Tokenizing Assets and with Web3 Interfaces

NFTs became popularized with digital art projects like CryptoKitties (2017), CryptoPunks (2017), Bored Ape Yacht Club (2021), and the record-setting Beeple’s artwork Everydays (2021) that sold for 69 million dollars.

What is Staking

May 27, 2022December 21, 2022 DeFiBook

In crypto, the meaning of staking describes the action of locking tokens with the expectation of earning returns.

DeFi Book - Staking — Multiple Uses for Staking Tokens in DeFi

There are two fundamentally different forms of staking tokens:

In one form, the tokens are put to work and are at risk (e.g., as collateral for a particular activity, such as Proof-of-Stake (PoS), lending, etc.).
In other forms, tokens are simply removed from circulation (e.g., to enable the token’s price to appreciate due to reduced supply).

What is an Oracle

September 21, 2023November 8, 2023 DeFiBook

In DeFi, an oracle can refer to a smart contract that stores real-world data, such as asset prices, exchange rates, sports scores, weather data, etc. Alternatively, an oracle can also refer to an entire ecosystem and associated services that bridge data between on-chain and off-chain.

DeFi Boo - Oracle. — Oracle bridging data from off-chain into on-chain.

Oracles are an important part of decentralized finance because they enable smart contracts and dApps to make informed decisions and execute actions based on real-world information.

What are Stablecoins

July 16, 2022December 21, 2022 DeFiBook

Stablecoins are tokens that are designed to keep their price parity with another asset. For example, a token pegged to the US Dollar at a 1:1 ratio should always be interchanged for the same amount in USD Dollars.

Stablecoins maintain their exchange rate constant.

In the crypto, the main advantage of stablecoins is the reduction of price volatility that is typical associated with crypto-currencies (e.g. Bitcoin, Ethereum, etc.). Keeping the price stable is especially important when establishing contracts that pay for services or/and goods at a future date. It is also important to be able to accurately perform accounting, budgeting, and paying taxes in a predictable manner.

What are Tokenomics

January 14, 2022December 21, 2022 DeFiBook

Tokens are the foundational units that enable DeFi. They can represent anything from a currency, deeds to a property, memberships, or certain rights (e.g., voting).

In DeFi, Tokens are typically issued, distributed, and managed with several deliberate properties to incentivize specific outcomes. These properties may include:

One example of a token distribution to incentivize the development of a project and establish a community may have a distribution similar to:

DeFi - Token Distribution — **Example Token Distribution**

In this token distribution example, there is a strong focus on development and marketing. It is also assumed that the project will have a pre-launch sales to reward earlier proponents.

What is a Crypto Bridge

December 20, 2022December 21, 2022 DeFiBook

A crypto bridge is a technology that enables users to transfer digital assets from one blockchain to another.

Crypto bridges are often used to enable interoperability between different blockchain networks, allowing users to take advantage of each platform’s unique features and benefits.

These features or benefits can include: lower transaction fees, faster settlement times, richer sets of dApps that can interoperate together, assets only available on particular chains, increased liquidity, higher security or stability, etc.

Centralized vs Decentralized

January 13, 2022June 29, 2022 DeFiBook

In DeFi, decentralization refers to participants engaging directly without needing a centralized coordinator or intermediary. This type of participation contrasts with centralized approaches where interactions must involve a single or a small number of entities.

What does Decentralized mean in the context of DeFi? — **Centralized vs Decentralized in DeFi**.

The primary objective of such systems is to prevent a single or a small number of points of manipulation, censorship, authority, corruption, or destruction.

Open vs Closed Source Code

June 29, 2022December 21, 2022 DeFiBook

One important aspect of the Crypto and DeFi ecosystem is the availability of source code in a free and open way.

DeFi Open Source vs Closed Source — DeFi Open vs Closed Source

An open-source project allows everyone to inspect and validate that the code will perform its intended purpose. Furthermore, being free allows anyone to copy, modify, or run as they wish. This also enables anyone to fork the project and steer it as they see fit.

Top 10 Crypto Misconceptions

June 28, 2022September 26, 2023 DeFiBook

This article debunks a number of common misconceptions that exist in relation to crypto and blockchain, including: