The use-cases of decentralized finance, the existing DeFi protocols and their applications, and how can you access DeFi coins.
Decentralized Finance, also known as DeFi, is booming along with cryptocurrencies. It is a peer-to-peer financial system powered by blockchain technology. The total value locked in the DeFi system was around USD 700 million in 2020 and it has crossed USD 51 billion as of April 2021.
In the blockchain technology space, DeFi has emerged as the trending sector with several use cases in the financial sector. It has the potential to shift the whole financial system from traditional centralized systems to peer-to-peer finance empowered by decentralized technologies. We will explore the wide range of applications and use cases of DeFi in this article.
Use cases for DeFi Protocols
DeFi protocols have opened a world of new economic activity for users across the world. DeFi is much more than an emerging ecosystem of projects by considering numerous use cases of it. It can compete with the existing centralized financial system by creating a parallel financial system on decentralized blockchain networks. This is because, DeFi is more accessible, transparent and resilient compared to the current structure of financial ecosystem. Some of the use cases of DeFi are listed below.
You are the custodian of your own assets in the DeFi world. Custodian crypto wallets like MetaMask will help you buy, sell, and transfer crypto easily and securely with decentralized applications. Asset management is made easy with DeFi protocols. You own your data like seed phrase, passwords, and private keys instead of depending on a third-party. All of your information is stored in an encrypted format where only you have access.
DAOs or Decentralized Autonomous Organizations operate based on the transparent rules coded on the Ethereum blockchain network. They eliminate the need for a centralized entity. Various popular DeFi protocols like Maker and Compound have initiated DAOs to raise funds and manage financial operations.
Decentralized Exchanges (DEXs) allow peer-to-peer transactions without a central authority. They are secure and reduce the risk of price manipulation, hacking and theft because they are not in the custody of an exchange. Decentralized exchanges also give liquidity to token projects, competing with centralized crypto exchanges. Popular DEXs are Uniswap and SushiSwap.
Tokenization is the foundation of DeFi. It is also a native functionality of Ethereum blockchain. Tokens are digital assets that are created and managed on a blockchain network, designed to be quickly transferable and secure. By having many built-in functionalities, Ethereum-based tokens have emerged as alternative digital assets for users to trade and store value, unlocking a wide range of economic possibilities.
Stablecoins are cryptocurrencies that are pinned to a stable asset like fiat currencies or gold. They were originally developed to decrease the volatility of cryptocurrencies and make them a possible payment solution. Nowadays, stablecoins are implemented in the DeFi space to enable remittance payments, lending and borrowing platforms, and institutional use cases like Central Bank Digital Currencies (CBDCs).
Prediction markets are also built on the blockchain network. They utilize the wisdom of crowds and allow users to vote and trade on the outcome of events. A popular DeFi betting platform, Augur features prediction markets for events like elections, sports and economic events.
Peer-to-peer payments are the foundational use case of DeFi protocols. This underlying technology blockchain is constructed to transact cryptocurrency securely and directly without any third-party. DeFi payment solutions have created a more open economic system for the unbanked population. They are also helping large financial institutions in streamlining the market.
DeFi Protocols on XanPool
Users can get access to various DeFi protocols by using XanPool’s cryptocurrency payment gateway. The DeFi protocols available on XanPool are:
Aave DeFi protocol is a decentralized lending protocol. It helps users to lend or borrow cryptocurrency without using a centralized intermediary. When users lend cryptocurrency, they can earn an interest rate and those who borrow will pay.
This protocol uses a DAO (Decentralized Autonomous Organization) and it is completely operated by the people holding onto AAVE coins. It is built on the Ethereum network. To process transactions, all the tokens also use the Ethereum blockchain. XanPool enables users to buy AAVE tokens on its platform via local payment methods.
Chainlink is generally a decentralized oracle network. It provides information and real-world data to on-chain smart contracts on the blockchain network via oracles. Chainlink oracles are used for digital security, asset management, supply chain, etc.
The native token of Chainlink is called LINK. Though it has been trading since 2017, there has been a significant growth in 2020. LINK has now managed to be one of the top 10 cryptocurrencies consistently. Users can own this popular DeFi coin on the XanPool platform.
Sushiswap is a decentralized exchange, categorized as an Automated Market Maker (AMM). There is no central authority in this DeFi protocol to manage the trade. It automatically sets prices by using mathematical formulas. This DeFi protocol uses smart contracts to process trades. SUSHI is the native cryptocurrency token of Sushiswap. This exchange allows anyone to swap cryptocurrency. A user of XanPool can buy SUSHI from the cryptocurrency gateway.
USDT or Tether is a stablecoin cryptocurrency that is pinned or tethered to the US dollar. This cryptocurrency was released through the Omni protocol on the Bitcoin blockchain network. It was created to solve three major issues which are to help national currency transfers, reduce the volatility of Bitcoin, and to provide another checking option.
XanPool allows users to buy and sell DeFi tokens with local payment methods easily. This unique fiat-to-cryptocurrency gateway is available in multiple countries such as India, Hong Kong, Malaysia, Indonesia, Philippines, Singapore.