DeFi protocols explained: its function and types | Idealogic

What are the layers of DeFi?

What are DeFi Protocols and why are they important?

The most popular DeFi protocols

  • Decentralized Exchange (DEX): a platform used for trading different currencies (national and crypto), e.g. exchanging the U.S. dollar to Bitcoin and vice versa. Like all DeFi protocols, DEX links users directly without intermediaries. The leading ones are Uniswap, Binance, and Balancer.
  • Decentralized Lending / Borrowing Platform: these networks enable market players to lend and borrow money using smart contracts, in which the terms and conditions are set before the transaction. Thus, a borrower is obligated to repay a loan by a deadline and an investor earns interest. As smart contracts execute loans, third parties are eliminated from such transactions. This makes for more favorable terms such as lower rates and no bank fees. Some popular examples are: Aave, Compound, and MakerDAO.
  • Decentralized Insurance Platform (DIP): This project emerged because of numerous cases of fraud and malfunctions during transactions. These platforms are an alternative to traditional insurance. It aims to lower users’ risk in these situations and to protect their digital assets. The terms are the same — a market player is charged for a service and provided with this insurance in case of situations like smart contracts bugs or hacker attacks. DIP offers various use-cases such as crypto wallet insurance, smart contract cover, collateral protection for crypto-backed loans, etc. Nexus Mutual, Etherisc, and VouchForMe are some leading decentralized insurance providers.
  • Decentralized Prediction Market (DPM): a platform that gathers people who are willing to buy predictions rather than products or currencies. Users can bet on future events by buying those shares that align with their predictions. You can buy shares of everything from tomorrow’s weather to presidential elections. It is a modern way for the bravest and riskiest market players to try their luck and earn some extra money. Augur and Gnosis are two market leaders.
  • Asset Management Tools: is a protocol created for users who want to make investments, but due to a lack of knowledge need help. Thus, the investor is exposed to, according to the platform, the best possible investment strategies. Upon choosing their strategy the platform takes over and runs the process. Currently, the leading asset management solution is Set Protocol.

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Idealogic

Idealogic

Full-cycle development company with expertise in the product design, custom software development, QA assurance, and post-release support.