What is DeFi?

Before diving into the practicalities, it's important to understand the fundamentals that power everything we do at DeFi.There are many different ways we use our money throughout our lives—buying goods, exchanging our local currency for a foreign one, taking out loans, investing in a company, and more. All these transactions are facilitated by financial corporations, such as banks, controlled and owned by a small group of shareholders.

Because everything we do with our money is controlled by these institutions, this system is called centralized finance (CeFi) or traditional finance (TradFi).For example, whenever you buy a cup of coffee with a card, you and the merchant aren't the only parties involved in the transaction. Your bank, merchant bank, and financial network such as Visa or Mastercard are also usually involved.

Decentralized finance (DeFi) gives us the same financial tools and opportunities as traditional finance without intermediaries such as banks or brokerage firms (such as buying goods, or lending money for production) as they are replaced by blockchain and smart contracts. have been. Using DeFi applications, you will be able to lend or borrow crypto from peers, trade crypto assets without a central institution, earn high interest, and more. In this guide, we will mainly focus on how to use the DeFi protocol to get a secure yield on USDC.

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Since the first Bitcoin block was mined, volatility has been a major problem for the wider adoption of crypto. Needless to say, massive volatility would never have allowed for blockchain's mainstream adoption.This is where stablecoins come in.

Stablecoins are a type of cryptocurrency whose value does not fluctuate, thus the name "stable". They are stable because their value is based on and dependent on stable real-world assets. Typically, stablecoins are backed by a currency such as the US dollar.

They are also known as fiat-collateralized stablecoins because they are backed by money issued by governments. This includes currencies such as USD, EUR, or GBP.

Fiat-backed stablecoins are compatible. This means that for every stablecoin in circulation, one unit ($1) of the currency is held in a bank account to back it up. If you want to trade your stablecoin for cash, you can get the equivalent directly from the issuer, like Circle for USDC stablecoin, or buy it from a crypto exchange like Coinbase. Stablecoins that correspond to your withdrawal amount will go out of circulation if you redeem them with the issuer.

Stablecoins can play a role in your crypto portfolio and can be used in the DeFi protocol, but it should be noted that fiat-backed stablecoins are not really DeFi coins. This is because they rely on a central system to determine its value (fiat pegged).

DeFi projects and market participants can also benefit from keeping these redundant assets as part of their savings accounts.And DeFi platforms, users can earn interest (passive income) with their stablecoins.

Various DeFi protocols offer interest accounts and productive farmers will use the stability of stablecoins to safely earn passive income. This is a great way to earn interest while waiting for better investment opportunities. Let's explore how to get productive with DiFi projects in more detail.