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Learn How To Defi Part 1

Let’s learn Defi together! I researched online and with my understanding about Defi. I put all the resources I gathered and made a Defi Guide in Notion page here. I shared my Defi cheat sheet here with you.

TL;DR

I layout questions:

What is Defi?

Why Defi?

What are the risks of Defi?

What is Defi?

Defi or Decentralized Finance is a peer-to-peer financial system built on the Ethereum blockchain. It does not need third parties involvement like banks to charge services fees and to transaction your money slowly.  

Why Defi?

In Defi, it can solve:

  • Centralized control: created a single point of failure
  • Limited access: to be more inclusive to the unbanked population which estimated was 1.7 billion people in 2017
  • Inefficiency: multiple charges on foreign transaction fees and other service fees charged with slow transaction speed 
  • Lack of interoperability: artificially created barriers to switching services with high-cost fees
  • Opacity: with no transparency on banks operations and to cause the financial crisis in 2008 

What are the risks of Defi?

There are several risks associated with Defi.

  • Smart contract risk: prone to hacking, and lost total of approximately $2.3B of 83 incidents
  • Governance risk: induce governance attack through minting exceeded governance tokens from hacking
  • Oracle risk: if the cost of corruption is smaller than profit from corruption
  • Scaling risk: particularly in Proof of Stake where stakers have more assets than the entire rest of the participants
  • DEX risk: vulnerable to sophisticated arbitrage bots
  • Custodial risk: lost private and lost control of wallet due to hacking or scams
  • Environmental risk: wasted more energy on mining (up to debate)
  • Regulation risk: overlapping jurisdictions and regulations to bring Defi under banking regulations

Stay tuned for the next cheatsheet!

Check out my another article DAO The Way Part 6

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