Decentralized finance (DeFi) are decentralized platforms that have financial applications built on public blockchains. They have been created with the purpose of competing against centralized financial institutions like banks.
As we discussed earlier, centralized finance can be traced all the way back to the Bank of England in 1695. Very little effort has been made to modernize the financial services industry. Decentralized finance has the potential to become a major disruptive force in this multi-trillion-dollar industry.
Through its vast array of decentralized networks and open-source software, DeFi is capable of creating multiple types of financial services and products.
Currently, the top 3 categories of DeFi include;
- Developing monetary banking services.
- Offering peer-to-peer lending and borrowing.
- Enabling tokenization and derivatives.
An example of monetary banking services would involve the issuance of stablecoins. DeFi is also quite prevalent in peer-to-peer lending and borrowing. DeFi platforms connect borrowers and lenders directly, thus removing centralized intermediaries from the equation.
Perhaps the biggest opportunity for DeFi can be found in the tokenization of assets. The list of assets would include such things as stocks, commodities, real estate, precious metals, fine art, and other types of alternative investments. Tokenization would allow assets to be owned and traded on a blockchain using decentralized exchanges. This type of format would provide investors with the opportunity to have complete control of their funds at all times. It would eliminate the need for centralized exchanges and brokerage firms.
Suggested Read: What Is Blockchain Consensus Algorithm? – Cryptobite
DeFi Benefits the Unbanked
Arguably, the most important benefit of DeFi is the fact that it would allow the unbanked to have access to affordable financial services. The unbanked represents the approximately 1.7 billion people in the world who lack the ability to obtain basic financial services. These services include such things as checking accounts, business loans, personal loans, merchant services, mortgages, retirement planning, and access to capital markets.
As we briefly discussed, the financial services industry has made little effort to change the basic structure of its own industry. This is because there has been no financial incentive to make any radical changes. As you know, the current structure of financial services is centered around the use of intermediaries. The vast majority of financial products require the presence of a middleman between the buyer and seller.
This type of system has been incredibly profitable for financial services companies over the course of the past several decades. A tremendous amount of wealth has been created for individuals and businesses. However, very little of this wealth has been used to build the basic infrastructure needed to provide financial services to the unbanked.
Thanks to decentralized finance, the unbanked actually have an opportunity to receive basic financial services. DeFi is substantially cheaper than traditional financial services because it does not require the use of an intermediary. Consequently, these savings can be passed on to customers.
Despite the huge potential that DeFi brings to the table, a tremendous amount of work lies ahead before decentralized finance becomes a mainstream product. This includes such items as regulatory hurdles, infrastructure, public education, consumer protections, and creating a unified DeFi marketplace. All of these things will take time and a tremendous amount of effort. At least for now, though, it certainly appears as though DeFi is headed in the right direction.
Brief Summary of Decentralized Finance
- DeFi is a decentralized platform with financial applications built on public blockchains.
- DeFi is in direct competition with centralized financial institutions.
- The top 3 categories of DeFi: monetary banking services, P2P lending, and tokenization.
- Tokenization would allow assets to be owned and traded on a decentralized exchange.
- DeFi would eliminate the need for centralized exchanges and brokerage firms.
- DeFi would allow the unbanked to have access to affordable financial services.
- The removal of intermediaries explains why DeFi can afford to service the unbanked.
- Realistically, DeFi is years away from becoming a mainstream product.
Everything You Need to Know About Binance USD
Binance USD (BUSD) is a fiat-backed stablecoin designed to address issues of accessibility, flexibility, and speed on the blockchain. A cryptocurrency exchange leader, BUSD, is currently the second-largest stablecoin on the blockchain by market cap.
This flexible cryptocurrency is stable, regulated, and can be swapped on multiple blockchains. Investors can use BUSD on the Ethereum chain, Binance Chain, and Binance Smart Chains.
Binance USD (BUSD) was created to be a safe investment for cryptocurrency investors looking to invest in a low-volatility stake. This cryptocurrency is pegged at the value of the US Dollar. The New York State Department of Financial Services regulates Paxos, the creators of this currency.
USD is a fiat-backed stablecoin backed by Paxos instead of a government. As a result, Paxos holds the equivalent of the total amount of BUSD in US dollars in its financial reserves. BUSD is a stablecoin that keeps pace with the price of the United States dollar.
When the price of the dollar rises or falls, the price of BUSD fluctuates as well. Paxos issues monthly audits to verify collateralization.
1. BUSD is regulated
2. Fiat-backed stablecoin backed by a reserve
3. 1:1 ratio price fluctuates with US Dollar
4. Operates on multiple blockchains
Paxos and Binance created Binance USD.
Binance USD (BUSD) was launched in September 2019 as a partnership between Paxos and Binance.
They first issued BUSD on the Ethereum blockchain as ERC-20 tokens. Binance USD is one of only three cryptocurrency tokens currently approved by Wall Street regulators. The New York-based financial company Paxos issues BUSD tokens.
Paxos collateralize BUSD tokens by holding equivalent dollar amounts in regulated US bank accounts. Paxos is also responsible for creating and burning BUSD tokens.
Paxos and Binance designed BUSD to be a low-volatility investment for crypto traders seeking highly liquid investments. Investors can easily convert their BUSD investment into fiat-backed currency during times of volatility.
Cryptocurrency experts recommend taking security measures like using two-factor authorization (2FA) to manage online Binance USD accounts and wallets. Serious investors use Binance USD wallet software to store, protect, and manage investments. They do this by using public and private keys to store value.
We do not provide investment advice. Cryptocurrency traders looking to invest in Binance USD should do their research on the history and performance of BUSD and choose the best options that fit their investing style and budget.
It’s important for investors to consider how much they can afford to lose on investments with downturns before committing to any investment. The creators of Binance USD designed BUSD as a low-volatility asset for crypto traders seeking high liquidity. This stablecoin’s goal is to remain stable and as close to the value of one dollar as possible. While its performance appears stable, this can change at any time.
What are Candlesticks and How to Read Them
A candlestick is a type of price chart used in technical analysis to forecast the future price direction of stocks, commodities, and cryptocurrencies. Each candlestick is a graphical representation of a price movement for a specific period. Four different price points are displayed on each candlestick. They include open, high, low, and close.
Candlesticks are one of the oldest forms of technical analysis. According to historical records, candlestick charting can be traced back to Japanese rice merchants during the 18th century. Most financial historians agree that Munehisa Homma was responsible for popularizing candlestick charting.
Candlestick formations are based on a strict set of rules which are universally accepted among all traders and investors. Let’s review a few of the most basic candlestick formations and patterns.
A solid red candlestick is displayed if the opening price is above the closing price (Chart #7).
A hollow candlestick is displayed if the closing price is above the opening price (Chart #8).
Bullish Candlestick Patterns
Big White Candle – The market opens near the low and closes near the high (Chart #9).
Doji – The opening and closing price is virtually identical (Chart #10).
Hammer – A candlestick that consists of a small body near the daily high with a long lower tail (Chart #11).
Bearish Candlestick Patterns
Big Red Candle – The market opens near the high and closes near the low (Chart #12).
Inverted Hammer – A red or white candlestick within an upside-down hammer position (Chart #13).
Shooting Star – A red or white candlestick with a small body, a long upper shadow combined with little or no upper tail (Chart #14).
Brief Summary of Candlesticks
- A candlestick is a type of price chart used in technical analysis.
- Each candlestick represents price movement for a specific period of time.
- Four different price points are displayed on each candlestick.
- The price points include open, high, low, and close.
- Candlesticks are one of the oldest forms of technical analysis.
- Candlestick charting was first used by Japanese rice merchants during the 18th century.
- Munehisa Homma was responsible for popularizing candlestick charting.
- Candlestick formations are based on a strict set of rules.
- These rules are universally accepted among all traders and investors.
What Is an IEO?
An Initial Exchange Offering (IEO) is a type of token sale administered by a cryptocurrency exchange. The entire process is controlled and managed by the exchange on behalf of the crypto company. Both parties have a vested interest in the success of the IEO. Neither party receives a payout unless investors purchase the token through the participating exchange. Therefore, it’s not uncommon for the exchange and the token issuer to join forces to help with marketing, promotions, and advertising.
Before launching the IEO, the crypto exchange and token issuer sign an agreement outlining the payout structure. Typically, the token issuing company is required to pay a listing fee along with a percentage of tokens sold through the crypto exchange. The majority of IEO agreements stipulate that the new token must be listed on the exchange for a predetermined amount of time following the initial sale of the token.
Investors who participate in the IEO are required to open an account with the participating crypto exchange. Instead of sending money to the token issuer through a smart contract, the investor deposits funds into his/her crypto account. Funds are dispersed by the crypto exchange to the crypto company.
IEO Versus ICO
As you may recall from our ICO discussion, the first ICO was launched in 2013. However, the ICO explosion did not occur until 2017, followed by its peak in 2018. Without question, the chief complaint within the crypto community concerning ICOs was a large number of failures and outright scams. In fact, the failure rate approached 90% in 2018.
As we have discussed several times, the cryptocurrency community is incredibly innovative. This community is filled with some of the brightest minds in global finance. Not surprisingly, a small group of young men and women were quick to replace problematic ICOs with IEOs in early 2019. The first major crypto exchanges to join the IEO wave occurred in January 2019. IEO activity continues to flourish in 2020.
The main difference between IEO and ICO is the level of success. In a typical ICO, the crypto company received funding immediately upon issuance of the token. Investors had very little recourse once the tokens were dispersed. They were trapped in a vulnerable position. Sadly, many unscrupulous start-up firms basically disappeared upon receipt of the funds commonly known as a ‘rug pull’.
IEOs solve this problem by preventing the token issuer from receiving funds immediately upon the distribution of the tokens. As we discussed earlier, both parties work together to ensure the success of the project, which increases the likelihood of a rising token price.
Although IEOs have only been in existence for two years, the popularity of this new fund-raising method has increased substantially. The success rate of projects launched on IEO is much higher compared to ICOs. Most likely, this trend will continue.
IEO Regulatory Environment
As you may recall from our ICO discussion, crypto companies struggled to clear all of the regulatory hurdles to satisfy financial regulators. Unfortunately, IEO participants, are experiencing the same type of regulatory problems that plagued the ICO marketplace. This by and large means that regulators dissuade people from taking part in IEOs.
A positive to this is that IEOs are largely unregulated and don’t have to satisfy bureaucracy that can stifle innovative projects.
Financial regulators, particularly in the United States, claim that an initial exchange offering is similar to an initial coin offering, even though the token issuer is not directly involved in the sale of the token. An ongoing problem with regulation is whether or not any particular token counts as security and needs regulation, or whether they are utility tokens. Exchanges will typically avoid listing securities on an IEO as it means they have to submit to regulation.
To avoid the strict regulation requirements around securities, crypto exchanges may even opt not to offer tokens in countries like the United States where there is ambiguity about regulation. As long as the IEO is not soliciting in a particular country, registration is not required.
Due to the overwhelming success of IEOs, many of the world’s largest crypto exchanges are becoming heavily involved in IEOs by offering tokens on behalf of start-up companies. Most likely, this trend will continue.
Brief Summary of IEO
- An initial Exchange Offering is a token sale administered by a crypto exchange.
- The entire process is overseen by the crypto exchange.
- Neither party receives a payout unless investors purchase the token.
- The exchange and token issuer will often collaborate with marketing and advertising.
- Both parties sign an agreement outlining the payout structure of the IEO.
- The new token will be listed on the exchange for a predetermined time period.
- Participating IEO investors are required to open an account with the exchange.
- Investors pay for the token by depositing funds into their crypto account.
- IEOs have proven to be safer than ICOs.
- Many crypto exchanges are not participating in heavily regulated countries.
- IEOs have become very popular in the crypto universe.
- Crypto News1 year ago
Kryll (KRL), LCX (LCX) SUKU (SUKU) and OriginTrail (TRAC) are launching on Coinbase Pro
- Blockchain1 year ago
DeSo Announces $50 Million In Funding for Developers
- Blockchain1 year ago
DeSo | Decentralized Social Media Network
- Bitcoin12 months ago
Simple Analogy Explains How Bitcoin Works
- Crypto News1 year ago
Unpacking The DESOlaters with William Laurent
- Blockchain12 months ago
DeSo : Decentralizing Social Media Apps
- Crypto News12 months ago
Multichain Metazens Emerged In The Metaverse
- Blockchain1 year ago
How to Get Free DeSo Crypto