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What is DeFi - Decentralized Finance

According to Wikipedia:
Decentralized Finance is a blockchain-based form of finance that does not rely on central financial intermediaries such as brokerages, exchanges, or banks to offer traditional financial instruments. Instead, it utilizes smart contracts on blockchains, the most common being Ethereum. DeFi platforms allow people to lend or borrow funds from others, speculate on price movements on a range of assets using derivatives, trade cryptocurrencies, insure against risks, and earn interest in savings-like accounts.

What is a DeFi Coin?

DeFi coins, or tokens, are digital assets that can be traded using decentralized solutions called DApps. DeFi tokens are issued on the blockchain in an open-source environment that are censorship resistant. These coins can be pegged to an existing currency like the US dollar, or they can be made to fluctuate in value based on supply and demand much like a stock is. Dapps are financial instruments that allow you to conduct transactions much like PayPal or Tastyworks does, except they are on a decentralized network. Because DApps run on the blockchain, no single person has control over the network.

ETH is responding to the growth of DeFi
ETH is responding to the growth of DeFi

It is common for us to think of the world separated into different categories. For example, in the real world, we schlep for a living and make real things. In the financial world, financiers work their magic to enable the capital for the real world to work. Since most of us operate in the real world, it is easy to miss changes that are taking place in the financial world.

Over the past couple of years, a rapid change has been permeating through portions of the financial world. Transactions that used to be analog are now taking place over the Ethereum blockchain. These transactions are being carried out via smart contracts, which self-execute according to predetermined conditions. Think of the possibilities. Payments are cheap and instantaneous and void of settlement risks. Right now, it isn’t easy to visualize how DeFi can be useful in our personal lives. It is still so new, that we aren’t accustomed to the benefits it can offer.

But that is all changing. By early 2020, almost $10billion worth of tokens were locked up in financial smart contracts. Today? More than ten times that amount.

Demand for DeFi apps is driving up usage of the Ethereum blockchain, settling some $2.5tn-worth of transactions in the second quarter of this year. That is up from a mere $116bn in early 2020. For reference, that is about the same amount as Visa settled during the same timeframe. Let that sink in a minute. Something that didn’t even exist a decade ago is now settling as much transaction value as Visa! Comparing Ethereum to Visa works when we take a specific slice of time to compare, but the growth is all on the side of ETH.

Currently, ETH can process about 15 transactions per second. That isn't much for a general purpose blockchain but it is in the process of being upgraded to handle 100,000 transactions per second. These aren't just incremental improvements, but radical enhancements that will continue to disrupt the status quo. in the midst of the chaos of change, lies opportunity. The opportunities that DeFi are offering could well make the world’s first Trillionaire.

We don’t aspire for trillions, but we do get excited about good trading opportunities. One place where some of the greatest opportunity lies in, is the brand new world of Decentralized Finance. From trading cryptocurrencies that offer the potential to disrupt the status quo, to investing in businesses that are quick to adopt to new technologies, we've been researching all we can about DeFi, and will keep our eyes and minds open to opportunities that are found by those that look around and see.

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I've been trading and traveling my entire adult life. I'm currently trading from my boat in the Caribbean. Over the years this has gotten easier and easier to do. Drop the anchor, tether your phone to your laptop, browse some charts, and trade. At Wanderer we first began investing in Bitcoin in 2017 when it was worth $2,500. Fortunately, we recognized its potential, unfortunately, we didn't realize it even earlier. Today it is worth about $50,000, and we believe it is here to stay. Bitcoin will have its ups and downs along the way, but years from now we expect it will be much higher, and we'll still be bopping around in the islands.

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