Thread by @amrali0fx

#Week_2: #DeFi, Day 1: Decentralized Finance - the High Level Basics - by DeFi Education

In a sentence, banks can be replaced by software code

Long-term the majority of transactions will be done with smart contracts. Similar to how e-mail displaced the majority of snail mail,

2- Smart contracts will replace middlemen.

Before Defi, Bitcoin and other major crypto currencies like Ethereum were *unproductive assets* in your portfolio,

With smart contracts, you can now take loans against it *or* loan it out, and some other Utilities.

3- Collateralized Loan: Imagine a world where you could lend out money, knowing that there was collateral staked (avoid total loss),

On the borrower side, imagine a world where you can take out a loan for stable coins without interacting with a bank. This is what exists today.

4- look at simple examples of how this helps a crypto currency owner:

Example 1: you have a sudden $10K bill to pay (medical cost) before Defi, you will have to sell part of your BTC, incur a taxable event and use that to pay the bills.

After Defi? You can avoid that,

5- put your 4BTC up as collateral and borrow $20K, As long as you pay the $20K back and the price of BTC doesn’t drop significantly, You are good even you will avoid a taxable event, All 100% by the book.

Example 2: you’re sitting on a bunch of crypto assets, and you are bullish

6- you will hold them anyway, you’re better off putting them into a liquidity pool and earn interest on the assets generating a yield, instead of only waiting for price increase, (it has a downside called: impermanent loss, we will cover it later)

7- Example 3 (Somewhat Futuristic): If you have a choice between fundraising from the entire world (7 billion plus people). Or. Fundraising from a few banks that charge a 7% commission, what are you going to do?

You know the answer,

you can even set some rules of who can invest

8- Example 4 (Futuristic): We began to see already apps allowing lending/borrowing by making a NFT as collateral!

More importantly, physical assets will likely become smart contracts. For example, every single home in the USA can be a NFT, imagine the value that can be added!

9- Example 5 (Futuristic): If we know that all items can now be traded 24/7/365 regardless of geography,
why would the stock market be limited to a weekday trading schedule

Beginning of Evolution - Decentralized Exchanges (DEXes)

people use middlemen to acquires stocks and such

10- As those centralized brokers like Fidelity or @RobinhoodApp
The only exception to this is really crypto where the smart people take their coins off of exchanges and move them to cold storage,

Decentralized exchanges such as Uniswap, 0x, Sushiswap already do a huge volume!

11- The only reason this doesn’t work for smth like stocks right now is due to regulations.

As a note to keep ourselves honest here, centralized exchanges will still exist.
Large funds with tons of regulation need them, But decentralized side will gain more adoption over time.

12- Individuals who are looking to fight change will say “things work fine the way they are”. This is the same thing people said about mail and phones when the internet came out.

Why is this so valuable?
These centralized entities have huge expenses and not user efficient

13- One final thing: some Utilities created with DeFi

royalties/revenue stream as an example, from a song or a movie or an Art,
This benefits the artist as you cut out a bunch of middlemen. It also benefits fans/Consumers as they can financially benefit if it succeeded as well-

14- This means any sort of financial contract can be constructed in a smart contract.

If the above seemed like a lot to handle, that is fine! If you remember when the internet came out, many people dismissed it and said they didn’t need it. Here we are now.

Here is full link of the article: defieducation.substack.com/p/decentralize…