What are the top DeFi Concepts?

DeFi stands for Decentralized Finance which represents a financial system product built on top of open-source and decentralized blockchains. Here in this guide, we will learn more about the DeFi Concepts.

DeFi Concepts:

Yield farming: 

It is the name that has been given to a new type of investment strategy that is carried out in the DeFi ecosystem . Users who practice this method take advantage of the rates of return of decentralized finance protocols, as well as the reward tokens that these platforms issue, to leverage the return on capital. 

To take advantage of investment opportunities in the market, yield farmers often take out loans, accumulate reward tokens, and deposit them into multiple protocols at once to increase the total profit they can make on these platforms just by using them.

Liquidity mining: 

The practice carried out by users of the DeFi ecosystem to receive and accumulate a type of reward token, which is granted by the platforms to attract new clients, is known by this name. 

Those users who practice yield farming usually look for those platforms that offer reward tokens, deposit their cryptocurrencies in them, earn said tokens, and thus multiply their profits. Likewise, the DeFi applications that issue these rewards seek this strategy to increase the liquidity of their markets.

Composability: 

The term refers to the interoperability and community development capacity of the DeFi ecosystem. As we have already mentioned before, the applications in this market are open source. This feature allows any interested person to have access to the code that makes up the app, even reusing it to compose new services or create new functions that interact with each other.

DeFi is also known as “money Legos” because simple apps can be interconnected to form more complex ones. 

Lego of money: 

The metaphor used by members of the DeFi ecosystem illustrates the composability and interoperability of these applications. The term refers to the famous board game from Denmark, Lego, which is based on a set of pieces that can be combined in multiple ways to create more complex structures. 

Likewise, those who compare the DeFi ecosystem with Lego, consider that decentralized finance applications have a composition capacity similar to that of the game, where each service can be combined with others to create more complex financial products. For example, the DAI stablecoin issued by MakerDAO is commonly used to borrow on the Compound platform, thus mixing two services into one.

Locked Value: 

It is a term used to designate those tokens that are deposited in smart contracts of DeFi applications . These funds are usually tied up in an agreement, which is why they are said to be "locked" or "held" for some time. Users usually lock their tokens to obtain loans or generate returns in liquidity pools, although they can also be deposited in a wallet. 

These locked tokens represent a portion of dollars, ethers, bitcoins, and other assets that are compromised in an application, and therefore are not available for sale or free circulation in the market.

Atomic Swap: 

It is a type of cryptocurrency exchange that occurs in a decentralized way and without the need for intermediaries in the process thanks to the use of smart contracts, such as the HTLC or the ZKSnarks. Thanks to this type of service, users can maintain full control of their funds, as well as their private keys, avoiding the risk of losses by the counterparty.

We hope these top DeFi concepts will help you to understand more about this Decentralized Finance.