DeFipedia - The First Decentralized Finance Encyclopedia

Whether you're DeFi-curious or DeFi-native, DeFipedia serves all levels of knowledge and experience. Get started with the fundamentals of DeFi, take a deep dive into DEXs, DAOs, yield farming & staking, explore popular dApps, or learn about latest analytics and rankings of DeFi protocols.

Our goal is to demystify decentralized finance, explain how it works, and how to capitalize on its growth potential by providing accurate and valuable information.

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Our content is written and reviewed by DeFi and blockchain experts.

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Our advice and recommendations are based on expert knowledge, experience and research.

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Our team of experts and writers endeavor to answer any questions you may have about decentralized finance.

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What Is TradFi

TradFi, short for traditional finance, refers to the mainstream financial system that consists of retail banks, commercial banks, investment banks, other financial institutions, and fintech companies. A few popular examples of TradFi institutions are Goldman Sachs, JP Morgan, Morgan Stanley,  Bank of America, PayPal, and Wise. They are mostly brick-and-mortar organizations that offer banking and financial services which have been around for years. Although most TradFi providers have digitized their operations and services, they are characterized by a high degree of centralization, government regulations, compliance, KYC, and high barriers to entry. As a new wave of non-traditional finance emerges, it’s important to define TradFi and understand how it stands apart.  How Is TradFi Regulated?  TradFi is regulated by the government and the central bank in most countries. TradFi institutions have to comply with the rules and regulations mandated by the authorities. Depending on the sector and scale of business, the tax requirements vary. It is also mandatory for TradFi institutions to submit audit reports annually.  While the red tape is often too stringent for new players to enter, it is also efficient in nurturing the growth of the economy in the desired course. This is given that the policymakers know what they’re doing. For example, the government wants to empower women in rural areas. As a means, the central bank can ask banks to offer loans to rural women at low-interest rates.  The regulations help curb money laundering, corruption, and terrorism, among other illicit activities. How TradFi compares to other Finance  DeFi vs. TradFi  DeFi (decentralized finance) refers to the peer-to-peer financial infrastructure built on blockchains. DeFi uses a distributed ledger system to verify and authorize transactions, removing middlemen like banks and governments from the picture.  Let’s take a quick look at the key differences between the two: In DeFi, a blockchain protocol or a community issues money.  In TradFi, the central bank issues money.In DeFi, smart contracts authorize the transaction of money between two parties. In TradFi, banks facilitate the transactions. Anybody can give/get DeFi loans as long as they fulfill the collateralization requirements. Banks offer traditional sources of finance after checking the applicant’s financial statements and credit score. You can start investing on DeFi platforms in a few steps. With digitization, TradFi investing has opened up to a large section of people as well. But it still requires KYC and documentation. CeFi vs. TradFi CeFi (centralized finance) merges the yield benefits of DeFi with the user experience and security of TradFi. It offers opportunities to invest in cryptocurrencies and digital assets using crypto-based accounts that are similar to traditional savings accounts. However, the APYs vary significantly. On CeFi platforms, you can borrow money against your crypto holdings, just like how you would avail a collateral-backed loan from a bank. Unlike TradFi, this requires little to no paperwork.  While TradFi deposits are sometimes eligible for government-backed insurance, that is not the case with CeFi deposits. Being a relatively new sector, it is riskier.  Traditional Finance vs. Behavioral Finance Behavioral finance studies the psychological influences and biases behind the behavior of investors, financial practitioners, and other market participants. Traditional Finance and Entrepreneurial Finance Entrepreneurial finance consists of the resource allocation for new ventures, addressing some of the key challenges faced by entrepreneurs like fundraising and valuation. What Role Does TradFi Have In Cryptocurrency? Industries have to keep pace with the latest technology to prove themselves relevant in the long run. Blockchain and cryptocurrencies mark today’s biggest financial revolution. TradFi organizations and platforms, including banks, will have no choice but to adopt cryptocurrencies eventually, bringing them to the mainstream. Since TradFi is under the watch of the government, this will pave the way for the positive regulation of the crypto industry. In key sectors like insurance and lending, they can work together, blending innovation, accountability, and speed.  Benefits of TradFi Only businesses with licenses and accreditation can provide TradFi services. In the event they lapse, customers can raise complaints and get compensation. The red tape makes it difficult for scammers and fraudulent participants to get in. TradFi cooperates with the government to track illegal spending and investments. In DeFi, this will be hard as transactions are anonymous. Governments can implement developmental policies by joining hands with TradFi institutions.  TradFi has its set of limitations. The excess regulations and government intervention hamper growth and innovation in the industry. It also prevents a large section of people from accessing financial services. In the coming years, TradFi, blockchain technology, and cryptocurrencies will hopefully find a common ground to build an advanced financial infrastructure feasible for all. 

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Decentraland Review—Ease of Use, Fees, Profitability, and More

As the name suggests, Decentraland is a fully decentralized virtual reality platform where its users can create assets, trade coins, and explore the virtual world while using cryptos and NFTs. This virtual reality platform is in the form of a browser-based game where the main goal is working with virtual real estate and earning money. Once a user joins the Decentraland platform, they can start buying virtual real estate in the form of parcels with cryptocurrencies. If you have a parcel, you can use it to construct buildings like museums, art galleries, theaters, and much more. Since the platform is built on the Ethereum blockchain, anyone can join it as long as they have an ETH wallet. To learn more about Decentraland, continue reading. ProsOne of the biggest platforms in the VR worldOne of the largest collections of NFT artMANA has risen over 3,000% in value since its inceptionA lot of potential for an industry that's still undervaluedConsThe platform is still in its early stages of development There is massive competition in the VR spaceDecentraland charges a fee for every transaction How Decentraland Works Unlike other virtual reality games and worlds, Decentraland is entirely decentralized and runs on the blockchain. With the governance of a DAO (decentralized autonomous organization), Decentraland has preset policies and rules that it runs on. Since Decentraland is—you guessed it—fully decentralized, it must be on a blockchain. In this case, the software is on the Ethereum blockchain, and it requires the user to have MANA (Decentraland's coin) and an Ethereum wallet to start playing in their virtual world. Decentraland can run on the ETH blockchain and build its own components on top of it with the help of smart contracts. Smart contracts regulate every transaction that happens on Decentraland, with all parcels of land having real coordinates written on the blockchain. So, what is the purpose of Decentraland, and how does it work? Once a user joins, they can start buying and exchanging LAND tokens (representing parcels) with MANA. Users can buy parcels of land, construct buildings on them (like a museum with a collection of great NFTs), and then sell them for more MANA than they were originally bought. Decentraland Fees Decentraland is on the low end when it comes to fees, though the platform charges a fee for every transaction. Each time there is a transaction with a land parcel on the Decentraland marketplace, the platform burns 2.5% of the transaction’s value. This is because Decentraland runs on the Ethereum blockchain, and just like Ethereum, it must pay gas fees for all transactions that happen on their blockchain. Still, you can expect this number to drastically lower in the near future, as Ethereum has announced its shift from PoW to PoS by the end of 2022. This will lower the gas fees by approximately 90%. Could Decentraland Be Profitable for the User? Absolutely! Decentraland can be incredibly profitable for the user, as it’s not just a simple virtual reality game with land parcels. The platform offers an entire virtual universe where you can do everything that happens in your day-to-day life. This includes working a job, buying clothes from a mall, going out with friends, learning new skills, or even working on real projects in the VR world. So, can you make money on Decentraland? Yes, there are many ways you can earn money in Decentraland. Let’s go over them: Buying and Selling Land Since Decentraland’s VR world was primarily based on working with virtual real estate, it is no surprise that you can do that for a profit. In the Decentraland universe, every land parcel comes as a unique 16m x 16m NFT, and there is proof on the blockchain that you’re the owner. Once you’ve purchased the land parcel, you can build something on it to increase its value. Keep in mind that Decentraland has a massive virtual universe where many real-life cities are featured. For example, you can buy a plot of land in virtual New York City and then sell it for a profit. Work in the Virtual Universe Many aspects of our day-to-day lives are featured in Decentraland. For example, you can work at a company and have a part-time job in the virtual universe where you will be paid in MANA tokens. Some of the most popular jobs in the Decentraland universe are designing clothes, creating NFTs, offering freelance services like making videos, marketing, and more. Play Mini-Games Decentraland’s virtual universe offers users the opportunity to play games and win rewards. Of course, these rewards don’t come in the form of classic fiat money. Instead, you’ll get paid in cryptocurrency and NFTs. Some of the most popular play-to-earn games in Decentraland are poker, blackjack, and roulette. Should You Invest in Decentraland? If you believe that the virtual reality industry has potential, you should invest in Decentraland. The overall market size of the VR industry was estimated to be around $20-30 billion in 2021, but many experts believe it will exceed $80 billion by 2028. If you’d like to invest in Decentraland, all you have to do is buy MANA. As of June 2022, the MANA token has jumped in price by over 3,000%, and we believe it still has big potential. To buy the Decentraland coin, you'll need an ETH wallet and an account at an online exchange. You can then search for MANA and buy as much as you want.

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Alpaca Finance—Ease of Use, Fees, and More

Starting as a stockbroker in 2015, Alpaca Finance has risen to be one of the biggest players in the decentralized finance (DeFi) space. As of June 2022, it offers one of the highest returns for yield farms and staking, so it is no surprise that millions of users in the DeFi space flock to it. When it was created, the platform started offering CFDs on US stocks and ETFs and offered one of the most extensive APIs for data research. Over the years, Alpaca Finance has evolved and has become one of the biggest DeFi projects, even creating its own token—ALPACA. It offers all of the features of modern DeFi, including yield farming, staking, lending, and borrowing on a blockchain. To learn more about the details of Alpaca Finance, continue reading. ProsProvides amazing DeFi features Offers access to incredibly detailed charting tools An overall safe and legit platformCommunity-owned and stands as one of the biggest players in DeFiConsCustomer support needs improvement Lacks the same variety of assets as its competitors How Alpaca Finance Works Since Alpaca Finance is a part of the DeFi space, it should be no surprise that its platform is placed on the blockchain. Specifically, Alpaca uses the BSC (Binance Smart Chain), widely regarded as one of Ethereum’s largest competitors. The platform’s token (ALPACA) works on a proof-of-stake algorithm, which is one of the main reasons sending and receiving money is so cheap. ALPACA is used for governance, DeFi features (like borrowing, lending, and leveraging), and an overall utility function on its blockchain. For every ALPACA coin you hold, you’ll get one vote in the network, meaning that you can participate in the big governance decisions. Like many DeFi projects, this blockchain is entirely governed and owned by the community. Obtaining Alpaca Finance Obtaining ALPACA coins is relatively easy. To start, you need to have a wallet on the BSC network. Then, all you need is to sign up at a centralized or decentralized exchange and buy the amount of ALPACA that you’d like. There are many places where you can buy ALPACA, though we would highly recommend researching for the most cost-effective one. We recommend sticking to the big platforms that have proven to be safe and cost-effective, like Binance, Gate IO, and KuCoin. Alpaca Finance Farming Options Alpaca Finance offers many features to those who want to participate in the network and earn money from DeFi, with farming and lending being the biggest ones. Let’s go over them briefly. Lending Lending is one of the safest ways to earn interest at Alpaca Finance. When lending at Alpaca Finance, you’ll deposit the crypto in question, give it to the platform, and the amount will then be given to a borrower. Then, the borrower will have to pay back the loan with interest. The loan will be repaid in full thanks to smart contracts, so you don’t have to worry about the borrower defaulting. Yield Farming Yield farming is a higher-risk approach than lending, though it offers significantly better returns. Due to the way Alpaca works as a DeFi platform, you can put two coins together in a farm and then farm them by providing liquidity. Let’s say that you stake ETH and USDT. You'll receive a reward whenever a user comes to swap ETH for USDT from the pool (or vice-versa). Alpaca Finance also allows you to leverage your yield farming position, which is a big plus. Liquidating A liquidator is someone who provides the financial liquidity of the staking pool in question. Since ALPACA’s network is a proof-of-stake blockchain, liquidating automatically translates to liquidity farming, which rewards you with ALPACA—the same coin that you can later use to vote and participate in the governing process. Why Is It a Good Idea to Invest in Alpaca Finance? As of June 2022, Alpaca Finance is a big participant in DeFi and is one of the most profitable DeFi platforms. For this reason, many experienced investors in the DeFi space believe that it has great potential. When buying ALPACA, you’ll have a chance to participate in the governing process of the coin and become a contributor to the DeFi space. So, yes, it’s a good idea to invest in ALPACA.

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3 Best Low-Fee Stablecoins Worth Considering

Any trade you make on a crypto exchange has a basic trading fee. In most instances, the trading fee follows the maker/taker system, incentivizing stakers that provide liquidity by charging lower transaction fees. Nonetheless, bids submitted to stablecoin markets, two fiat currencies, or wrapped tokens like WETH/ETH are charged a flat fee irrespective of whether they are maker or taker orders. To view the comprehensive stablecoin fee structure, visit your exchange’s fee schedule page. You can see the fees you will be charged by checking the currency pair your bid falls under. Popular Low-Cost Stablecoins According to a recent stablecoin study conducted by the Department of Economics at Rutgers University, transaction fees vary significantly among the sampled stablecoins—Tether (USDT), USD Coin (USDC), and Dai Stablecoin (DAI). Again, because the transaction costs affect block creation time, the cost and completion time are difficult to predict. The study shows that: The average cross-section fee of USDT is $3.44, with an average percentage fee of 0.20%. The cross transaction fees for USDC are higher than USDT. Its average fee is $13.03, with an average fee of 0.84%. DAI transaction costs are quite similar to those of USDC, though the medium cost for USDC is less by nearly $3. Let’s have a closer look at each of these stablecoins: USDT USDT is the first and biggest stablecoin by market cap. USDT was developed by the BitFinex exchange in 2014 as RealCoin before rebranding to Tether in November of the same year. The pros of USDT include high market capitalization, stability, and fast transactions. Its cons include centralization and lack of transparency regarding its fiat reserves. USDC Circle and Coinbase jointly developed the USDC stablecoin in 2018. It’s mainly backed by the US dollar and licensed by reserved assets. USDC’s pros include being fully backed by US-regulated fiat reserves, transparency in its operations, and minimal price fluctuation. Its main drawback is having a lower market cap than USDT. DAI This is a crypto-backed ERC-20 token that is overcollateralized via Maker vaults. Unlike the stablecoins above, DAI embraces a decentralization approach through smart contracts and a governance token to control price stability. DAI offers collateralized loans, uses smart contracts to lock tokens in contracts, and allows regular independent auditing of its reserves. Conversely, DAI seems a bit complex for crypto newbies and exposes users to smart contract risks, especially hacks.

How to Get an Initial Coin Offering (ICO) in 5 Simple Steps

An Initial Coin Offering (ICO) is similar to an Initial Public Offering (IPO) where a new coin is introduced to the crypto industry. A crypto project can get an ICO to raise funds. Interested individuals can join the ICO by purchasing the project’s token offering. The token’s utility is closely tied to the product or service the project is providing. Here are five simple steps on how to get an Initial Coin Offering. Step 1: Determine Your Technological Needs Assess how blockchain technology will integrate with your daily business activities and how you intend to use it to improve your products or services. There are legal implications that will affect your technological choice and your platform offering. Therefore, how your business accepts crypto, stores it, and educates customers and investors are essential to the compliance step. It should be based on a legal framework applicable to your ICO. Step 2: Choose a Jurisdiction for Your ICO Since U.S. securities laws apply to ICOs in all the states, you can launch your token offering outside the United States. Some crypto-friendly countries have favorable laws, like a broad pool of authorized investors and fewer financial disclosures. Additional benefits include better tax treatment and lenient penalties for non-compliance. You can consider investing in countries such as Malta, Gibraltar, Singapore, and Switzerland. Step 3: Write a Detailed and Clear White Paper Your white paper presents information on how your project works. As such, a good white paper should raise the confidence and trust of potential investors. This document should contain legal statements about the securities laws and other regulations applicable to your ICO. Previously, the Securities and Exchange Commission (SEC) profoundly mentioned a crypto project’s white paper when it wanted to shut it down. Step 4: Select the Best Launching Platform You need to choose the platform where you will be conducting your ICO. Previously, most projects chose to launch their ICO tokens on the Ethereum blockchain. Ethereum is well equipped with ICO development tools and smart contract functionalities to launch ERC-20 tokens smoothly. However, Ethereum’s high gas fees and scalability issues have created multiple Ethereum alternatives. Platforms like BNB Smart Chain (BSC), Solana, Polygon, Avalanche, etc., have merged as ideal ICO launch pads because of their low-cost transaction fees and high scalability. Step 5: Marketing Lastly, develop a well-defined marketing strategy to help you reach out to potential partners and investors. This can include developing a website any interested parties can be referred to who are looking for information. Supplement this with social media marketing by posting engaging content that leads back to your website and utilizing paid advertisements to reach your target audience. Also, consider providing limited free coins to potential users as well as a space where feedback can be discussed.

How Do DAI Tokens Work?

Dai is the first decentralized stablecoin, as opposed to a semi-centralized stablecoin like USDC, that aims to maintain its value with the US dollar through a 1:1 peg. It strives to solve one of the major challenges facing the mass adoption of cryptocurrencies—volatility. Unlike other stablecoins issued by centralized entities, Dai is the native currency of the Maker Protocol, a decentralized autonomous organization (DAO) built on the Ethereum network. How Is DAI Created and Destroyed? Dai is created when a user borrows against locked collateral and is destroyed when the user repays their loan. For example, if you lock ETH or any other accepted crypto in the Maker Protocol, you will receive a loan in the form of new Dai tokens. When you repay the loan, the protocol burns the Dai tokens and gives you your collateral. Importantly, the Dai ecosystem is governed through a democratic system of governance. Here, every change and decision affecting Dai is executed after approval by most token holders. What Is DAI Pegged To? Dai is pegged to the US dollar on a 1:1 ratio by leveraging the Target Rate Feedback Mechanism (TRFM). When the Dai price is below $1, TRFM rises and pushes the price upwards. When the price increases, Dai holders make profits, and the demand for Dai increases. As the demand rises, the supply of Dai begins to reduce because users borrow tokens from the market via Collateralized Debt Positions (CDPs). Therefore, they make the Dai price rise to its target price again. Benefits of Dai Over Other Collateralized Stablecoins Here are the main benefits of Dai over other centralized stablecoins: Complete financial independence Dai is managed by the Maker Protocol, eliminating intermediaries from the equation. This means Dai tokens cannot be censored or frozen.Self-sovereign money generation You can create Dai by locking collateral in the Maker Protocol to eliminate counterparty risks instead of trusting a custodian with it.Savings Dai holders can put their assets into use and earn the Dai Savings Rate (DSR) by depositing Dai in smart contracts. You can access these contracts via the OKEx Marketplace, and by using crypto wallets such as Oasis Save and Argent wallet. Convenient, fast, low-cost remittance Unlike most stablecoins, you can use Dai to repay loans and perform cross-border and other online payments cost-effectively. Transparency minting mechanism Unlike in centralized stablecoins where custodians might mismanage the locked funds (remember the collapse of TerraUSD), Dai embraces transparency through the use of smart contracts in managing its reserves.

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