DeFi for short, decentralized finance represents a new financial paradigm where intermediaries are replaced by smart contracts. Financial services that exist in the traditional world such as lending/borrowing, derivatives, and asset exchange now have smart contract counterparts that run on public, permissionless, and transparent blockchains.
What are some DeFi use cases?
- Transfer fiat currencies through a digital medium that is more efficient than traditional banking system
- Remittance fees removed and cross-border payments solved
Lending & Borrowing
- Lenders can deposit assets into a pool and earn yield. Borrowers can withdraw as long as they have overcollateralized the debt.
What are the benefits of DeFi?
- In traditional finance, people living in Europe, Africa, etc may not have access to financial services that are provided to citizens of United States and vice versa.
- In decentralized finance, anyone with an internet connection and wallet can utilize protocols that live on public blockchains. These decentralized networks provide a way to solve the geographic lottery and enhance economic equity, by providing everyone equal access to financial services regardless of where they were born.
- In traditional finance, financial services are often plagued with applications and approvals from central authorities. In addition, many laws such as accredited investor laws exist that add significant hurdles.
- In decentralized finance, there is no permission needed. Anyone can participate at any moment with any amount of funds.
- In traditional finance, financial clarity is hard to come by and many transactions happen behind closed doors.
- In decentralized finance, smart contract code is open source and visible for anyone to inspect. In addition, balances and transactions are recorded realtime onto a public ledger for anyone to ensure valid state and proper accounting.
- In traditional finance, all financial services such as lending/borrowing happen through a central authority or a trusted middleman. Funds are in custody by these intermediaries.
- In decentralized finance, self-custody and interaction of financial services through smart contracts removes the component of trust.
Minimal Rent Extraction
- In traditional finance, intermediaries often maximally extract rent from the consumer. This can be seen by the business model of banks which provides clients essentially 0% interest rates while they lend cash out at significantly higher rates. Banks also need to pay for the overhead of their entire labor force, physical offices, executive compensations, and much more.
- In decentralized finance, financial services such as lending/borrowing happen through a few thousand lines of code. The savings that come from reduced overhead allow for much higher returns to the customer.
How does Meow utilize DeFi?
Meow provides our customers access to various high yield offerings by plugging into existing DeFi protocols. Currently, navigating through decentralized finance is riddled with complexities. Meow ensures that the intricacies are abstracted away without compromising on security or compliance. With these core principals engrained, we truly believe in democratizing access to the new frontier of financial products and empowering corporations, startups, and institutions to be smarter with their money.
Below is a list of the various sectors of decentralized finance along with some of the more popular protocols in those fields.
|Decentralized Exchanges||Uniswap, Sushiswap, Curve|
|Lending & Borrowing||Aave, Compound, Maple Finance|
|Perpetuals||dYdX, Perpetual Protocol|
|Structured Products||Ribbon Finance, Friktion|
|Insurance||Nexus Mutual, Risk Harbor|
|Fixed Interest Rate||Notional Finance, Element Finance|