Category: DeFi

What is a Decentralized Autonomous Organization (DAO)?

What is a DAO?

We have all heard about organizations. They are based in a certain nation, have a centralized management team that owns and governs the organization, and can have hundreds of thousands of members.

What if I told you there is a new type of organization? Can you picture coordinating with individuals from all over the globe without knowing each other, defining your own rules, and making your own choices all inscribed on a blockchain? DAOs are making this a reality.

A DAO, or decentralized autonomous organization, is a blockchain-based organization that is frequently administered by a native crypto token.

Anyone who buys and keeps these tokens has the opportunity to vote on crucial DAO-related issues. Smart contracts are often used in place of traditional corporate structures to coordinate the efforts and resources of many people toward common goals.

The primary distinction between a DAO and a basic interest club is that DAOs are entities with economic usefulness. Because they have their own governance tokens and treasuries, community members exercise caution while voting on how the DAO’s reserve money are spent, as well as other financial problems.

Finally, a DAO is totally managed by its individual members, who jointly make key choices concerning the organization’s destiny.

DAO is an organization that’s governed by code instead of leaders.

How do DAOs Work?

DAOs are designed to resemble a corporate structure, with rules and regulations developed using open-source code and enforced via smart contracts.

These smart contracts establish the groundwork for how the DAO will function.

They are very transparent, verifiable, and publicly auditable, allowing any potential member to fully grasp how the protocol will operate at each stage.

Following the formalization of these regulations on a blockchain, the next stage is to get finance. DAOs often go through a financing phase in which anybody who wants to participate can do so. Typically, funding is obtained by token issuance, in which the protocol sells tokens to acquire cash and replenish the DAO treasury.

Token holders are granted voting rights in exchange for their money, which are generally proportionate to their holdings.

The DAO is regarded live and active at the completion of the financing process, and all critical decisions about the organization are made by users achieving an agreement on ideas. Users get the capacity to vote on proposals by holding and locking cryptocurrencies into a voting contract, with the voting weight proportionate to the amount of cryptocurrency locked. The suggestion is then implemented in accordance with the specified network consensus rules, and voters are rewarded with additional cryptocurrency for their participation.

Why do we need DAOs?

Starting a business with someone that includes capital and money needs a high level of confidence in the individuals you are working with. But it is difficult to put your faith in someone you have only ever communicated with on the internet. With DAOs, you do not have to trust anybody else in the group; you simply have to trust the DAO’s code, which is completely visible and verifiable by anyone.

DAO membership

There are different models for DAO membership. Membership can determine how voting works and other key parts of the DAO.

  • Token-based membership: Depending on the token used, it is usually completely permissionless. Generally, these governance tokens may be freely exchanged on a decentralized exchange. Others must be earned by delivering liquidity or some other form of ‘proof-of-work‘ In any case, merely possessing the token allows you to vote.

  • Share-based membership: Share-based DAOs are more permissioned, but still quite open. Any prospective members can submit a proposal to join the DAO, usually offering tribute of some value in the form of tokens or work. Shares represent direct voting power and ownership. Members can exit at anytime with their proportionate share of the treasury.


Pros

  • No hierarchy: the community governs themselves
  • Democratic: anyone can raise a proposal and decisions go through majority voting.
  • Transparent: the code is open source for all to see.
  • Open access: Anyone with internet access could hold DAO tokens or buy them, this giving them decision-making power in the DAO.

Cons

  • Flat structure: Decision-making may be inefficient as majority vote is needed
  • No change: Difficult to change smart contract rules once deployed on the blockchain
  • Legality: Legal gray areas as DAOs are not bound to any specific jurisdiction

What is a Crypto Liquidity Pool?

A liquidity pool is a crowdsourced pool of tokens locked in a smart contract that offer liquidity in decentralized exchanges (DEXs) in an effort to mitigate the difficulties created by illiquidity in such systems.

Instead of traditional buyer-and-seller markets, many decentralized finance (DeFi) systems employ automated market makers (AMMs), which allow digital assets to be exchanged automatically and without authorization via liquidity pools.

Because each liquidity pool is made up of two tokens, they are also known as pairs.

A liquidity pool is a smart contract in which tokens are locked in order to provide liquidity.

How do liquidity pools work?

A liquidity pool, at its heart, is a smart contract that regulates the supply of two crypto assets, like USDC and ETH. This type of smart contract is known as an automated market maker (AMM).

Anyone who utilizes the above-mentioned pool to exchange ETH for USDC or vice versa is a member of this pool. When someone makes a deal, regardless of how much or how little they exchange, they pay a fixed cost.

To make this model function, the pool must have a constant supply of USDC and ETH, which is where liquidity providers come in.

A liquidity provider must deposit the same amount of USDC and ETH. We may imagine that many other liquidity providers are doing the same thing so that when someone wants to trade a token, they can do so easily.

When the liquidity provider adds their tokens to the pool, the underlying smart contract will return a “liquidity pool token” representing their stake. They also earn a part of the fees paid by traders who utilize the pool, which is proportionate to the amount of liquidity pledged.

The AMM smart contract that underpins the liquidity pool is constantly rebalancing, quoting prices based on supply and demand.

Liquidity pools seek to address the issue of illiquid markets by motivating users to supply crypto liquidity in exchange for a part of trading costs.

Why Are Crypto Liquidity Pools Important?

Any seasoned trader in traditional or crypto markets will warn you about the risks of investing in a market with minimal liquidity. Slippage will be an issue when attempting to enter — or leave — any deal, whether it is a low-cap cryptocurrency or a penny stock.

The discrepancy between the projected price of a trade and the price at which it is performed is referred to as slippage. Slippage is most prevalent during moments of extreme volatility, but it can also happen when a large order is completed but there is not enough activity at the targeted price to keep the bid-ask spread constant.

The bid-ask spread of the order book for a specific trading pair determines the market order price that is employed in times of high volatility or low activity in a typical order book model. This implies it is the price at which sellers are willing to sell the item and the price at which buyers are willing to acquire it.

Low liquidity, on the other hand, might result in increased slippage, and the executed trading price can greatly surpass the initial market order price, depending on the bid-ask spread for the asset at the moment.

Liquidity pools seek to address the issue of illiquid markets by motivating users to supply crypto liquidity in exchange for a part of trading costs.

Trading utilizing liquidity pool protocols does not need buyer and seller matching. This implies that users may easily trade their tokens and assets utilizing liquidity offered by users and transacted using smart contracts.

Uses of Crypto Liquidity Pools

  • Token Distribution: Liquidity mining is also a viable technique for distributing fresh tokens to the correct individuals in various crypto initiatives.
    Better efficiency is provided by the algorithmic distribution of tokens to users who have placed their tokens in the liquidity pool.
    Following that, the freshly produced tokens are allocated based on each user’s part in the liquidity pool.
  • Yield Farming: A way of earning tokens from your crypto holdings. It is been compared to farming since it is a novel approach to “produce your own cryptocurrency.” The procedure entails leasing crypto assets to DeFi in exchange for interest.
    The money in the liquidity pool are used to give liquidity to a DeFi protocol, which is used to allow trading, lending, and borrowing.
    The platform makes fees by providing liquidity, which are distributed to investors based on their part of the liquidity pool.
    Yield farming is often referred to as liquidity mining.
  • Governance:  The best liquidity pools could also serve as helpful instruments in governance. You could discover a potentially higher threshold of token votes required for establishing a formal proposal for governance. However, pooling funds together as an alternative could help participants rally behind a common cause perceived as significant for protocol. 

Advantages

The benefit of employing liquidity pools is that it eliminates the need for a buyer and a seller to agree to swap two assets for a defined price, instead leveraging a pre-funded liquidity pool.

As long as there is a large enough liquidity pool, transactions can take place with little slippage even for the most illiquid trading pairs.

Other users contribute the funds kept in the liquidity pools, and they receive passive income on their deposits through trading fees based on the percentage of the liquidity pool that they provide.

Risks

Impermanent losses are one of the most serious dangers associated with the liquidity pool.

Because of the volatility in a trading pair, liquidity pooling causes a temporary loss of cash for the liquidity providers.

The trading activity of the pool has a significant influence on the asset’s pricing.

Arbitrage traders might benefit from a fluctuation in the asset’s price in relation to the worldwide market price.

Furthermore, pricing algorithms in liquidity pooling may cause slippage difficulties for smaller pools.

Final Thoughts

Liquidity pools are the most current inventive technical intervention in the crypto sector.

They are critical to the viability of the present DeFi technology stack.

Liquidity pools may boost access and yield farming opportunities while also opening up new pathways in DeFi use cases.

On the other hand, they pose various hazards, such as temporary loss and over-reliance on smart contracts.

What is a Decentralized Crypto Exchange (DEX)?

What is a Decentralized Crypto Exchange?

Every person on the planet has heard about cryptocurrencies in recent years.

With the growing popularity of cryptocurrencies comes an increased interest in other digital financial transactions.

But, if you want to buy or sell cryptocurrencies, you will need a exchange.

A decentralized exchange, or DEX, is a peer-to-peer marketplace where cryptocurrency traders may conduct transactions without entrusting their assets to an intermediary or custodian.

To understand decentralized exchanges, first you should familiarize yourself with centralized exchanges. 

A centralized exchange is a platform where anyone may buy, sell, or trade cryptocurrencies that are listed on that exchange.

Assume you wish to acquire some Bitcoin.

You may visit an exchange, join up by supplying banking and identification information, and deposit some cash.
The exchange will tell you the price based on a “order book” of individuals buying and selling at various quantities, and you can then complete the transaction.

So, what comes next?

The exchange will display those Bitcoins in your account, and you may trade them for other tokens. But you do not truly own them since you are relying on the exchange to serve as a custodian on your behalf.

Any trade you perform, like as exchanging Bitcoin for Ethereum, takes place within the exchange’s database rather than on a blockchain.

The user’s coins are pooled into exchange-controlled wallets.

The exchange is in charge of your private keys

DEX supporters argue that the attractiveness of decentralized exchanges is security.

A centralized exchange can restrict your access to your cryptocurrency, limit or prevent your ability to trade it, and potentially leave you susceptible to hackers.

Centralized exchanges, on the other hand, are often considerably easier to use for newbies, and they may sometimes offer quick trading since they are not bound by blockchain technology.

How do DEXs work?

DEXs are constructed on top of blockchain networks and employ smart contracts to enable trade between individuals while retaining ownership of their currency.

Along with the trading cost, each deal incurs a processing fee.

Decentralized exchanges are classified into three types:

  • Automated market makers
  • Order books DEXs
  • DEX aggregators

Automated market makers (AMMs):

AMMs rely on blockchain-based services called blockchain oracles, which supply information from exchanges and other platforms to fix the price of traded assets.

Instead of matching buy and sell orders, these DEX’s smart contracts employ pre-funded asset pools known as liquidity pools.

Other users finance the pools, and they are then entitled to the transaction fees levied by the protocol for executing transactions on that pair.

To earn income on their cryptocurrency holdings, these liquidity providers must deposit an equivalent amount of each asset in the trading pair, a process known as liquidity mining.

If they try to deposit more of one asset than the other, the pool’s smart contract invalidates the transaction.

Traders can utilize liquidity pools to execute orders or earn interest in a permissionless and trustless manner.

These exchanges are frequently graded based on the amount of cash locked in their smart contracts, known as total value locked (TVL).

Order book DEXs

Order books compile records of all open orders to buy and sell assets for specific asset pairs. The spread between these prices determines the depth of the order book and the market price on the exchange.

There are two kinds of order book DEXs:

  1. on-chain
  2. off-chain

Every transaction in an on-chain order book is recorded to a blockchain.

That includes not only the transaction itself, but also the request to purchase or cancel an order.

It is the pinnacle of decentralization, but the requirement to place everything on a blockchain can make it more expensive and slower.

With off-chain order books, all of this happens elsewhere, with only the final transaction settled on the blockchain. Since orders aren’t stored on-chain, this method can run into some of the security issues of centralized exchanges but isn’t as slow or costly as on-chain order books.

It is vital to note that order book DEXs frequently have liquidity concerns.

Traders typically prefer centralized platforms since they are effectively competing with centralized exchanges and pay more costs as a result of what is paid to transact on-chain.

While DEXs with off-chain order books decrease these expenses, smart contract risks exist due to the requirement to deposit cash in them.

DEX aggregators

To overcome liquidity issues, DEX aggregators employ a variety of protocols and techniques.

These platforms effectively combine liquidity from many DEXs in order to minimize slippage on big orders, optimize swap costs and token prices, and provide traders with the best price in the shortest amount of time.

Another important purpose of DEX aggregators is to protect consumers from the price effect and to reduce the risk of unsuccessful transactions. Some DEX aggregators additionally employ liquidity from centralized platforms to give a better experience for consumers, all while staying non-custodial through interaction with certain centralized exchanges.

Why should you opt for DEXs?

Trading on decentralized exchanges may be costly, particularly if network transaction fees are high at the time the deals are made.

However, there are significant benefits to adopting DEX platforms.

  • Privacy: Because DEXs are anonymous, they should be your first choice if you desire total anonymity.
    Centralized crypto exchanges may request know-your-customer information, whereas DEXs operate on the premise of anonymity.
  • Token availability: Before listing tokens on centralized exchanges, they must be independently vetted to verify they conform with local rules.
    Decentralized exchanges may incorporate any token generated on the blockchain around which they are constructed, implying that new projects will likely list on these exchanges before their centralized equivalents.
  • Reduced security risks: Because all the funds in a DEX trade are housed on the traders’ own wallets, they are less vulnerable to a hack.

What are some potential downsides?

  • Requirement of specific knowledge: Users should be familiar with security principles in order to protect their cash in a DEX crypto exchange. Furthermore, you must have special expertise on the choosing of wallets as well as the funding of the wallet with appropriate tokens.
  • No customer service: Centralized exchanges function similarly to banks.
    They have consumers that they mostly wish to keep satisfied. However, there is no actor on the opposite end of a genuinely decentralized exchange.
    The protocol’s creators do not have the same connection with users. While there are entire communities of DEX users, you are alone responsible for your own finances.
  • Smart contract risks: Exploitable defects in smart contracts may evade extensive audits and detailed code reviews, causing more harm.
  • Unverified token listings: On DEXs, anybody can create a new token with the purpose of increasing liquidity. However, for investors, this may result in rug pull scams. As a result, traders must exercise extreme caution while validating tokens before to investing in them.

Final Thoughts

The first decentralized exchanges appeared in 2014, and their popularity grew in tandem with the rising popularity of DeFi.

DEXs have moved beyond their traditional order book model shortcomings thanks to the capabilities of the Automated Market Maker technology.

Decentralized crypto exchanges, on the other hand, have proven to be crucial venues for users to borrow cash for leveraging their holdings or give liquidity in return for trading fees.

DEXs have also allowed users to generate passive income from their cryptocurrency holdings by depositing them in liquidity pools.

On the contrary, the usage of smart contracts in DEXs continues to introduce dangers.

What is Crypto Staking?

What is staking?

Staking has lately gained popularity in the crypto world, and like many things in crypto, staking may be a difficult or easy concept, depending on how many layers of understanding you want to access.

Before delving into crypto staking, it is natural to ponder if it is worthwhile to stake cryptocurrencies. Indeed, crypto staking has seen a rapid growth in recent years, with intermittent surges in the number of people staking cryptocurrencies for yield farming prizes or fixed interest.

In reality, big exchanges such as Coinbase and Binance that offer staking services to consumers might earn APYs of up to 30%. As a result, you can plainly see a significant increase in the demand for staking cryptocurrencies, which generates numerous talks about staking.

Staking is a way of earning rewards for holding certain cryptocurrencies

Crypto staking is the process of locking up crypto holdings in order to receive rewards or interest. Cryptocurrencies are built on blockchain technology, which verifies crypto transactions and stores the resulting data on the blockchain. Staking is another term for confirming transactions on a blockchain.

These validation methods are referred to as proof-of-stake (PoS) or proof-of-work (PoW) depending on the kind of cryptocurrency and its accompanying technology. Each of these procedures contributes to crypto network consensus, or confirmation that all transaction data adds up to what it should.

However, attaining that consensus necessitates the participation of others. That is what staking is—investors that actively retain or lock up their crypto assets in their crypto wallet are participating in the consensus-taking procedures of these networks. Stakers are essentially the people that approve and verify transactions on the blockchain.

The networks reward those investors for doing so. The particular prizes will vary according to the network. It may be useful to think about crypto staking as equivalent to putting money in a savings account. As a reward from the bank, the depositor gains interest on their money while it is with the bank, which utilizes the money for other reasons (lending, etc.). Staking coins is therefore analogous to earning interest.

How does Crypto Staking work?

Staking is how new transactions are added to the blockchain in cryptocurrencies that follow the proof-of-stake concept.

Participants must first pledge their currencies to the cryptocurrency protocol. The protocol selects validators from among these individuals to confirm blocks of transactions. The more coins you commit, the more probable it is that you will be selected as a validator.

When a new block is added to the blockchain, new cryptocurrency coins are created and given as staking rewards to the validator of that block. Most of the time, the payouts are the same cryptocurrency that the members are staking. Some blockchains, however, employ a different form of coin for incentives.

To stake cryptocurrency, you must first acquire a cryptocurrency that employs the proof-of-stake concept. Then you may decide how much you wish to bet. Many prominent exchanges allow you to do so.

When you stake your coins, they remain in your ownership. You’re basically putting them to work, and you may unstake them later if you wish to exchange them. The unstaking process may take some time, and some cryptocurrencies require you to stake coins for a set period of time.

Staking is not available for all forms of cryptocurrencies. It is only accessible for coins that employ the proof-of-stake methodology.

To add blocks to their blockchains, several cryptocurrencies employ the proof-of-work concept. The issue with proof of work is that it needs a significant amount of computational power. As a result, cryptocurrencies that employ proof-of-work consume a lot of energy. Because of environmental issues, Bitcoin in particular has been chastised.

Proof-of-stake, on the other hand, does not need quite the same amount of effort.

Which cryptocurrencies are capable to be staked?

This also makes it a more scalable solution capable of handling larger volumes of transactions.

Here are a few of the major cryptocurrencies you can stake:

  • Ethereum: was the first cryptocurrency with a programmable blockchain that developers can use to create apps. Ethereum started out using proof of work, but it’s transitioning to a proof-of-stake model.
  • Cardano: is an eco-friendly cryptocurrency. It was founded on peer-reviewed research and developed through evidence-based methods.
  • Polkadot: is a protocol that allows different blockchains to connect and work with one another.
  • Solana: is a blockchain designed for scalability since it offers fast transactions with low fees.

Is Crypto Staking a Good Investment?

Anyone may earn crypto by staking it. However, unless someone has a large cache of proof-of-stake coins, staking is unlikely to make them wealthy.

Staking payments are comparable to stock dividend payouts in that they both provide passive income. They don’t need the user to do anything other than keep the correct assets in the proper place for a defined period of time. Because of compound interest, the longer a user invests their coins, the bigger the overall profit potential.

However, unlike dividends, there are a few factors specific to proof-of-stake currencies that determine how much of a staking incentive users are likely to earn. When looking for the most successful staking coins, users should consider the following variables and more:

  • How big the block reward is
  • The size of the staking pool
  • The amount of supply locked

Furthermore, the fiat currency worth of the coin being staked must be considered. Assuming that this value remains stable or grows, staking might be advantageous. However, if the coin’s value declines, earnings may be swiftly depleted.

What exactly is a stake pool?

A staking pool is a collection of coin holders that pool their resources in order to improve their chances of validating blocks and getting rewards. They pool their staking power and split the benefits in accordance to their contributions to the pool.

Setting up and managing a staking pool may take a significant amount of effort and expertise. Staking pools are best successful on networks if the entrance barrier (technical or financial) is reasonably high. As a result, many pool operators deduct a fee from the staking incentives provided to players.

Aside from that, pools may offer further freedom to individual stakeholders. Typically, the stake must be locked for a specific length of time, and the protocol specifies a withdrawal or unbinding time. Furthermore, there is probably definitely a significant minimum amount necessary to stake in order to disincentivize malevolent action.

The majority of staking pools have a minimal minimum balance and no extra withdrawal delays. As a result, joining a staking pool rather than staking alone may be preferable for beginning players.

The Advantages of Crypto Staking

Here are some of the advantages of staking cryptocurrency:

  • It is an easy way to earn interest on your cryptocurrency holdings
  • You do not need any equipment for crypto staking like you would for crypto mining.
  • You are helping to maintain the security and efficiency of the blockchain
  • It is more environmentally friendly than crypto mining

The major advantage of staking is that you earn more cryptocurrency, and interest rates may be quite high. In rare circumstances, you may be able to make more than 10% or 20% every year. It has the potential to be a highly rewarding method to invest your money.

And all you need is crypto that operates on the proof-of-stake mechanism.

Staking is another technique to support the blockchain of a cryptocurrency in which you have an investment. These cryptocurrencies rely on staking by holders to authenticate transactions and keep things operating smoothly.

The Dangers of Crypto Staking

There are a few risks of staking crypto to understand:

  • Crypto prices are volatile and can drop quickly. If your staked assets suffer a large price drop, that could outweigh any interest you earn on them.
  • Staking can require that you lock up your coins for a minimum amount of time. During that period, you’re unable to do anything with your staked assets such as selling them.
  • When you want to unstake your crypto, there may be an unstaking period of seven days or longer.

The most significant danger of crypto staking is that the price will fall. Remember this if you come across coins with unusually high staking reward rates.

Many lesser crypto companies, for example, promise high returns to tempt investors, but their prices later plummet. If you want to add cryptocurrencies to your portfolio but want less risk, cryptocurrency stocks may be a better option.

Although the crypto you stake is yours, you must unstake it before you may trade it again. To avoid unpleasant surprises, ask out if there is a minimum lockup time and how long the unstaking procedure takes.

Closing thoughts

Staking is a method of earning additional benefits by using your crypto holdings or coins. It might be beneficial to conceive of it in terms of earning interest on cash deposits or dividends on stock assets.

Essentially, coin holders enable their crypto to be utilized in the blockchain validation process and are paid by the network for doing so. Staking might provide another possible revenue stream for cryptocurrency investors.

What is a Stablecoin?

What is a stablecoin?

A stablecoin is a digital asset that is linked to a physical asset or fiat money. As a result, it is less volatile than other cryptocurrencies such as Bitcoin and Ethereum. The bulk of the 4000+ cryptocurrencies in existence in 2021 are not stable. This implies that they can change dependent on their market capitalization, the number of coins in circulation, the number of individuals investing, and other factors. Stablecoins originated in response to a market requirement for stability. They still use the same blockchain technology as other cryptocurrencies, but they have been designed so that their value does not fluctuate as much.

Types

There is some attraction to fiat currencies, which are backed by the full confidence and credit of the government that issued them. Fiat currencies benefit from some price stability because of this.

This, however, implies that many fiat currencies are essentially controlled by their central banks. Stablecoins are an attempt to bridge the gap between fiat currency and cryptocurrency. Stablecoins are classified into three types based on their operating processes.

  • Fiat-Collateralized: Fiat-collateralized stablecoins keep a fiat currency reserve, such as the US dollar, as collateral in order to issue a sufficient amount of crypto coins. Other kinds of collateral can include precious metals like as gold or silver, as well as commodities such as oil, however most fiat-collateralized stablecoins nowadays employ dollar reserves. Such reserves are managed by independent custodians and are audited on a regular basis to ensure compliance. Tether and TrueUSD are popular crypto currencies with a value equal to one US dollar and are backed by dollar deposits.

Pros:
– Stable price
– Not prone to hack

Cons:
– Needs an auditor to make sure transparency is maintained
– Slow liquidation to fiat

  • Crypto-Collateralized: Stablecoins that are crypto-collateralized are backed by other cryptocurrencies. Because the reserve cryptocurrency may be volatile, such stablecoins are over-collateralized — that is, a higher number of cryptocurrency tokens are kept as a reserve for releasing a smaller number of stablecoins.

Pros:
– More decentralized
– Quick and cheap liquidation — smart contracts

Cons:
– Not as price stable as the fiat baked stable coins
– Tied to the health of a particular crypto currency
– High complexity

  • Non-Collateralized (Algorithmic): Non-collateralized stablecoins do not employ reserves but do feature a functional mechanism, like that of a central bank, to maintain a stable price. For example, the dollar-pegged basecoin employs a consensus process to increase or reduce token supply based on demand. Such operations are analogous to a central bank producing banknotes to sustain fiat currency values. It is possible to do this by deploying a smart contract on a decentralized platform that can run autonomously.

Pros:
– No collateral required
– Most decentralized and independent
– Not tied to any crypto or fiat

Cons:
– Complex to implement as deeper understanding of finance, economics, technology and cryptography knowledge is required to think along these lines.

Advantages

Stablecoins are gaining popularity due to their promise of a more stable cryptocurrency choice. These are the crypto market’s safe bets, with support that prevents them from plunging overnight. But that’s not the only advantage of stablecoins; they also have a broader appeal, which means they’re more likely to get ingrained in society. As a result, it’s less of a risk for investors and early adopters, who can reasonably trust that the money they put into the currency isn’t going to vanish.

When the general public hears about a certain stablecoin, it is simpler to disseminate it and its effect since it is backed by a physical asset. The normal user is more likely to believe a currency that is the digital equal of a dollar than some transitory digital coin.

The presence of this anchoring feature elevates stablecoins from a mysterious new technology to something that even your grandmother could use. This has the potential to dampen the euphoria a little, because few young tech disruptors will be keen to share their preferred money with the older generation, because that’s just not hip enough. But, let’s be honest, hype hasn’t been doing a great job of keeping other cryptos afloat thus far.

Furthermore, stablecoins are a better choice for speedy transactions than options like Bitcoin and its rivals. The consistent pricing, quick turnaround, and accelerated processing make it suitable for paying for groceries or ordering pizza. The key method of grabbing market attention is to embed stablecoins in daily life and make them function for the user, which has shown to be effective so far.

Problems

Stablecoin, although being a hopeful development in the crypto industry, is not without its drawbacks. There’s no getting around the reality that many of the best stablecoins forego decentralization in favor of the same stability that makes people want them. This, in and of itself, contradicts the original ideology of cryptocurrencies and puts the market at risk of monopolization or cornering.

To be sure, some solutions advocate for decentralization while still attempting to retain the objectives of crypto’s creators. Those, however, confront the challenge of obtaining adequate funding. Essentially, if you rely on a bank to handle collateralization, you may anticipate value stability but at the expense of decentralization. Similarly, crypto-backed stablecoins are decentralized, but they must make certain concessions in terms of stability.

It’s always a balancing act, and not every business can pull it off.

Last but not least, while a crash in the underlying currency or asset is less likely than one in the crypto market, it is nevertheless possible. Stablecoins are not immune to nationwide currency value drops, which have historically occurred all over the world, thus they are not immune .However, if you have analytics on your side, you can generally detect this type of disaster well in advance. Just keep in mind that stablecoins aren’t magically guaranteed to remain stable indefinitely, and you’ll be OK.

Wrap up

Stablecoins are similar to traditional currencies, with the exception that they do not have any centralized qualities and instead utilize smart contracts and blockchain, which are written in computer code, to replace the functions of traditional investment and currency platforms. Finally, stablecoins provide greater benefits in terms of hedging the value as well as many methods to invest in DeFi-based smart contracts. Stablecoins eliminate centralization and become the bridge between the real economy and the encrypted economy, allowing users to focus solely on their earning strategy and never worry about the fluctuation in the crypto world.

What is a Non-Fungible-Token (NFT)?

What is a Non-fungible-token?

NFT is an abbreviation for “non-fungible token”.

NFTs are blockchain-based cryptographic assets with unique identification numbers and information that identify them from one another. They are distinct from fungible tokens such as bitcoins, which are identical to one another and may thus be used as a medium for economic transactions.

In economics, a fungible asset, such as dollars, may be easily exchanged while retaining the same value since their worth, rather than their distinctive features, characterizes them. For instance, trading two $5 bills for a $10 note. This is impossible if anything is non-fungible — these objects are not interchangeable with other items since they have distinct features.

Each NFT’s unique structure allows for a variety of usage scenarios. They are, for example, an excellent vehicle for digitally representing actual assets such as real estate and artwork. NFTs, which are based on blockchains, may also be used to eliminate intermediaries and link artists with audiences, as well as for identity management.

NFTs are tokens that can be thought of as certificates that represent ownership of these unique non-fungible items.

They can only have one official owner at a time.

NFTs can also be used to represent individuals’ identities, property rights, and more.

Origin

NFTs gained traction in 2017 with the release of CryptoKitties, a decentralized application (dApp) on the Ethereum blockchain that allows users to breed and acquire digital cats.

NFTs, on the other hand, have witnessed a strong increase in attention from collectors and artists alike in 2021.

Like other fungible tokens, are often constructed on the ERC721 token standard — a templated smart contract that describes how an NFT interacts with other smart contracts and users. The ERC721 standard has hastened the development and deployment of new NFTs, as well as the establishment of numerous markets like as Rarible, OpenSea, and SuperRare.

NFT markets enable users to advertise, purchase, and trade NFTs in real time, hence promoting the expansion of the NFT ecosystem.

The renewed interest in NFTs has resulted in a Cambrian explosion of unique applications that leverage the property of non-fungibility in novel ways, often with the goal of increasing asset ownership efficiency and reducing the need for intermediaries who siphon value away from creators and marketplaces.

However, NFTs are still in their infancy, which means there is a lot of room for development from inventive developers, creative artists, and conventional institutions looking to bring unique assets on-chain.

How are NFTs traded?

NFTs, like cryptocurrencies, are traded on specialized platforms. The most well-known NFT marketplace is OpenSea.

A sale does not always imply the transfer of the object represented by the token. What is exchanged is a blockchain-registered certificate of ownership for the NFT.

The certificate must be stored safe in a digital wallet, which can come in a variety of formats. Finally, NFTs are digital contracts with inherent rules such as the quantity of copies available for sale.

Digital scarcity

With the advent of digital technology and the ubiquitous usage of online communications, we have grown accustomed to web-based copy-and-paste sharing.

If I have a photograph and create a duplicate of it to give to you, we now both have this photograph. If it’s posted on social media, anyone may download or screenshot the image. Even if I attach some metadata to the original picture, there is no way for me to establish that the original photograph is mine. Because digital information may be modified or wiped, this type of digital asset does not offer evidence of ownership.

Everything changes when there is a scarcity of digital resources.

Non-fungible tokens enable digital assets to be genuinely unique and their ownership can be confirmed and transferred on the blockchain in minutes, resulting in an immutable and unalterable transaction record.

NFTs Vs. cryptocurrency

NFTs and cryptocurrencies both rely on the same blockchain technology. NFT markets may also compel customers to use cryptocurrencies to acquire NFTs.

Cryptocurrencies aspire to function as currencies by holding value or allowing you to purchase and sell items. Cryptocurrency tokens are fungible, comparable to conventional currencies such as the US dollar.

NFTs generate one-of-a-kind tokens that may be used to demonstrate ownership and communicate rights over digital products.

Why are NFTs valuable?

NFTs are valuable because they may be sold for a large sum of money. Consider how much money individuals have made from trading Pokémon cards, baseball cards, and other collectibles. This is the digital equivalent of a collectable. If a digital artist develops a work of art, they may make a lot of money with the NFT. Their artwork will be solely theirs. NFTs vary from trading cards in this regard.

Types of NFTs

NFTs provide a versatile framework for monitoring ownership of a diverse range of digital and physical assets via a blockchain network, as well as adding use to these assets in a variety of intriguing ways. The number of possible applications for NFTs is growing, but here are a few examples.

  • Digital Art: Tokenized ownership of digital artwork is one of the most well-known NFT use cases. Artists may monetise their work by tokenizing it and then selling it to a worldwide market of potential purchasers who just need an Internet connection to do so. Unlike conventional art marketplaces, which are frequently opaque, value-extracting, restricted in discoverability, and demand hefty listing costs, NFTs may be published on global, permissionless internet marketplaces and can even give creators with cash from all secondary sales.
  • Real Estate: To bring liquidity to typically fragmented markets, NFTs can also reflect ownership of real-world assets such as real estate. Tokenization of real estate improves the efficiency of transferring ownership by providing a single source of truth on the validity and provenance of a given property. Tokenizing real-world assets may be extended to incorporate a wide range of asset categories, including actual artworks, government papers, certificates, and degrees. While in in its infancy, real-world assets tokenized as NFTs open up a slew of new possibilities, ranging from revenue-generating real-estate tokens backed by rental income to issuing digital credentials without the requirement for a physical document equivalent. They can also digitize existing documents such as college degrees and intellectual property contracts, increasing credential transparency and opening up new avenues for automation.
  • Gaming: Because they enable unique in-game goods to be tokenized, monitored, and transferred in a non-custodial way, NFTs are a critical component of blockchain-based video games. In the case of typical online video games, centralized producers have total control over the distribution, ownership, and qualities of in-game commodities, which frequently influence the worth of certain characters and game results. If the publisher goes out of business, gamers may lose access to all of the game things they may have spent hours, days, weeks, or even months obtaining. NFTs not only provide players total control over their game stuff, but they also open up completely new gameplay possibilities. This covers the distribution of randomized NFT incentives in blockchain-based games, as well as the development of an interoperable metaverse, in which things from one game may be used and exchanged in another. NFTs have also furthered the growth of the play-to-earn model where users can monetize their time and effort from gaming by acquiring rare NFTs and selling them to others.
  • Music: Blockchains have enabled musicians to tokenize their work using NFTs in order to enhance revenue and stimulate audience involvement. With the Covid-19 epidemic accounting for an 85 percent decrease in music industry revenue, additional income from NFTs has helped artists offset these losses while also offering fans with a means to acquire unique rewards like as limited-edition souvenirs and even direct access to the artist’s time.
  • Collectibles: NFTs enable a new sort of digital collectible, similar to collecting actual trade cards or postage stamps. Collectors can purchase rare digital goods or show their support for a certain firm, brand, game, or artist. Unlike actual artifacts, which may be slow to move and expensive to maintain, NFTs are completely digital, transferable in seconds, and never degrade in quality. CryptoPunks, a collection of 10,000 unique 8bit-style characters algorithmically produced such that no two characters are precisely identical, is one of the most well-known NFT collections. CryptoPunks were among the first NFTs to be designed and distributed for free. They continue to draw customers who wish to possess a piece of NFT history.

Can anyone make an NFT?

Technically, anybody may produce a work of art, convert it to an NFT on the blockchain (a process known as ‘minting’) and sell it on their preferred marketplace.

You may also include a commission in the file that will pay you every time someone buys the artwork through resale. You must have a wallet set up, same like when purchasing NFTs, and it must be loaded full of cryptocurrencies. The issues stem from the necessity for money up advance.

The hidden costs can be excessively high, with sites charging a ‘gas’ fee for each sale (the cost of the energy required to conduct the transaction), in addition to a fee for selling and purchasing. You must also consider conversion costs and pricing changes based on the time of day. All of this implies that the costs might frequently be far more than the price you receive for selling the NFT.

Whether or whether NFTs are here to stay, for the time being, they are making some individuals money and opening up new avenues for digital creativity.

Cons

The hundreds of dollars in costs necessary to set up an NFT is a disadvantage.

If you want to create your own token on the Ethereum blockchain, you’ll need some ether, which, as previously said, is rather expensive. After that, there is a “gas” cost that compensates for the effort that goes into handling the transaction and is likewise dependant on the price of ether.

When an NFT is sold, marketplaces streamline the process by handling everything for a charge.

There is also an environmental cost to consider. Like Bitcoin, ether necessitates the use of computers to do computations, a process known as “mine,” and these computer jobs use a significant amount of energy. According to a Cambridge University study, Bitcoin mining consumes more energy than the whole country of Argentina. Ether is the second most popular cryptocurrency after Bitcoin, and its power consumption is increasing to the point where it is similar to the amount of electricity consumed by Libya.

On top of that, the number of NFT fraudsters is increasing.

According to Vice, the “Evolved Apes” NFT vendor made millions of dollars after offering a collection of 10,000 NFTs. The tokens were offered for public purchase last month, but the social media profile and website mysteriously vanished. NFTs were not delivered to buyers. This is one of numerous NFT frauds that are causing purchasers to lose a lot of money.

What is DeFi?

What is DeFi?

DeFi, or decentralized finance, is a blockchain-based financial system capable of stripping out traditional financial middlemen such as banks, brokerages, and exchanges.

It makes use of smart contracts to enable users to lend or borrow funds from others, bet on price fluctuations on a variety of assets using derivatives, insure against risks, and earn interest in savings-like accounts.

Because of it nature, a government-issued ID, social security number, or proof of address are not required. DeFi allows buyers, sellers, lenders, and borrowers to interact with one another or with a strictly software-based middleman rather than with a company or institution that facilitates a transaction.

To achieve the aim of decentralization, a variety of technologies and protocols are employed. A decentralized system, for example, might be made up of open-source technology, blockchain, and proprietary software. These financial products are made feasible by smart contracts, which automate agreement terms between buyers and sellers or lenders and borrowers. DeFi solutions, regardless of the technology or platform employed, are intended to eliminate middlemen between transacting parties.

Decentralized finance makes use of technology to disintermediate centralized models and enable the delivery of financial services to anybody, regardless of race, age, or cultural identity.

It lowers the barrier to admission.

Simultaneously, DeFi applications provide consumers more control over their money through personal wallets and trading platforms that cater to individual users rather than institutions.

How does it work?

DeFi provides services without the need of intermediaries by utilizing cryptocurrency and smart contracts. In today’s financial environment, financial institutions serve as transaction guarantors. Because your money flows through them, this gives these institutions enormous influence. Furthermore, billions of individuals throughout the world do not have access to a bank account.

A smart contract substitutes the financial institution in the transaction in DeFi. When a smart contract is live, no one can change it; it will always execute as planned. Smart contracts are also open to the public for inspection and auditing. As a result, defective contracts are frequently scrutinized by the community. This does imply that there is now a need to rely on more technical members of the community who can understand code. The open-source community helps keep developers in check, but this requirement will fade as smart contracts become simpler to comprehend and alternative methods of proving code’s integrity are created.

Main elements

There are certain DeFi “building blocks” that create a software stack, with every layer building upon another. These layers work together to create DeFi and its related applications that serve users in a variety of different ways. If one layer is off, so are the other layers.

The five layers that make up DeFi include:

1. Settlement: Foundational layer of the blockchain and its specific native asset. This layer provides security and a set of rules to follow.

2. Asset: Refers to all the tokens and digital assets that are native to the blockchain.

3. Protocol: Sets the protocols or guidelines for smart contracts.

4. Application: Brings the protocols to life with a user interface that is consumer-facing.

5. Aggregation: Consists of aggregators that connect the various dApps and protocols which make up the foundation for borrowing, lending on and other financial services.

Advantages and disadvantages

  • Decentralization: It is difficult to censor or stamp out, but it does need some heavy-duty computer. Maintaining a database and records over a network of numerous computers slows things down and increases the cost of transactions.
  • No intermediaries: There is no need for a third party to safeguard the assets. That means you don’t have to worry about a financial institution failing and taking your tokens with it — or about the government seizing and confiscating your tokens. On the other side, you and your passcode are the only things keeping your assets secure. If you lose (or someone steals) your passcode, your valuables are gone for forever.
  • Available to anyone: Without typical financial credentials such as identification or a credit score, you may be able to obtain a loan or exchange virtual currency. That openness promises to bring financial services to sections of the world where they haven’t always been available, or where they are prohibitively expensive or prone to fraud or confiscation. However, the disadvantage is obvious: if nobody is keeping track of who is utilizing a service or where they are situated, the systems might be utilized by criminals or run counter to penalties. The regulatory crackdown is already in effect.

Applications

  • Send money around the world quickly: Because blockchain technology is used, money may be moved in a safe and worldwide manner.
  • Borrowing: Borrowing money from decentralized providers comes in two main varieties.
  1. Peer-to-peer, meaning a borrower will borrow directly from a specific lender.
  2. Pool-based where lenders provide funds (liquidity) to a pool that borrowers can borrow from.
  • Lending: You can earn interest on your crypto by lending it and see your funds grow in real time.
  • Access to global funds: When you utilize a decentralized lender, you have access to funds deposited from all over the world, not simply those held by your selected bank or institution. This increases the availability of loans and lowers interest rates.
  • Stable coins: Volatility in cryptocurrencies is a concern for many financial products and ordinary spending. Stablecoins have been developed by the DeFi community to address this issue. Their value is fixed to another asset, generally a prominent currency such as the US dollar.
  • Grow your portfolio: There are fund management products that will try to grow your portfolio based on a strategy of your choice. This is automatic, open to everyone, and doesn’t need a human manager taking a cut of your profits.
  • Advanced trading: For traders who like a bit more control, there are more complicated alternatives. Limit orders, perpetual orders, leveraged trading, and more options are available. Decentralized trading gives you access to global liquidity, the market never closes, and you always have complete control over your assets. When you utilize a centralized exchange, you must deposit your assets prior to the deal and rely on them to protect them. Your funds are at danger while they are deposited because centralized exchanges are appealing targets for hackers.
  • Exchange tokens: Decentralized exchanges let you trade different tokens whenever you want. You never give up control of your assets. This is like using a currency exchange when visiting a different country. But the DeFi version never closes. The markets are 24/7, 365 days a year and the technology guarantees there will always be someone to accept a trade.
  • Insurance: The goal of decentralized insurance is to make insurance more affordable, faster to pay out, and more transparent. With more automation, coverage becomes very inexpensive and payouts become much faster. The information utilized to make a decision on your claim is totally transparent. Bugs and exploits are possible, like with any program. So, for the time being, many insurance products in the market are focused on safeguarding their customers from financial loss. However, programs are being launched to provide coverage for all life may throw at us. People who are typically priced out of standard insurance might benefit from decentralized insurance.

Final thoughts

DeFi is a vast financial ecosystem that aims to eliminate the intermediary and enable financial transactions between users. There is now a lot of buzz about DeFi and cryptocurrency. If you wish to participate, be sure you understand not just the benefits but also the hazards before you begin.

What is a dApp?

What is a dApp?

A dApp, or decentralized application, is a software program similar to any other software application. It might be a website or a mobile app, but the essential distinction is that they are based on a decentralized network, such as blockchain. This means that no single entity has control over the network.

A smart contract and a frontend user interface are combined in dApps.

For instance, when you write a smart contract on Ethereum, you are really creating backend code for your dApp, and while your dApp will have a user interface like a regular app, either all or part of the backend is built on top of Ethereum.

dApp = frontend + smart contract backend

Advantages

Many of the exciting aspects are center around ability to safeguard user privacy.

  • Censorship-resistant: It is extremely difficult for governments or powerful individuals to manage the network since there is no single point of failure. Proponents of free expression point out that dApps can be created as alternatives to social media sites. Because no single member on the blockchain can remove or stop messages from being uploaded, a decentralized social media network would be impervious to censorship.-
  • No downtime: Using a peer-to-peer approach ensures that the dApps continue to function even if individual machines or sections of the network fail.
  • Open source: This encourages the widespread development of the dApp ecosystem enabling developers to build better dApps with more useful of interesting functions.

Disadvantages

While dApps promise to address many of the major issues that plague traditional programs, they do have certain drawbacks.

  • Early stages: The use of dApps is currently experimental and subject to several challenges and unknowns.
  • Hackers: As many are run on open-source smart contracts, it allows hackers the rare opportunity to probe the networks looking for weaknesses.
  • Usability: The ability to develop a user-friendly interface is another concern. A lot of dApps have poor user-interfaces.
  • Update: Another restriction of dApps is the difficulty of modifying code. Once launched, a dApp will almost certainly require continuing updates to provide additions or to repair bugs or security threats. According to Ethereum, developers may find it difficult to make necessary upgrades to dApps since the data and code broadcast to the blockchain are difficult to edit.

Closing Thoughts

The “cryptoverse” has expanded dramatically since the birth of Bitcoin, the first cryptocurrency. The ability to store data in a decentralized manner was a crucial prelude to the decentralization of code execution. With Ethereum, smart contracts may now be deployed all around the world to power the backend of present and future dApps. And as more dApps are released, we’ll move closer to a more free, fair, and accessible internet.

What is a Smart Contract?

What is a Smart Contract?

Smart contracts are essentially programs, recorded on a blockchain, that run when certain criteria are satisfied. They are often used to automate the implementation of an agreement so that all participants are instantly confident of the outcome, without the participation of an intermediary or the waste of time.

Smart contracts allow trustworthy transactions and agreements to be carried out between disparate, anonymous individuals without the requirement for a centralized authority, legal system, or external enforcement mechanism.

While blockchain technology has come to be thought of primarily as the foundation for Bitcoin​, it has evolved far beyond underpinning the virtual currency.

Origin

Smart contracts were first proposed in 1994 by Nick Szabo, a computer scientist who invented a virtual currency called “Bit Gold” in 1998. Szabo defined smart contracts as computerized transaction protocols that execute terms of a contract. He wanted to extend the functionality of electronic transaction methods, such as point of sale (POS), to the digital realm.

Many of Szabo’s predictions in the paper came true in ways preceding blockchain technology. For example, derivatives trading is now mostly conducted through computer networks using complex term structures.

How smart contracts work?

Smart contracts operate by executing basic “if/when…then…” statements typed into code on a blockchain. When preset circumstances are met and validated, a network of computers conducts the activities. These activities might include transferring payments to the proper parties, registering a vehicle, providing alerts, or issuing a ticket. When the transaction is completed, the blockchain is updated. This implies that the transaction cannot be modified, and the results are only visible to persons who have been granted permission.

Participants must agree on the “if/when…then…” rules that govern those transactions, investigate any conceivable exceptions, and create a framework for resolving disputes in order to set the terms.

Finally the smart contract can be coded by a developer; however, firms that use blockchain for business are increasingly providing templates, web interfaces, and other online tools to facilitate smart contract construction.

Advantages of Smart contracts

  • Speed, efficiency and accuracy: When a condition is satisfied, the contract is instantly executed. Because smart contracts are digital and automated, there is no paperwork to handle, and no time wasted correcting errors that frequently occur when filling out forms manually.
  • Security: Blockchain transaction records are encrypted, making them extremely difficult to hack. Furthermore, because each record on a distributed ledger is linked to the preceding and subsequent entries, hackers would have to modify the entire chain to change a single record.
  • Trust and transparency: There is no need to question if information has been manipulated for personal gain because there is no third party engaged and encrypted records of transactions are transmitted between participants.
  • Savings: Smart contracts eliminate the need for middlemen to conduct transactions, as well as the time delays and fees that come with them.

Future

For the time being, the most significant hurdle to widespread smart contract use is scalability. Processing data for thousands of internet firms would need a substantial amount of processing power. And capacity and speed are restricted on Ethereum. However, the future of blockchain is only around the corner. Capacity and speed appear to be no longer a problem as initiatives like the Internet of Things (IOTA) and the Internet of Services (IOST) show promising outcomes. This might imply that whole decentralized businesses function on smart contract technology, processing payments, moving assets, and managing day-to-day operations in a safe and distributed manner. Gartner, a research firm, definitely believes so. According to their annual report, smart contracts will be employed in more than 25% of worldwide businesses by 2022. It might be time to start thinking about how smart contracts could help your company.

Patricio Aguirre
Proactive Computer Engineer - Blockchain Enthusiast & Crypto Learner