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Audits of smart contracts: all you need to know

Many incredible accomplishments have been made in the field of blockchain technology. The introduction of smart contracts, however, is one of the most noteworthy. They are held on a blockchain platform such as Ethereum, and once deployed they cannot be modified or tampered with.

This makes them incredibly safe and reliable. However, for a smart contract to be effective, it needs to be audited to ensure that it works properly and meets all requirements. We're going to go over everything you need to know about smart contract audits in this blog post!

 QU'EST-CE QU'UN CONTRAT INTELLIGENT?

Smart contracts, as the name suggests, are self-executing contracts that are purely algorithmic in nature and cannot be modified by third parties. They are stored on a blockchain and can be used to automate the exchange of money, goods, stocks, or anything else of value. Because they work exactly as intended, with no possibility of fraud or outside intervention, smart contracts offer exceptionally high security. However, in order to ensure that these contracts are free from errors and vulnerabilities, it is important to audit smart contracts before deployment.

 WHAT IS A SMART CONTRACT AUDIT?

A smart contract audit is an evaluation of code to ensure that it meets all functional and security requirements. It is important to perform a smart contract audit because it can identify errors and vulnerabilities that could lead to financial losses. Also, it can help assess whether the smart contract meets all the requirements of the parties involved.

When performing a smart contract audit, there are several things to keep in mind. To get started, you need to evaluate the functionality of the code. This includes ensuring that the contract works as intended and that all conditions are met. Second, you need to assess the security of the code. Examine the structure, design, and syntax of the application to identify possible points of vulnerability that could be targeted by hackers. Finally, you need to consider the legal compliance of the code. This includes ensuring that it complies with all applicable laws and regulations.

The cost of auditing a smart contract varies depending on the company you use and the scope of the assessment. 

TIPS FOR CHOOSING THE RIGHT SMART CONTRACT AUDIT SERVICE

There are several tips that can ensure a successful smart contract audit.

·       First of all, you should always use a reputable auditing company. This will ensure you receive a complete and accurate assessment of the code.

·       Second, you need to clearly define the scope of the audit so that all areas of code are covered.

·       Finally, you should always test the code before deploying it, as this will allow you to ensure that there are no errors or vulnerabilities in the contract.

 SMART CONTRACT AUDIT BEST PRACTICES

When auditing a smart contract, there are several best practices to keep in mind.

You should always start by looking at the requirements of the parties involved. This will help you identify the audit objectives and ensure that all relevant aspects are covered. To help you find errors or vulnerabilities in code, use a testing strategy that uses both manual and automated testing.

This will help him understand the results of the audit and make informed decisions about his contract.

Smart contract audits are an important part of ensuring the security and trustworthiness of these contracts. By using the latest security standards, you can ensure that your audit is thorough and effective.

ADVANTAGES AND DISADVANTAGES OF SMART CONTRACT AUDITS

Performing a smart contract audit has many benefits.

One of the main benefits of performing a smart contract audit is that it can help identify errors and vulnerabilities in code. This can safeguard against financial losses and guarantee that the contract satisfies all conditions.

It can also assist in determining whether the contract conforms with all applicable rules and regulations, which is another advantage. This is important to ensure the validity and enforceability of the contract.

One of the main drawbacks is that it can be expensive and time-consuming, especially if you hire a company that specializes in this service for a full review.

Overall, the pros of smart contract auditing outweigh the cons. However, before selecting whether or not to perform an audit, it is crucial to consider all of the relevant variables.

CONCLUSION

Smart contract audits are an important part of ensuring the security and trustworthiness of these contracts. You can ensure that your assessment is thorough and successful by following the proper procedures while considering the cost and time involved. As long as you understand the pros and cons, a smart contract audit can be a valuable tool for your project.

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Security Audit: What is it and what are the most popular techniques?

Currently, the data contained in computer programs represent the most valuable asset for a company, regardless of its size; To prevent them from being lost or falling into the wrong hands, we must maintain high cybersecurity standards.

The software used by businesses is increasingly complex, rich in increasingly specific functionalities and, therefore, more difficult to control: for this reason, it is advisable to carry out a computer smart contract security audit to find out about possible failures in our system and prevent catastrophic consequences.

As technology advances, there are new ways to commit crimes and, therefore, cybersecurity in Mexico seeks to be reinforced.

Security audit: what is it?

The security audit is an evaluation of the security maturity level of a company, in which the security policies and processes established by it are analyzed to thoroughly review the degree of compliance. In addition, there are specific technical and organizational measures for greater robustness.

After obtaining the results of this, they are detailed and stored to notify those responsible in order to develop corrective and preventive reinforcement measures and, in this way, achieve more stable systems.

Why is security auditing convenient for companies?

If the company uses or intends to deploy international services - such as the cloud, web servers, CPV connections or email servers - that have the possibility of opening doors to its system and these are misconfigured, the security audit is presented as an excellent option.

It not only works to keep you safe from current operations, but also presents itself as a solution if you want to expand your horizons and use new technologies.

Although it is true that this strategy seeks to protect us against digital problems within the system or even against a cyber attack, it is also necessary to take into account the training of all staff as a preventive measure to prevent your employees from falling into traps such as phishing, since that these could compromise the digital health of your organization: in fact, data theft in this way is very common.

Most popular security audit types

This excellent preventive strategy can be of several types.

To begin with, cybersecurity checks can be differentiated depending on who performs them into two subtypes:

Internal

They are made by the company's own personnel with or without the help of external personnel.

External

They are executed by contracted personnel, external and independent of the company.

The ideal option can vary depending on your company's payroll budget; in certain cases, starting a new cybersecurity department would cost more than hiring experts from outside your organization.

Evaluate all the possibilities!

Now, if we consider the methodology that is applied in the security audit, it can be divided as follows:

Compliance

This type of audit ensures compliance with a certain security standard, whether national or international. For example, ISO 27001 or those that are established in the company's internal policies and procedures.

Techniques

Its objective is only to review computer programs by professionals in systems.

Lastly, security audits are a bit more specific and have a limited range of action when there is an objective to be met, which leads us to the following subtypes:

Forensic

Once the incident has occurred, this kind of security audit seeks to collect all the related data to determine the possible causes that have generated it and the information or systems affected.

Likewise, it intends to search for digital evidence that can assertively guide us to the origin of the fault in order to correct it.

Web applications

They aim to identify potential vulnerabilities in web apps that could be exploited by cyber attackers. This type of security audit is also subdivided into:

Dynamic Application Analysis: Dynamic Application Security Testing (DAST),     based on a real-time review of the web application.

Static Application Analysis – Static Application Security     Testing (SAST) to find possible vulnerabilities in the     code.

Penetration Test

Also called "ethical hacking ", it is a cybersecurity technique that tests the computer security measures that the company has, such as firewalls and IDS/IPS, among others: everything follows a protocol in the same way that a potential cyber attacker to identify weaknesses that can be corrected.

Physical access control

The platforms are audited and the protection measures that make up the physical perimeter system of a company —such as a door opening mechanism, cameras, sensors, etc.

Net

All devices connected to the network are examined to check their means of protection, such as updating their firmware, firewall rules, network access control, antivirus signatures, and network segmentation in VLAN's and Wi-Fi network security, among others.

In conclusion, computer security has grown enormously due to the great changes in conditions and new digital platforms available.

Today, most programs are interconnected, which has opened new horizons for companies to improve their productivity: with this, problems also appear; to prevent them, don't forget to include the smart contract security audit in the systems department to protect the structure of your organization.

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What is a penetration test and what is it for?

The tests or penetration tests are a systematic process to check the vulnerabilities of computer applications and networks. Basically, it is a controlled form of hacking whereby a group of people, known as pentesters, perform a scheduled attack on the system in order to find technological weaknesses before the criminals do.

They are also used to ensure compliance with a certain security policy, learn about employee awareness of it, and identify the organization's ability to respond to these incidents.

To reduce the impact on daily operations, these tests are performed outside of business hours or when technology systems are used less. If any issues are discovered, the system owner should be notified. ​

What types of penetration tests are there?

Broadly speaking, there are four varieties of penetration tests. Each of them focuses on a specific aspect of the organization.

Network penetration test: identifies security problems in the network infrastructure. This penetration testing involves scanning the network and wireless services to ensure that the network design and its individual components are well defined and programmed.

Web Application Penetration Test: Detects security issues in a web application or site. It is essential to monitor the access points to the systems and thus prevent hackers from entering them. In this way, data theft or irreparable damage to applications will be avoided.

Wireless penetration test: The purpose of this test is to discover rogue access points and devices, analyze their configurations, and test for vulnerabilities. In addition to studying the network in detail, it is convenient to identify the status of its patches and versions.

Simulated Phishing Test: Provides an independent assessment of phishing and discovers the awareness and awareness that employees have about this issue.

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Predictions for the NFT market in the next 5 years according to specialists

As a digital asset, non-fungible tokens are becoming more and more popular. Proof of this is that the first NFT gallery with Virtual Reality will be created in the Vatican, and also that they have become a sought -after object of desire for cybercriminals. Therefore, it is worth keeping an eye on the predictions for the NFT marketplace development in the near future, and evaluating whether it is worth investing now.

US-UK based research firm MarketsandMarkets has published new research predicting the behavior of NFTs for the next 5 years.

The market for NFTs is now thought to be about $3 billion. According to projections, it will reach $13.6 billion by the end of 2027.

Why is the NFT market being viewed with such optimism?

One reason analysts cite is the boom in digital art and the interest of high-profile investors such as big companies, entrepreneurs and celebrities. The expanding use cases in supply chain management, retail, and fashion are a benefit for the NFT sector.

However, its connection with the video game industry, particularly those that are already created in the metaverse, may be the key to its acceptance. For example, we have platforms like Roblox and SandBox, which are registering more and more users to access or create their virtual worlds. Not forgetting the game Axie Infinity, which has its own cryptocurrency and has created micro -economies around its NFTs in countries like the Philippines and Venezuela?

In this sense, the development of Mark Zuckerberg's metaverse and its integration with Meta's social networks will be crucial. It is expected that with the growth of Horizon Worlds , and the arrival of its new models of virtual reality headsets , in the future people will be able to enter their virtual universe from Facebook, Instagram, WhatsApp or Messenger , platforms owned by the company.

Currently, the OpenSea marketplace dominates the NFT Marketplace Development Company, but it does not mean that it does not have competition. Some cryptocurrency exchange platforms, such as Coinbase and Binance, already allow their users to buy, sell, and trade NFTs.

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Risks of Decentralized Finance

Decentralized finance is a constantly growing market, which has reported higher interest rates and yields than the traditional financial sector. This has seduced many Cryptocurrency users, who are betting on the DeFi Development market to take advantage of new investment opportunities. However, it is important to keep in mind that DeFi applications are still maturing and that there are risks inherent to their use that must be taken into account before participating in this market.

Technical vulnerabilities, errors of use and sudden movements in the market are some of the elements that alert specialists in the sector, and that every user should be aware of before depositing cryptocurrencies in any of these protocols. Although it is also good to know some other risks you face.

– Favorite target of hackers: DeFi Development Services applications can manage a lot, a lot, of money in their smart contracts. This makes them a target of interest to cybercriminals, who are on the trail of businesses vulnerable to inadvertent attacks. If a platform is released without auditing, with poor security or programming issues, it could experience massive token theft, as has happened with projects like Origin Dollar, Lendf.me, and Harvest.

– Inadvertent or intentional encoding error: As stated above, decentralized finance applications rely heavily on the codes that make them up. Smart contracts make it possible to execute vital operations for these platforms, such as money transfer, token custody or credit settlement. An error in coding a smart contract could lock up customer tokens with no possible solutions. Also, malicious entities that make life in the ecosystem could use their contracts and the inexperience of users, to get hold of money from their customers without them noticing. -Frauds: Due to the explosion in popularity of DeFi, phishing attacks (identity theft) or fraudulent platforms that seek to replace the original ones have also increased. Whether it's downloading a malicious app, launching a fictitious token, or sending virus emails capable of stealing personal information, users in the ecosystem need to be alert to potential sources of theft or phishing. – Errors of use: One of the characteristics that most concerns users of decentralized networks is that, due to the elimination of intermediaries, the responsibility for the service is transferred to the users. Each individual who uses blockchain platforms is in charge of managing and safeguarding their funds, since no one else has access to them. If users do not take the necessary measures to secure their finances or do not have sufficient knowledge to manipulate these assets, it may happen that they lose access to their wallets, transfer their money improperly or do not operate one of these financial services correctly. Any of these simple mistakes could result in catastrophic loss for the user, – Insider trading: And to understand how important the management of information and knowledge is in the DeFi market, one must also know that this ecosystem is vulnerable to a practice known as “insider trading” or “trading from within”. This term is used to designate the improper use of privileged information when investing in a market, giving an individual an advantage over others, since said data is not publicly accessible. Insider trading is a risk that all markets that are just being formed run, since many creators and employees of these businesses tend to use information that they have access to due to their privileged position to make profitable investments. In this sense, a person who practices insider trading could deposit their money in an application hours before it notifies the launch of a new token, an interest rate or an alliance that makes their assets appreciate. While the rest of the community enters this opportunity late, the privileged would have already been profiting hours before thanks to the fact that they had the information ahead of time. – Accumulation of interoperability vulnerabilities: The DeFi Development market is considered one of the riskiest in the Cryptocurrency community due to its volatility and accumulation of financial risks. Due to the fact that it is an interoperable ecosystem, with high composability capabilities, the operation of many of its applications depends on other tools with which it interconnects. If one of these services stops working properly, a domino effect can occur that affects other applications as well. For example, if something goes wrong with the MakerDAO protocol, lending platforms, decentralized exchanges, and liquidity pools could also be affected by the issue, since Maker underlies many of them. This is a feature that users must take into account when managing money in this ecosystem.  Conclusion:  Cryptocurrencies have brought about a change in the functioning of money, as we knew it. It goes from the need for trusted third parties that determine the prices and what can be done with the money to a decentralized system where the community determines the price and can do what it wants with the money. DeFi now proposes to take this one step further and bring the different elements of the conventional banking system into a fully digital and decentralized environment. They seek to offer disruptive solutions that simplify traditional banking processes. All this eliminating the need for trusted third parties, eliminating the additional costs of the conventional banking system, reducing management times and reducing tedious bureaucracy.

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What is DeFi in cryptocurrencies?

A DeFi protocol is a system that offers a financial service through the exchange of a crypto asset. Its advantages include decentralization, security and automation.

Currently, most DeFi Development projects make use of the protocols of the Ethereum network, a system widely known for the coin of the same name.

Some of the newer uses of DeFi platforms include decentralized exchanges, money lending, interest generation, the use of digital representations of physical currencies, and the creation of investment funds.

At eToro, we explain the most important technical elements of a decentralized finance application in the following sections:

Smart Contracts

A smart contract, or intelligent contract, is a protocol that executes an agreement between two or more parties automatically and without the intervention of third parties. These allow the performance of services such as transfers or payments without the additional services of a bank or any other centralized entity.

DApps of the DeFi world

Decentralized applications (DApps) are a type of software built on a decentralized network; for example, Ethereum. These offer an interface in which users can interact with each other through smart contracts. In addition to their versatility, DApps offer basically the same features as any traditional application.

Decentralized Exchanges (DEX)

A decentralized exchange is a platform that allows the transaction of digital assets such as cryptocurrencies. It works in a similar way to a classic stock market, only it works through crypto assets.

How is the DeFi world different from traditional finance?

Surely you still have doubts about what DeFi is and its differences with current financial services. For this reason, in the following section we offer you a brief description of the most important characteristics of this system.

Fewer Human Errors

DeFi cryptocurrencies are based on smart contracts, which are executed independently and without the participation of external agents. Due to the above, errors related to human intervention are very rare. Once a contract is made, it is executed automatically based on computer protocols.

DeFi platforms are more transparent

Most cryptocurrencies work through democracy, offering their code openly and allowing users to participate in decision-making. On the contrary, many centralized entities operate under private interests and there is little participation that the user can have in governance issues.

24/7 access from anywhere

One of the main objectives of the first crypto assets, such as Bitcoin and Ethereum, was to operate internationally. DeFi cryptocurrencies inherited this feature, which is why most applications are accessible from anywhere in the world through a stable Internet connection.

DeFi does not have bureaucratic procedures

If you already have experience in the banking system, you are surely familiar with some of the requirements to carry out certain types of operations. However, investing in DeFi requires few permissions and does not require compliance with complicated requirements to start trading.

Flexible User Experience

Thanks to its ease of access, its decentralized protocol, its democratization and its customization, DeFi currencies offer a service that is highly adaptable to the needs of the user. If you have advanced programming skills, you can even go further and create your own app or custom token.

Defi Modular Solutions

Contrary to traditional finance, DeFi Development Services solutions are not static. In fact, it is possible to create new DeFi apps by combining different products, just like Lego chips. That means the possibilities for new products and services are only limited by your imagination.

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DeFi lending platforms are the future

The DeFi lending market (DeFi lending platform) outperforms traditional bank offerings in many ways. At the same time, loans in the decentralized finance segment are still far from the volume of transactions executed by classic credit organizations.

One of the reasons DeFi is lagging behind is the skeptical attitude of users towards market opportunities. In particular, the level of popularity of decentralized finance is negatively affected by frequent protocol attacks and a low level of liquidity. Future DeFi Development Company is likely to increase security and eschew the conventional loan sector.

 Characteristics of DeFi lending protocols

DeFi lending services or a lending platform have similar functionality to a conventional DeFi lending and lending platform, but often also have some unique features associated with the decentralized nature of the product. Here is a brief description of such features.

External Wallet

To take advantage of the capabilities of the DeFi lending platform, the user must connect their crypto wallet, which will be responsible for storing the user's money.

For example, the Compound DeFi lending platform supports Metamask, Ledger, WalletConnect, and Coinbase Wallet crypto wallets. Aave DeFi lending platform offers more features – 30 crypto wallets are now available.

 Instant Loans

This type of unsecured DeFi lending platform development has gained massive adoption in DeFi thanks to the Aave credit platform. They were the first to provide quick unsecured loans denominated in cryptocurrencies. These loans are often offered using a smart contract for a certain time period with restrictions (no selling or moving coins until the loan is returned), and they are immediately terminated if the borrower is unable to make their payments.

And although term loans are quite an innovative and controversial concept, individuals have already appreciated their advantages. The ability to get a loan almost instantly without collateral gives traders more options to earn on informational occasions, price discrepancies on different exchanges, etc.

Investment Rewards

In order to motivate people to provide their funds to the credit platform to borrow from other people, such platforms provide all investors with a reward in the form of a percentage of the invested funds. And this percentage is usually two to three times higher than the interest on deposits in the US, Canada, the UK and EU countries. At the same time, the risks are lower than when investing in bank deposits from developing countries.

Switching Speed

The rapid rate change provides borrowers with the ability to select between stable and tied interest rates and thus protect themselves from sudden fluctuations in the cryptocurrency markets, which are still very volatile. On the Aave credit DeFi platform, this custom option's implementation is demonstrated.

Fiat Gateway

This feature allows people to buy crypto assets for fiat currency, greatly simplifying the process of adapting crypto newcomers to this market. In addition, the fiat gateway also makes it easy for credit platforms to integrate with third-party tools and applications outside of the cryptocurrency industry.

Automation

In the DeFi sector, the most routine business processes are automated and standardized through smart contracts (a smart contract). Therefore, DeFi Development Services loan investors may not worry about their payouts and/or dividends being frozen, stolen, or transferred to someone by mistake. Additionally, automation makes it possible for you to create a system for the automated payment of taxes and other necessary fees and payments (if required by local laws).

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Bank of Singapore bets on tokenization and will explore DeFi together with JP Morgan

The Central Bank of Singapore will explore asset tokenization and DeFi together with JP Morgan, DBS Bank and Marketnode. The Monetary Authority of Singapore (MAS) reports in a statement that it will carry out these actions through the Guardian Project. DBS Bank, JP Morgan, and Marketnode will be in charge of the first pilot, which will examine possible DeFi Development Company uses in wholesale finance markets. In the pilot, bonds and tokenized deposits will be added to a regulated liquidity pool. The announcement is timed to coincide with remarks made by Jamie Dimon, CEO of JP Morgan, who emphasized that investors need to get ready for the upcoming hurricane. In particular, as a result of the strain brought on by the more restrained monetary policy in the United States and the conflict in Ukraine.

Singapore Bank, Defi and JP Morgan

According to MAS, tokenization is the process of using a smart contract on a blockchain to digitally represent assets or other objects of value. This enables the fractionalization and peer-to-peer trade of real economy and financial assets through the Internet.

When employed in the context of financial services, these smart contracts allow for decentralised financing (DeFi Token Development). In DeFi, financial transactions, such as loans and trading activities, can be carried out on a blockchain, without the need for intermediaries. It could increase financial services' effectiveness, accessibility, and affordability. This will "boost financial market liquidity and enhance economic inclusion," according to MAS.

With JP Morgan, the Singapore Central Bank will investigate asset tokenization and DeFi.

Japan and the Web3

Japan's Prime Minister Opens To Cryptocurrency Tax Reform To Boost Web3 Growth. As Tim Alper reports in Cryptonews, Fumio Kishida told Parliament that Web3 could boost economic growth, suggesting he may be ready to push for business-friendly legal reform. Earlier in May, Kishida also spoke to British investors about Web3, the Metaverse, blockchain, and NFTs.

Japan recognizes stablecoins as digital money. The Parliament of Japan has approved a bill that recognizes stablecoins as digital money. According to regulators, the law will apply to stablecoins pegged to the yen or another fiat currency. In addition, it will allow its holders and investors the possibility of exchanging them for their nominal value. The Japan Financial Services Agency will legalize stablecoins issued by authorized entities, such as licensed banks or duly registered finance companies. The new law will take effect in one year.

Organisations dedicated to creating and using Web3 apps.

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An explanation of DeFi staking and a detailed guide to this passive income

The topics of decentralized finance, various types of crypto assets and the development of new technologies have been on everyone's lips for a long time. However, it turns out that many people do not understand DeFi staking. We want to walk you through the process of generating passive income through DeFi staking incentives and explain how DeFi staking operates.

 What does DeFi staking mean?

Initially, lending and lending platforms paved the way for the development of DeFi staking platforms. They promoted the cryptocurrency industry and provided the first examples of decentralised finance. To qualitatively treat this relatively new financial concept, we need to break the term down into its main components.

 What is DeFi?

First, we need to find out what the Decentralized Finance (DeFi) sector is. A DeFi Development system consists of specialized applications (DApps) and financial services such as blockchain-based DeFi platforms. A blockchain is a list of information-containing blocks that are arranged sequentially.

 The core idea of ​​DeFi was to develop an independent and transparent financial ecosystem that is not influenced by any regulator or the human factor. In simple terms, because of DeFi, finance is available to the public: many existing blockchain-based platforms allow users to transact with each other without intermediaries like banks.

What is Staking?

By staking, we mean making passive profits simply by storing crypto assets. The Proof of Stake (PoS) algorithm is used here. It works as proof of ownership and is one of the most reliable methods to protect the blockchain from interference. Participation is considered a transaction authorization process.

All you need to do is invest in cryptocurrencies and receive high returns, which tend to be much safer and easier than, say, trading.

DeFi Staking: What is it?

Now that you are familiar with the terms, we will move on to the definition of DeFi staking. Through smart contracts, it offers the chance to stake bitcoin assets and DeFi token development. Users lock cryptocurrency in a wallet for staking and will receive a certain reward in return. The rewards differ from currency to currency; it depends on how valuable your share is to the liquidity mechanisms of DeFi staking platforms.

DeFi staking is more accessible than traditional investment and staking opportunities as it is easier to use. In addition, it generates attractive passive income even with a small initial investment.

 The mechanics of DeFi staking

Any Proof-of-Stake (PoS) blockchain network or DeFi staking platform is based on validators, who are eligible to receive staking rewards because they create and validate blocks. DeFi staking benefits both individual users and external stakeholders like organisations. They could be accredited through a loan protocol or a participation group.

The DeFi staking system is designed to accurately and competently monitor transaction execution. As mentioned, staking involves locking up a certain number of crypto assets to become a validator. The following principle applies here: the more the user stores, the more blocks the system can generate.

 What are the types of DeFi staking?

Thanks to the development of DeFi, liquidity investors can easily earn interest on their assets at stake. Since they are investing money that has been locked up for a while, it would be nice for them to see it grow.

The system will thank you for your participation with a percentage of the deposit. To stake your assets in the most profitable way, there are several DeFi solutions.

Staking

As already mentioned, staking is the locking of a certain number of assets using the proof-of-stake algorithm. Here, the system is based on validators. After the end of the participation period, the user receives a reward from the system, which can be considered as passive earnings.

 Yield Agriculture

DeFi Development services provide customers the chance to practise yield farming. In this case, it increases both the risks and the profitability. The expected return on such pairs, declared by the DeFi staking platform, often exceeds 100% per year. Only half of the deposit will be denominated in stable coins, and the other half is denominated in a highly volatile cryptocurrency.

Liquidity mining

A form of yield farming called liquidity mining makes advantage of liquidity pools. These pools are crucial because they allow the DeFi sector to function according to its basic concept: trading without intermediaries.

Your deposit is divided between the assets of the trading pair and you will earn returns on both.

 What is a liquidity fund?

While staking, a user can lock coins or tokens into a liquidity pool, which is a pool of cryptocurrencies locked in a smart contract. Liquidity pools provide support for DeFi staking platforms by guaranteeing a pool of funds for decentralized trading, lending, and other functions.

Another key element is the liquidity providers, since they make available the assets in the liquidity pool. This mechanism is used for Cardano, Tezos, Solana, Algorand and other cryptocurrencies.

A typical liquidity pool consists of two assets (typically token and token or token and stablecoin), which create a particular trading pair. The group dynamically adjusts asset prices, taking into account any changes in their values. Unlike centralized staking platforms with limit orders, there is no need to place an order in liquidity pools and wait for its execution.

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Guide to get started in DeFi

Decentralized finance is the hot spot in crypto right now – it promises to create a completely decentralized financial ecosystem

The phrase could pass for a boutade, but currently it is not. Smart contracts executed on blockchain are allowing financial services to be redefined, it is what is known as 'Decentralized Finance' or 'DeFi'.

For many, I until recently, hearing the word finance is as if it were spoken to us in Chinese, Welsh or Cornish. If we add blockchain technology and many new concepts, things get even more complicated. But if you still want to move forward (and you're reading this, I suspect you do) do as you do when listening to today's music, simply let yourself go. By the way, the song is by Gwenno, a Welsh artist who, after leading The Pipettes, began a solo career making music in Welsh and Cornish, modernizing and popularizing these Celtic languages.

Before moving on to the guide that the title announces, let me give you a concrete example of the importance of decentralization.

One of the most successful DeFi projects is Uniswap. The idea is simple, to be able to exchange currencies on the Ethereum network. And you may be thinking: well, what a novelty, it's like a currency exchange. Effectively, it is an exchange house but without a house, or in other words, a decentralized exchange (DEX) as opposed to centralized ones (CEX). The main difference is that in CEX there is an exchange between you and the house, in a DEX it is between you and other users who bring liquidity and that exchange is arbitrated by a smart contract. In both a commission is charged, but in CEX it is carried by the house and in DEX it is carried (mainly) by users who provide liquidity. One of those users could be you.

Although from the user's point of view the thing is similar, I exchange my coins for others and someone takes a commission. At a general level, many intermediaries are removed, it is not necessary to identify oneself in the process, the risk of the house disappearing is mitigated, human arbitrariness is reduced... I don't know if it is a good example, but I don't have a better one, it is like going from telegram to e-mail, from intermediary companies to protocols.

DeFi Development Company is called the Money Legos. Because being open protocols that do not need permission to be used, they can be built on top of each other to continue building the pyramid of financial services. It would be unthinkable that the application of your bank was not from your bank, in DeFi the wallet applications can be diverse, in the same way an application can use other applications and currencies.

I'm sure you already know this, but let me remind you that these applications are still very experimental and that you should be very careful when putting real money into the system.

DeFi Practical Guide

This brief guide assumes that you understand the ideas of blockchain, smart contracts, and decentralized finance. It also assumes that you followed the Getting Started with Crypto Guide, and already have cryptocurrencies, specifically Ethereum, on an exchange or in a wallet. Do you think there are many requirements? Prepare yourselves for this is only the beginning.

Decentralized finance can be applied to any blockchain with smart contracts, but this guide is based on DeFi on the Ethereum blockchain. Although there are already blockchains that are candidates as alternatives to Ethereum and that are building their DeFi ecosystem, they are still very small and even more experimental than those of Ethereum. Projects that intercommunicate blockchains are also being worked on. Did I tell you that this has only just begun?

1 - Install and configure Metamask

Using a DeFi token development application is as simple as using a web page, with the addition that the actions you take will be saved on the blockchain. Therefore, you need a purse or wallet that can interact with the browser and with the Ethereum blockchain. The most popular by far is Metamask, which now also has a mobile version.

I use a crypto-only browser: Brave. It helps me to keep order and I can browse with peace of mind in my usual browser: Firefox. Brave is a browser based on Chrome and emerged from a crypto project (BAT) that aims to redefine online advertising. So this might be a good time to give Brave a try and install Metamask. If I haven't convinced you, you can install it in the browser you usually use, of course.

Once installed, the after Metamask will appear at the top right in your browser. There you can create your account. What you are doing is not registering with your email and password as in any centralized website, what you are doing is creating an Ethereum wallet. This implies that no one can recover your account if you lose the private key. In the creation process, they will ask you for a normal password (without user), and they will give you 24 words in English, the so-called seed phrase. You will have to store them carefully, as they are not recoverable.

If you want to have Metamask on multiple computers or want to switch to a new one, just after installing Metamask enter the seed phrase.

2 - Transfer Eth to metamask and know its interface

Metamask will ask you for the password in each session you start as a protection measure, once entered you will see its interface. At the top you can choose which "Ethereum Network" to use, unless you want to do experiments or use other blockchains, you will always have to leave it on Mainnet (main network). Below it will appear the public key of your wallet, you can see it as the bank account number. Then you will see the amount of Ethereum in the wallet and the actions: buy, send and exchange. Finally you will have the list of assets (coins) you have, the history of actions you have performed and the possibility of manually adding a token to the wallet (it refers to adding it to the list of assets, not adding new coins).

Now we are going to send Eth to our Metamask wallet. If you already have Ethereum on Coinbase or any other exchange, simply go to it and find the option to send. In the 'send' interface you will have to put the public key of Metamask and the amount. It's simple, but make sure the key is correct and that you send Eth; because if you make a mistake there is no 'undo' button. You will see that a small commission is already deducted from the transfer in the Ethereum blockchain. Minutes later, you will already have your Eth in Metamask.

3 - Interact with a DeFi dapp

There are tons of decentralized applications (dapp), some of them are DeFi, you can see a very complete list on Dappradar. Once you have Metamask or another wallet installed, using it is simply using the web and confirming the actions in the wallet.

3.1 DEXes: Uniswap and 1 inch

Visiting the uniswap.org website we will see a button that will take us to the application itself. There we have a button that will allow us to connect uniswap and our wallet. At that moment we can already use the application that allows us to either exchange one token that we have for another, or bring liquidity (pool) closer with our tokens. If we have UNI tokens we can also vote on Uniswap decisions, it is what is usually called governance.

Uniswap is the most famous decentralized exchange, followed by Sushiswap, which was born as a copy of it but evolved differently. In fact, Metamask already allows you to make exchanges directly in the application, for that it uses the Uniswap protocols and many others.

1 inch is a decentralized exchange aggregator, that is, when you want to exchange two 1 inch tokens, look for the best option among many DEXes. Since the price of commissions in Ethereum is currently an issue and each DEX offers slightly different prices, 1 inch offers the best option. The operation is very similar to Uniswap; it also has its own token (1 inch) for governance and has pools to earn profitability by providing liquidity.

3.2 Bitcoin on Ethereum

The Ethereum and Bitcoin blockchains are different, so if we want to trade Bitcoin and Ethereum we cannot do it directly in a DEX on the Ethereum blockchain. To solve that problem, a good number of tokens like wBTC, HBTC, renBTC and others were born. What they do is lock a Bitcoin on the Bitcoin blockchain and create a wBTC on the Ethereum blockchain. There are several ways to do it and some are not very decentralized, everything is said. But they allow us to use Bitcoin in DeFi.

3.3 Loans

It is one of the usual use cases of DeFi, requesting a loan by leaving a cryptocurrency as collateral. Aave or Compound is two of the most common platforms. But if you don't see yourself asking for a loan, you may want to be the one to deposit cryptocurrencies that are going to be lent, earning interest. When entering Aave you will see for each cryptocurrency: what amount is deposited, what amount is loaned, what interest is offered to the depositer and what fixed or variable interest is paid by the person requesting the loan. It is transparent, automatic, self-regulated (if there are few deposits, the interest paid goes up; if there are many, it goes down) and does not depend on anyone's decision.

3.4 Derivative products

Financial derivatives are products that are based on the price of another asset. Synthetix or UMA are projects that allow the creation of synthetic derivative products. For example, create a token that will have the value of gold or another that will have the value of a share such as Apple. Nexus Mutual allows you to mitigate risks through insurance against events such as an error in a smart contract.

Financial derivative products are very complex and at the same time widely used in traditional finance. They are expected to have great potential in the future, although their risks make them more difficult to tackle. An argument in its favor in the crypto world is the need to be able to represent the value of real-world assets.

3.5 Dashboard

Loans, DEXs, algorithmic stablecoins, funds, synthetic assets and many more products to come, almost all have in common that they offer profitability and certain advantages to those who offer liquidity. The problem is that it's not easy to remember where we deposit our coins, and that's what control panels like Zerion are for. They give us a summary of our deposits in the various applications we use, tell us their present value, and offer to interact directly with various protocols.

4 - The (damn) commissions

As soon as you start playing with these tools you will realize that for every action you take with the wallet, that is, every time you interact with the Ethereum blockchain, you will have to pay a commission. We said that a blockchain is many computers in the world recording those actions and executing smart contracts. Commissions are the payment we make for that service. The problem is that with the great rise of Ethereum and the large number of people using the blockchain, the commissions went up a lot. Very much.

This greatly limits the development of DeFi. But everyone is aware and Ethereum is deep in the release of version 2.0. Also other blockchains are taking advantage of this problem to offer themselves as ecosystems with very low commissions.

Conclusion

Surely there are many problems and difficulties to be solved. Of course, DeFi may never become the hegemonic system. But we are witnessing the creation of a new financial system, more open, more transparent, with fewer intermediaries. Could this be the beginning of the new financial system? This has just started!

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What is a Liquidity Pool in DeFi?

There must be some method of providing liquidity in financial markets such as foreign exchange markets, stock markets and bond markets so that trading in the asset can take place.

Liquidity in cryptocurrency markets refers to the ease with which tokens can be exchanged for other cryptos or for fiat currencies.

The goal of decentralized finance is to decentralize traditional financial services, such as lending, trading, and more.

DeFi protocols have grown significantly in popularity in recent years. Surprisingly, a large part of the development of DeFi Development can be attributed to the decentralization of liquidity through the use of global liquidity pools.

Funds or liquidity pools are used efficiently in decentralized exchanges, synthetic assets, yield farming, lending protocols, and blockchain insurance. In traditional finance it is a centralized body such as a bank that provides liquidity, on the other hand, in decentralized finance (DeFi) it is the market makers or better known as market makers that provide liquidity to decentralized cryptocurrency exchanges.

What is a Liquidity Pool?

A liquidity pool facilitates different forms of transactions, such as loans and decentralized transactions, as well as many other tasks. They serve as the foundation for a variety of decentralized exchanges (DEXs), such as  Uniswap  or  Pancakeswap.

Some users, known as liquidity providers, can create a market by adding the equivalent value of two tokens to a specific pool. Liquidity providers will thus be able to earn trading fees from all transactions that occur in their pool. Surprisingly, trading costs are directly proportional to their share of total liquidity.

Market makers are traders who are willing to “make” the market, i.e. buy and sell significant amounts of assets at variable prices in order to keep the market liquid and exchange orders continuously.

In the case of liquidity in DeFi

If you are new to DeFi, you may be wondering why liquidity pools are needed. After all, the order and order book approach relies on buyers and sellers agreeing on prices with the help of market makers.

Previous versions of decentralized exchanges tried to mimic this notion, but none of them were able to achieve enough depth of liquidity to make trading attractive.

Because the first DEXs were based on Ethereum, market makers were put off by high transaction costs and long block confirmation times. User numbers were missing on other blockchain platforms. As a result, innovators stepped in, leading to the formation of liquidity pools.

What does it mean to be a market maker?

A market maker, an agent who is ready to buy and sell particular assets at all times, thus providing liquidity to the market, is an alternative technique for offering liquidity.

There are centralized exchanges that operate as market makers in DeFi Token Development, such as Bybit or Binance (which is a company). However, replacing a centralized market maker with a decentralized counterparty is one of the most exciting new parts of DeFi. To trade tokens, you can use Uniswap, a decentralized exchange (DEX), instead of a centralized exchange.

Bancoras the first protocol to use automated market makers or AMMs , this laid the groundwork for the growing interest in the concept of liquidity pools.

Uniswap, on the other hand, was instrumental in increasing the popularity of the liquidity pool concept. Balancer, SushiSwap, and Curve are just a few of the Ethereum exchanges that use liquidity pools and automated market makers.

What is the process of creating a liquidity pool?

A liquidity pool is a smart contract that locks tokens to provide liquidity. Liquidity providers, liquidity tokens, and automated market makers are some of the key ideas to understand when trying to learn how liquidity pools and decentralized exchanges work.

Decentralized exchanges use liquidity pools not only to trade tokens, but also to borrow and lend money. As a result, they are important to the DeFi ecosystem.

Liquidity pools are necessary

Centralized exchanges use the order book approach, which allows buyers and sellers to place orders, just like traditional stock exchanges like the London Stock Exchange, NASDAQ, etc. use. Buyers try to buy an asset for the lowest price possible, while sellers try to sell the item for the highest price possible under the order book model.

For a successful transaction, the buyer and seller must now agree on a price. However, when the seller and the buyer cannot agree on the price, you may face some difficulties.

In addition, the issue of liquidity creates obstacles in the implementation of the operation. Market makers can also help traders complete trades without the need to wait for other buyers or sellers.

The benefits of liquidity pools.

Liquidity pools have been a crucial growth element, providing the necessary liquidity to develop a decentralized financial system that can be sustained. DeFi Development Services users rushed to platforms like Uniswap for a chance to earn transaction fees at first, but the industry has since matured.

Many projects will reward those who stake liquidity in their pools with their own token payouts, requiring liquidity pool tokens to be staked separately as evidence in exchange for large payouts.

The risks to take into account in Liquidity pools

Market manipulation strategies have been used against liquidity pools in the past, especially smaller pools that contain less liquidity. The so-called "hackers" use strategies such as quick loans or better known in English as "flash loans" to flood the markets with large orders and deplete the cash of smart contracts.

Taking on the role of liquidity provider carries a number of different dangers. The term "permanent loss" describes how the value of the combined assets can change based on supply and demand. Asset values ​​may fall to the point where trading fees alone are not enough to offset losses, making it unprofitable to provide liquidity to a pool.

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The potential of decentralized finance

The development of blockchain technology in the financial field opens the door to decentralized finance (decentralized finance or DeFi). This term refers to a wide variety of financial applications inspired by decentralized ledger technology (DLT) that, among other issues, would further disintermediate the provision of financial services.

Decentralized finance is configured as an open ecosystem to build financial tools and services without the participation of intermediaries in the sales process or to carry out operations. Thanks to the use of blockchain. It is possible to create applications to make payments, contract loans or mortgages or buy and sell financial assets directly without going to a bank, a payment provider or a broker. Currently, when a customer pays for a coffee with their debit or credit card, a financial institution acts as an intermediary between the consumer and the merchant, having control over the transaction, retaining the authority to stop or pause it and to record it. With a DeFi Development payment application, said intermediary would be eliminated, since it is all the users who use the application who would implicitly verify and register said payment.

 Thus, consumers using a DeFi application have an identical encrypted copy of each and every transaction that occurs.

This protects the system, by providing users with a single immutable identity for each operation.

 These DeFi Development Services applications are gaining in popularity such as MakerDAO, Aave, Synthetix or InstaDapp. There are already more than a million consumers who are users of these DeFI applications. In fact, it is estimated that the added value of these services is 128,000 million dollars.

 Defenders of decentralized finance point to the existence of different advantages in its use: more democratized access to financial products, greater market efficiency, and easier access to liquidity, greater financial privacy and greater incentives for innovation. However, it also presents risks. In addition to those of a technical nature (computer attacks or complexity in the creation of cryptographic protocols), they are joined by financial risks, all of them derived from a lack of protection for users, as there is no intermediary responsible for the transactions.

In any case, they also pose challenges for the banking sector and for regulators. On the one hand, financial entities can see how a successive disintermediation of finance can threaten their presence in various business segments and reduce their profitability. For their part, regulators must rapidly set standards for a business that seems to be expanding at a very considerable speed.

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What are DeFi tokens and how do they operate?

The digital economy continues to advance, and after cryptocurrencies came DeFi Token Development, which could play a relevant role in the coming years, according to Mexo, a cryptocurrency exchange platform.

“Speaking specifically of decentralized finance (DeFi), these tokens symbolize different projects that work within the blockchain and allow from credit loans to the synthesis of assets, and even have a reference asset investment strategy. or that they have the same price as the dollar”, explains Anthony Chávez, Marketing Manager of Mexo.

The purpose of the DeFi token is to recreate the most common financial services, but in a decentralized way; that is, without intermediaries like traditional financial institutions.

According to the Mexo specialist, DeFi tokens play a very relevant role in the world of digital assets, “because if cryptocurrencies are the gateway to the blockchain -crypto world, and through the purchase and sale of these digital assets people make a profit, DeFi tokens seek to extend the use of cryptocurrencies beyond speculation as a commodity.”

Chávez adds that “currently DeFi Development or decentralized finance market tokens represent about $60 billion dollars in collateral. Compared, for example, to the financial sector in Chile, which has 8 million users and approximately $31 billion dollars, we are doubling the collateral value of decentralized finance products and services.”

In Mexico, it is possible to acquire DeFi tokens on exchange platforms such as Mexo, which offers 21 DeFi tokens, including Polkadot, Yearn Finance, Uniswap, SuchiSwap, Aave, Maker and Compound, Solana, Reef and Luna, among others.

According to the Mexo platform, these are some benefits of DeFi tokens:

·       Some tokens, for example, such as Aave and Venus, allow users to obtain benefits by lending a credit on their respective platforms, which provides 8% monthly return (variable percentage).

·       They allow to synthesize assets or access financial services like those offered by traditional institutions, but through digital platforms through the use of cryptocurrencies.

·       Being decentralized finances, they allow to reduce the costs of financial services, since they do not require intermediaries or large investments in physical infrastructure.

·       In the future, they could influence the democratization of digital financial services, by bringing more of these services to a large number of users at very affordable prices.

For Chávez, DeFi tokens are “a movement that is giving the market a lot of momentum because it is leaving the value of a cryptocurrency and is taking it to financial products, platforms and services, in such a way that its use could spread over time. Of time and reach more people; that is, they could become the future of finance.”

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Defi: high-risk financial innovation experiments for you

Decentralized finance, called Defi Development vefor its acronym in English, is the new trend in the cryptocurrency industry. Since last year the term began to gain popularity to end up encompassing any financial application that works on Ethereum. Many of what were previously called decentralized applications, or Dapps for short, are now called Defi as a marketing strategy.

As its name suggests, it proposes applications that ensure that it does not have a single point of failure, as would a traditional financial firm. Even that anyone can use and launch them on Ethereum or another network of smart contracts. Now, a reality is that many of the applications are centralized in their founders, who have extensive control over their application. What is really valuable, in all this fashion, is that the conditions of the smart contracts are public on Ethereum or another platform, so all their movements can be observed, in a transparent way.

This new fashion has encouraged a wave of multiple complex financial applications , ranging from: creation of capital pools, where assets are concentrated to be used in other financial products; obtain loans, without having to follow a banking protocol; leverage services, capital requests to reinvest them in another asset; and other inventions using Ethereum smart contracts. It is impossible to deny that it is quite interesting how with a few lines of code they can recreate complex financial services for the whole world, which are generally managed by specialized and regulated stock exchange firms in different countries, with their corresponding regulatory limitations.

But the financial freedom that Defi Token Development is granting is only one side of the coin. All this freedom is not achieved for free, but these applications have a sum of risks that do not exist in traditional financial products and where all the responsibility for managing the funds falls on the users. Currently, it is a wild west where only the strongest survive, which in this case would be the most knowledgeable, best connected in the ecosystem and have the most funds.

Now, with all this I want to clarify that I do not consider all Defi a scam, or a scam as they say in the ecosystem, but I do keep my distance because of all the risks that exist when using one. Even so, I find them to be exciting financial experiments, since they are not simulations, they are real cases happening with valuable assets at stake. All this will surely leave good teachings for future innovations in finance. If I were an economist or had studied a career in finance, I would dedicate myself to studying some of these mechanisms in a formal way.

It must be admitted that one of the reasons that has promoted the flourishing of this entire Defi Development Company ecosystem is the absence of regulation. The best example of how regulation can kill all kinds of innovation is the case of Facebook's Libra, which has technically been reduced to almost a PayPal before it was born. So, as regulation is not something that is being taken into account by the creators of Defi -at least for now-, it is that they have had the freedom to create any type of financial application that comes to mind.

This has reached the point where even some lawyers who are in the crypto area see their work as pointless, because clearly these projects are breaking many financial regulations, but that has not stopped traders and developers; Rather, he ends up recommending that they become anonymous, avoid fraud, stay away from capital investors and continue developing and inventing at their leisure.

Something very clear in this new fashion is that there are people who are making a lot of money with this. Keep in mind that these are: app developers, Ethereum and bitcoin token whales, venture capitalists backing Defi launches, and investment firms that have entire teams working on risk management and looking for new profit opportunities in this lawless world.

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Liquidity crisis of the 'cryptos': DeFi, CeFi and why there will be more sales in bitcoin

The problems of crypto-asset companies, especially lending platforms that use cryptocurrencies as collateral, have been making headlines for months in a crypto winter tougher than any of the previous ones. The market correction is not yet equal to that of other bear market periods, although bitcoin already accumulates a 70% drop from its all-time highs, however, the liquidity and confidence crisis in digital tokens threatens to cloud the advantages of blockchain and decentralized finance (DeFi Development Services).

As much as many experts defend that the fundamentals of the market remain strong, with promising developments and a future full of applications for the blockchain and web3, many others warn that there is still suffering ahead for crypto currencies.

The failure of Terra Luna and its UST stablecoin marked the beginning of the current bear market. That action reduced the cryptocurrency market capitalization by 70% from its peak in November 2021”, comments Teeka Tiwari, director of Palm Beach Research. But the expert hopes that other pieces will fall soon, prey to the domino effect. "I don't know if the sell-off will be as violent as the first round," he explains, but he warns investors to "prepare mentally."

The current volatility is unrelated to a decline in confidence or belief in the fundamentals of these top-tier assets. It is a liquidity issue, the expert emphasises. Many investors use bitcoin (BTC) and ethereum (ETH) as collateral for loans throughout the crypto ecosystem. ��In cryptocurrencies, BTC and ETH are blue chip assets in the same way that US Treasuries are the blue chips of the traditional financial system,” Tiwari clarifies.

In traditional finance, US Treasury bonds are held and borrowed against by Wall Street firms because they are considered the safest financial assets. In the world of cryptocurrencies, bitcoin and ethereum play the same role. This is crucial because the recent bitcoin sell-off makes me think of the 2008 global financial catastrophe. Back then, subprime loans were the first to fall during the real estate crisis, with companies having to sell their main assets to cover their guarantee margins”, explains the Palm Beach Research analyst.

The same is happening with cryptocurrencies, and bitcoin and ethereum are paying the price, the analyst continues. That is primarily the cause of their declines from all-time highs of 70% and 78%, respectively.

The analyst maintains the analogy to the "subprime" crisis in the US and emphasises that "we have seen multiple crypto enterprises go bankrupt during this market bass guitarist," just as they did at that period when the corporations with the most questionable assets fell one after another. Three Arrows Capital, BlockFi, Celsius, Voyager Digital, or Vauld are a few of the most well-known companies.

"More cryptocurrency businesses will fail. The expert claims that it is all related to centralised finance (CeFi).

Centralized Finance (CeFi) companies use Decentralized Finance (DeFi) protocols built on blockchain technology to make banking, lending, credit, and investing more accessible and cheaper for millions of people. That is, they allow users to trade billions of dollars in assets without human intervention.

Many of these DeFi protocols have continued to run smoothly, as “the problem is not with the protocols, but with the amount of speculative and leveraged bets that CeFi companies, like BlockFi, Celsius, and others, pile into these protocols,” he explains. Tiwari. The DeFi space works by taking collateral and issuing loans against those collaterals to borrowers. CeFi companies, like Celsius, took deposits from the public and then used that money to generate returns from DeFi Development projects.

“The problem is that the CeFi companies got greedy and used leverage to increase their profits,” laments the Palm Beach Research expert. “This approach worked until it stopped. The first domino to fall was when TerraLuna and its UST stablecoin crashed,” he argues.

Many CeFi companies had large positions in UST and Luna. They had used those holdings as collateral to back billions of dollars in other loans. Cascading margin calls were triggered when Luna and UST prices crashed. This situation put pressure on other assets that had nothing to do with Luna and UST. That sale then triggered more margin calls and the chain of defaults was set in motion, which brings us to where we are today.

DEFI PROJECTS WILL BE OK, CEFI PROJECTS NOT SO MUCH

Decentralized financial protocols like Uniswap and Aave are open and transparent. At any time, you can see exactly what's going on. Instead, centralized platforms like BlockFi and Celsius use DeFi Development Company protocols to generate returns, but are owned by private companies. They are opaque. How much leverage they are utilising is unknown to us.

When it comes to private companies, it is not known how many times they have lent the same asset. Lending the same asset more than once is called 'remortgaging', and without rigorous risk management controls, remortgaging assets can sink a company in a day.

This is the same problem many Wall Street firms faced in 2008. Just like then, CeFi firms and cryptocurrency hedge funds have found themselves with highly leveraged positions crashing in price. Due to margin calls, they are compelled to liquidate their bitcoin and ether.

“This cascading effect is not over. It is almost certain that there will be more pain before we can say that this has come to an end”, adds Tiwari.

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Aave DeFi Platform Cryptocurrency Up 30%

The native token behind the popular DeFi Development money market Aave is up more than 30% in the last 24 hours amid a flurry of developments.

AAVE, the governance token that underpins the Aave protocol, is up more than 30% in the last 24 hours.

This puts the token at $235.92, according to data pulled from CoinMarketCap. This token, like many others in the decentralized finance (DeFi) world, is used to vote on protocol updates and participate in Aave governance measures.

The latest price movement comes in the wake of the latest protocol update and continued interest from large financial institutions.

Released on March 16, Aave V3 added cross-chain capabilities, Layer 2 scaling solutions, and reduced gas costs to interact with the money market.

The AAVE token was then trading at about $121, marking the start of a continued uptrend. The price is still more than 66% away from its all-time high of $666.86 set in May of last year.

Separately, the Brazilian central bank has also included Aave in its list of eight other partners to create its central bank digital currency (CBDC). Aave joined Santander Brazil, Mercado Bitcoin, Brazil Visa and Unibanco, among others.

Aave first launched in 2017 under the name ETHLend before rebranding about a year later. In that time, it has become one of the most popular decentralized finance (DeFi) protocols on the market, allowing users to lend and borrow a variety of different cryptocurrencies.

The returns, as well as the cost of borrowing different tokens, depend on the supply and demand for these tokens in the market. This means that the amount of interest users can earn on, say, the DAI stablecoin depends on how many users are interested in borrowing DAI. Today, you can earn 1.83% interest on DAI, while it costs 3.2% to borrow the token.

DeFi activity on Aave increases

According to DeFi Llam, a DeFi-focused data panel, Aave's total value locked has increased by 11.38% in dollar terms over the past week. Total Value Locked, or TVL for short, refers to the total amount of money within the protocol.

The total amount of money across all integrated networks now stands at $22.93 billion, making Aave the largest DeFi protocol in this industry. Decentralized exchange (DEX) platform Curve is in second place, with $22.2 billion, followed by cryptocurrency platform Lido, which is the third largest, with $18.74 billion.

Including all DeFi Development Company projects on all networks, there is currently $283 billion circulating in the ecosystem.

At this time last year, that figure barely reached 85,000 million dollars.

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What are DeFi Coins

DeFi Coins are, as can be assumed, cryptocurrencies that play a specific role within the field of decentralized finance, those finances in which there are no central counterparties, or the bare minimum.

For decentralized platforms to work properly, they have to hold DeFi Coins to pay transaction fees. This is why many exchanges of this type have their own tokens.

According to CoinMarketCap, there are currently more than 500 DeFi Coins available in the market for trading. While this is good news because it means that there is a great deal for investors to choose from, it also means that the choice can be confusing.

Are DeFi Coins a good investment?

It all depends on the investor profile of each one, their objectives and needs. However, in general terms, it could be said that DeFi Coins are a good investment alternative for those who are looking for a project with a lot of potential ahead, in exchange for a higher risk, obviously.

The vast majority of these cryptocurrencies are highly volatile, meaning their price can fluctuate wildly, both up and down.

With this in mind, there are a few points to consider in determining whether or not a DeFi Coin may be a good investment.

Growth of DeFi Coins

Many of the DeFi Coins mentioned throughout this article were born during 2020, the year in which the cryptocurrency market exploded upwards and gained great popularity.

This shows that this is a very new sector that is just beginning its growth phase , at which point investors can make a lot of money, just as bitcoin or ether did in their early days.

In addition, of the entire cryptocurrency market, DeFi Coins only represent less than 10% of the total, which further increases their potential.

Fundamentals of DeFi Coins

DeFi's fundamental idea is to decentralize traditional financial services from centralized providers like banks. Namely, in the near future, we could see everyday consumers borrowing from DeFi Development platforms, which are subsequently financed by investors.

This peer-to-peer business model may be applied to a variety of financial services, including insurance and brokerage deals. And, if decentralized finance reaches its full potential, then the best DeFi Coins will only benefit in the long run.

DeFi Coin Prices

As with other cryptocurrencies or conventional equity assets, DeFi Coins move according to the supply and demand of the moment.

When many buyers go out to purchase DeFi Coins, the demand grows, which drives their price up. And vice versa: if it is supply that increases, then prices will fall.

The reasons why supply and demand vary are many and no one can know exactly, since it is the sum of the fears and hopes of all market participants.

Where to buy DeFi Coins

eToro: comprehensive and affordable broker to exchange euros for crypto

Founded in 2006, eToro has slowly grown to become one of the largest financial brokers in the world. Today, it allows you to operate all kinds of assets, so it is used to buy DeFi Coins.

In addition, what is attractive about the broker is that it has a community function that allows you to “copy” investment strategies, an activity that is known as “social trading”. Basically, with this tool we will be able to emulate the portfolio and the movements of other experienced operators, which will help us to earn money.

Another interesting point about eToro is that its platform supports both novice market participants and experienced traders. The software is perfectly optimized and mixes the best of design with maximum functionality.