DeFi is an umbrella term for applications and companies that offer financial services on decentralized blockchain. With smart contracts, all transaction data can be stored in a “distributed ledger” – this means that nobody has control over transactions, and theft and corruption can be prevented. With a smart contract, a digital contract is protected by a cryptographic code.
Stablecoins also belong to the DeFi sector (article on stablecoins in the last issue). Other DeFi offers include lending, derivatives, peer-to-peer payments and even insurance. These tokens are predominantly based on Ethereum.
The cryptocurrency Chainlink is also an Ethereum (ERC-20) token. Smart contracts can sign a contract, but they cannot communicate with external resources such as a banking system. That is why Chainlink has developed a network which, as a middleman, brings both systems together. Chainlink calls this own network “Oracle”, and it is a secure, completely decentralized system. You can also send data feeds directly to Chainlink in order to receive Chainlink tokens in return.
The chainlink organization’s token is LINK. The more the Chainlink network is used, the more the price increases to pay off the data feed providers. If the Chainlink network is not used, the LINK token will become less important. The Oracle network is already used by platforms such as Binance, Kraken and Huobi. The price of a LINK token rose from $ 4 to over $ 20 in 2020. In May 2021 the high was over $ 50, currently the price of a LINK token is just over $ 20.
While Chainlink mainly works with its own network, the Uniswap platform offers an alternative to the conventional crypto exchange (e.g. Binance). Uniswap is a so-called decentralized exchange on which you can exchange Ethereum and Ethereum tokens. Since the number of ERC-20 and other Ethereum tokens has risen sharply since 2020, Uniswap is now the most popular decentralized exchange. Since there is no centralized exchange, fees are reduced. Furthermore, the selection of crypto currencies at Uniswap is enormous. With an exchange like Binance, the cryptocurrency must first be checked and then listed until it can be traded, with Uniswap there is no check. Of course, this can also involve the risk of so-called “scam tokens” and “rug pulls” that are offered on the platform. As always, an investor should find out about the risks beforehand. This way, however, interesting tokens can be acquired before they land on a major trading venue.
Many crypto experts are convinced that decentralized finance is the future – the security, fast processing and low costs speak in favor of it.