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What Is DeFi? – CoinDesk

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DeFi is short for “decentralized finance,” an umbrella term for a variety of financial applications in cryptocurrency or blockchain geared toward disrupting financial intermediaries.

DeFi draws inspiration from blockchain, the technology behind the digital currency bitcoin, which allows several entities to hold a copy of a history of transactions, meaning it isn’t controlled by a single, central source. That’s important because centralized systems and human gatekeepers can limit the speed and sophistication of transactions while offering users less direct control over their money. DeFi is distinct because it expands the use of blockchain from simple value transfer to more complex financial use cases.

Bitcoin and many other digital-native assets stand out from legacy digital payment methods, such as those run by Visa and PayPal, in that they remove all middlemen from transactions. When you pay with a credit card for coffee at a cafe, a financial institution sits between you and the business, with control over the transaction, retaining the authority to stop or pause it and record it in its private ledger. With bitcoin, those institutions are cut out of the picture.

Direct purchases aren’t the only type of transaction or contract overseen by big companies; financial applications such as loans, insurance, crowdfunding, derivatives, betting and more are also in their control. Cutting out middlemen from all kinds of transactions is one of the primary advantages of DeFi.

Before it was commonly known as decentralized finance, the idea of DeFi was often called “open finance.”

Ethereum applications

Most applications that call themselves “DeFi” are built on top of Ethereum, the world’s second-largest cryptocurrency platform, which sets itself apart from Bitcoin in that it’s easier to use to build other types of decentralized applications beyond simple transactions. These more complex financial use cases were even highlighted by Ethereum creator Vitalik Buterin back in 2013 in the original Ethereum white paper.

That’s because of Ethereum’s platform for smart contracts – which automatically execute transactions if certain conditions are met – offers much more flexibility. Ethereum programming languages, such as Solidity, are specifically designed for creating and deploying such smart contracts.

For example, say a user wants their money to be sent to their friend next Tuesday, but only if the temperature climbs above 90 degrees according to weather.com. Such rules can be written in a smart contract.

With smart contracts at the core, dozens of DeFi applications are operating on Ethereum, some of which are explored below. Ethereum 2.0, a coming upgrade to Ethereum’s underlying network, could give these apps a boost by chipping away at Ethereum’s scalability issues.

The most popular types of DeFi applications include:

  • Decentralized exchanges (DEXs): Online exchanges help users exchange currencies for other currencies, whether U.S. dollars for bitcoin or ether for DAI. DEXs are a hot type of exchange, which connects users directly so they can trade cryptocurrencies with one another without trusting an intermediary with their money.
  • Stablecoins: A cryptocurrency that’s tied to an asset outside of cryptocurrency (the dollar or euro, for example) to stabilize the price.
  • Lending platforms: These platforms use smart contracts to replace intermediaries such as banks that manage lending in the middle.
  • “Wrapped” bitcoins (WBTC): A way of sending bitcoin to the Ethereum network so the bitcoin can be used directly in Ethereum’s DeFi system. WBTCs allow users to earn interest on the bitcoin they lend out via the decentralized lending platforms described above.
  • Prediction markets: Markets for betting on the outcome of future events, such as elections. The goal of DeFi versions of prediction markets is to offer the same functionality but without intermediaries.

In addition to these apps, new DeFi concepts have sprung up around them:

  • Yield farming: For knowledgeable traders who are willing to take on risk, there’s yield farming, where users scan through various DeFi tokens in search of opportunities for larger returns.
  • Liquidity mining: When DeFi applications entice users to their platform by giving them free tokens. This has been the buzziest form of yield farming yet.
  • Composability: DeFi apps are open-source, meaning the code behind them is public for anyone to view. As such, these apps can be used to “compose” new apps with the code as building blocks.
  • Money legos: Putting the concept “composability” another way, DeFi apps are like Legos, the toy blocks children click together to construct buildings, vehicles and so on. DeFi apps can be similarly snapped together like “money legos” to build new financial products.

Source: Justin Sullivan / Getty Images

Lending platforms

Lending markets are one popular form of DeFi, which connects borrowers to lenders of cryptocurrencies. 
One popular platform, Compound, allows users to borrow cryptocurrencies or offer their own loans. Users can make money off of interest for lending out their money. Compound sets the interest rates algorithmically, so if there’s higher demand to borrow a cryptocurrency, the interest rates will be pushed higher.

DeFi lending is collateral-based, meaning in order to take out a loan, a user needs to put up collateral – often ether, the token that powers Ethereum. That means users don’t give out their identity or associated credit score to take out a loan, which is how normal, non-DeFi loans operate.

Stablecoins

Another form of DeFi is the stablecoin. Cryptocurrencies often experience sharper price fluctuations than fiat, which isn’t a good quality for people who want to know how much their money will be worth a week from now. Stablecoins peg cryptocurrencies to non-cryptocurrencies, such as the U.S. dollar, in order to keep the price under control. As the name implies, stablecoins aim to bring price “stability.”

Prediction markets

One of the oldest DeFi applications living on Ethereum is a so-called “prediction market,” where users bet on the outcome of some event, such as “Will Donald Trump win the 2020 presidential election?”  

The goal of the participants is, obviously, to make money, though prediction markets can sometimes better predict outcomes than conventional methods, like polling. Centralized prediction markets with good track records in this regard include Intrade and PredictIt. DeFi has the potential to boost interest in prediction markets, since they are traditionally frowned upon by governments and often shut down when run in a centralized manner.

DeFi FAQ

How do I make money with DeFi?

The value locked up in Ethereum DeFi projects has been exploding, with many users reportedly making a lot of money.

Using Ethereum-based lending apps, as mentioned above, users can generate “passive income” by loaning out their money and generating interest from the loans. 
Yield farming, described above, has the potential for even larger returns, but with larger risk. It allows for users to leverage the lending aspect of DeFi to put their crypto assets to work generating the best possible returns. However, these systems tend to be complex and often lack transparency.

Is investing in DeFi safe?

No, it’s risky. Many believe DeFi is the future of finance and that investing in the disruptive technology early could lead to massive gains.

But, it’s difficult for newcomers to separate the good projects from the bad. And, there’s been plenty of bad.

As DeFi has increased in activity and popularity through 2020, many DeFi applications, such as meme coin YAM, have crashed and burned, sending the market capitalization from $60 million to $0 in 35 minutes. Other DeFi projects, including Hotdog and Pizza, faced the same fate, and many investors lost a lot of money.

In addition, DeFi bugs are unfortunately still very common. Smart contracts are powerful, but they can’t be changed once the rules are baked into the protocol, which often makes bugs permanent and thus increasing risk.

When will DeFi go mainstream?

While more and more people are being drawn to these DeFi applications, it’s hard to say where they’ll go. Much of that depends on who finds them useful and why. Many believe various DeFi projects have the potential to become the next Robinhood, drawing in hoards of new users by making financial applications more inclusive and open to those who don’t traditionally have access to such platforms.

This financial technology is new, experimental, and isn’t without problems, especially with regard to security or scalability.

Developers hope to eventually rectify these problems. Ethereum 2.0 could tackle scalability concerns through a concept known as sharding, a way of splitting the underlying database into smaller pieces that are more manageable for individual users to run.

How will Ethereum 2.0 impact DeFi?

Ethereum 2.0 isn’t a panacea for all of DeFi’s issues, but it’s a start. Other protocols such as Raiden and TrueBit are also in the works to further tackle Ethereum’s scalability issues. 

If and when these solutions fall into place, Ethereum’s DeFi experiments will have an even better chance of becoming real products, potentially even going mainstream.

Bitcoin as DeFi

While Ethereum is top dog in the DeFi world, many proponents of Bitcoin share the goal of cutting the middleman out of more complex financial transactions, and they’ve developed ways to do so using the Bitcoin protocol.

Companies such as DG Labs and Suredbits, for instance, are working on a Bitcoin DeFi technology called discreet log contracts (DLC). DLC offers a way to execute more complex financial contracts, such as derivatives, with the help of Bitcoin. One use case of DLC is to pay out bitcoin to someone only if certain future conditions are met, say, if the White Sox win their next baseball game, the money will be dispensed to the winner.





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JPMorgan Acquires Nutmeg Robo-Advisor, Furthering UK Retail Banking

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Before the deal, JPMorgan and Nutmeg had partnered late last year to offer clients an assortment of globally diversified exchange-traded funds (ETFs).

JPMorgan Chase & Co (NYSE: JPM) said Thursday it has closed a deal to purchase Nutmeg, an online investment management service, for an unnamed price. US biggest bank hopes the agreement, which awaits regulatory approval, will complement its launch of a standalone digital bank brand in the UK during the year.

Using the latest technology from Nutmeg will help boost JPMorgan’s retail and institutional push since the company aims at establishing as many branches as it can outside the US.

With over £3.5 billion (4.9 billion) worth of assets under management, the decade-old Nutmeg is one of the UK leading and award-winning robo-advisors. The company offers various investment accounts including Individual Savings Accounts (ISAs), general investment, and pensions accounts.

Additionally, its competitors include Wealthsimple, Moneybox, and Moneyfarm. Before the take-over, Nutmeg had raised over $150 million in investments from Goldman Sachs and the British venture capital firm – Balderton Capital.

JPMorgan CEO Jamie Dimon stated last year that the banking giant would be “much more aggressive” in adding assets by conducting more acquisitions. The bank may also be stepping up to competition from adversary Morgan Stanley (NYSE: MS) which, in recent years, has spent $20 billion in merger agreements with E-trade and Eaton Vance.

Dimon also mentioned leveling up against blue-chip tech firm Alphabet Inc (NASDAQ: GOOGL) and other fintech firms such as PayPal Holdings Inc (NASDAQ: PYPL).

JPMorgan Stock Market and Nutmeg Acquisition

Before the deal, JPMorgan and Nutmeg had partnered late last year to offer clients an assortment of globally diversified exchange-traded funds (ETFs). This is not the first time the bank has partnered with a company then acquired it later. In October 2020, JPMorgan partnered with 55ip, a tax-smart fintech start-up, then bought it a couple of months down the line.

Differing regulatory guidelines in Europe and the UK made it necessary for JPMorgan to purchase the robo-advisor, rather than use investment technology available in the US. However, its US-based investment service You Invest is currently doing well, with assets valued at about $50 billion, as Dimon states.

JPMorgan’s tech initiative marks one among many happening in Britain’s retail banking sector. Banks such as Revolut, Starling, and Monzo manage digital-only checking accounts which have attracted a host of clients. Going by data from Innovate Finance, FinTechs in the UK probably make up the world’s largest markets, having pulled in $4.1 billion investment from venture capitalists as of last year.

JPMorgan Securities served as financial advisor in the JPMorgan-Nutmeg transaction, while Freshfields Bruckhaus Deringer acted as legal counsel. Arma Partners was Nutmeg’s financial advisor and Taylor Wessing was legal counsel.

As of June 17, 2021, at 7:59 p.m. EDT, JPMorgan stock closed at $151.76, down 2.89%. In the after-hours session, it was trading at $151.48, down 0.18% in 24-hours.

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MSFT Stock Still Attractive following Appointment of Microsoft CEO Satya Nadella as Chairman

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The tech giant Microsoft announced yesterday that its CEO Satya Nadella had been named chairman of the board.

Microsoft Corporation (NASDAQ: MSFT) stock is trading today at around $258.06 (+0.26%) following the announcement that Chief executive officer Satya Nadella has been appointed as its new chairman, in place of John Thompson.

Microsoft Corporation stock has always been deemed a finished product and unlikely to produce anything great in the long run because they are already big. Many investors are skeptical about the long-term outlook of Microsoft stock regardless of its advantages as a huge tech company. Microsoft Corporation has however recorded impressive numbers this year as continues to grow despite having a $2 trillion market cap.

Microsoft Corporation’s total revenue saw a $6.7 billion rise year over year in its Q3 fiscal of 2021, with every sector of the tech giant, contributing to this growth. Microsoft’s commercial cloud revenue, Azure, and Dynamics 365 grew 33% year over year to $17.7 billion. The tech company’s cloud computing business, Azure, saw its revenue rise by 50%.

The company paid out $16.1 billion in dividends to shareholders over the trailing 12 months ending March 31, with a dividend yield of 0.9%. Although Microsoft’s dividend yield may look small, its current quarterly dividend of $0.56 is up from $0.36 just five years ago and is currently only paying out 30% of its free cash flow in dividends, to make room for annual dividend increases.

Microsoft, shuffling its leadership also couldn’t have come at a better time. The tech giant announced yesterday that its CEO, Satya Nadella has been named chairman of the board. Nadella who according to a statement from Microsoft was “unanimously elected” to replace John Thompson, has served as the chief executive officer of the tech company since 2014 and has played an integral role in pushing the company to what it is now a trillion-dollar corporation.

Nadella saw the billion-dollar acquisition of LinkedIn, ZeniMax, and Nuance Communications. Thompson, who took over as chairman from the company’s co-founder Bill Gates in 2014, will serve as a lead independent director, according to Microsoft

The appointment of Nadella as Microsoft Chairman comes after the company was subjected to intense criticisms of an unprofessional workplace and sexual harassment allegations after news broke on an affair between its co-founder Bill Gates and an employee back in 2000. Bill Gates’s representatives acknowledged the relationship which reportedly happened while he was chairman of the board.

Microsoft’s board has revealed that it launched an investigation into the matter two years ago but declined to comment on whether its board has decided to let Bill Gates go.

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Apple to Debut Faster Watch with Temperature and Glucose Testing Capabilities, AAPL Stock Slightly Up

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Beyond the company’s move in seeking advancement in its smartwatch, it is also working assiduously to explore new areas, notably in the Apple car pursuits.

American multinational technology company Apple Inc (NASDAQ: AAPL) is set to debut a faster model of Apple Watch as the tech giant seeks to beat competitors in terms of product performance. Per a Bloomberg report citing people close to the company’s plans, the proposed new Apple Watches will also brandish the abilities to check temperatures and user’s blood glucose levels.

The Apple Watch was debuted in 2015 and has grown to become a vital part of the Cupertino-based company’s product suite. While the watches have seen bigger upgrades in times past, the currently scheduled boost will place it at the echelon of smartwatches with unique capabilities in the market. The temperature check feature became a necessity following the advent of the COVID-19 pandemic, and the increased demand for handy temperature checkers.

As against the usual format for checking blood glucose levels, the feature designed into the Apple Watches will not involve pricking fingers for traces of blood. Instead, the Apple technology will analyze the blood without being invasive, according to the Bloomberg report. The new model dubbed the Apple Watch Series 7 also has a faster processor, improved wireless connectivity, and an updated screen. 

The Apple Watch with the temperature capability may not be hitting the market until the next year 2022, while that designed to check blood glucose may take a couple more years before it is available commercially.

Apple stock is currently trading at $127.79 in the pre-market, representing a growth of 0.35% from the previous close.

Beyond Apple Watch, the Company Is Expanding Its Product Suite

One of the major tenets of the top technology companies including Apple is the ability to innovate and match with the competition. Beyond the company’s move in seeking advancement in its smartwatch, it is also working assiduously to explore new areas, notably in the Apple car pursuits.

While the details of the Apple self-driven car production remain sketchy, CEO Tim Cook once confirmed the firm is building its tech in autonomous systems. Per his word;

“We’re focusing on autonomous systems. It’s a core technology that we view as very important. We sort of seeing it as the mother of all AI projects. It’s probably one of the most difficult AI projects actually to work on.”

Many have attributed this comment to the proposed self-driven cars which have been spotted on many occasions being tested by the company on the streets of California. The latest update from the Apple cars involves the potential pursuit of a partnership with either Contemporary Amperex Technology Co. Ltd. (CATL) and BYD Ord Shs A (SHE: 002594) for Lithium Iron phosphate batteries supply, according to an earlier Coinspeaker report.

The deal has neither been confirmed by either Apple or the two companies, however, people close to the matter noted the conditions to set up a plant in the United States set by the former is of disinterest in CATL. The cost considerations and the unrest between Washington and Beijing are the major considerations to pull the deal through.

Apple’s ties with Chinese firms are well engrafted as the assembling of the proposed upgraded main Apple Watch will be done by Luxshare Precision Industry Co Ltd (SHE: 002475). The Apple Watch SE is billed to be assembled by Foxconn Technology Co Ltd (TPE: 2354) alongside Taiwan’s Compal Electronics Inc (TPE: 2324).

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Benjamin Godfrey is a blockchain enthusiast and journalists who relish writing about the real life applications of blockchain technology and innovations to drive general acceptance and worldwide integration of the emerging technology. His desires to educate people about cryptocurrencies inspires his contributions to renowned blockchain based media and sites. Benjamin Godfrey is a lover of sports and agriculture.



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