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(ID: blockwave), author: Mashaka, published with authorization.

The cold winter in the currency circle seems to be over. From the issuance of coins by Facebook, JP Morgan and other giants at the beginning of the year, to the flying of model coins and the enthusiasm of IEO, the hot spots in the first half of 2019 have never stopped.

Compared with these fleeting hotspots, there is a blockchain field that is undercurrent.

Some people say that its emergence has made traditional big-name capital take a gamble without hesitation; some people say that it will be the most exciting future of blockchain; some even say that its existence will leverage global finance.

Speaking of DeFi, everyone may feel a little strange, but in fact, the lightning network, stable currency, decentralized exchange, etc. that often appear in everyone's sight belong to the field of DeFi.

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01 Why is the DeFi field worth looking forward to?

In 2018, when the concept of blockchain was popular across the country, V God speculated that the killer application of blockchain would appear in the game or financial fields, but now he has to put a question mark on the former.

The game field is indeed one of the fields closest to users, but if you have checked the DAPP active rankings of major public chains, you will find that in this year, the top ten are always dominated by spinach games. Could a spinach game be a killer app?

Difficult, very very difficult. At least for now, there has not been an application that is free from hype and has a large user base in the field of blockchain games.

Chang Jia, the founder of Babbitt, once said: "The killer application of the blockchain may not have a large number of users, but run a large amount of funds. If you use a 'missing notice' to find the Internet killer application to find the block Chain killer app, may not be found."

In the traditional field, the closest place to money is finance.

The financial market is powerful, but 90% of the benefits end up in the pockets of only 10% of people. Ordinary people, as fund contributors in this system, hand over their asset control rights and even pricing power to banks or other financial institutions. The money flows in the capital market to obtain considerable profits, but in the end ordinary people only get A fraction of the profits.

In the DeFi system, users can truly have autonomous control over assets. In addition, the most important vision of DeFi is to tokenize all assets, realize borderless transactions in the global market, and create a more open financial system.

People can trade anything they want to exchange here, there is no black box, no access threshold, enjoy convenient and fast cross-border services, don't worry about privacy being censored and exploited, and all data is open and transparent.

The well-known international venture capital institution A16Z once set up a fund worth 300 million US dollars specifically targeting the encryption market, and the DeFi field is one of the key areas.

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02 The popular fried chicken in the DeFi field

It can be said that the popularity of DeFi has given Ethereum holders a shot in the arm - in the ranking of DeFi applications, 9 of the top 10 applications are built on Ethereum.

With the growth of various assets in the DeFi field, about 2.5 million Ethereum worth $400 million have been locked, and this number is still increasing. Among them, 2.2 million Ethereum are locked by MakerDAO, a popular fried chicken in the DeFi field.

Next, let’s talk about this overlord project to help you better understand the DeFi market.

In the traditional financial world, if you need money urgently, you can take assets such as houses and cars to the bank for mortgage loans; in the world of Maker DAO, you can use Ethereum as collateral in exchange for the stable currency DAI, and DAI can It is anchored 1:1 with the US dollar.

That's right, MakerDAO acts as a decentralized bank, and DAI is a decentralized stable currency issued by it.

With so many stablecoins on the market, what is the difference between DAI and other stablecoins?

In official words: "Other stablecoins are mainly used as deposit channels, and new stablecoins must be pledged for $1 to issue new stablecoins. Dai's model is different. It is a stablecoin issued by pledged encrypted assets, and does not need to occupy real resources. .”

To borrow DAI on Maker, you need to perform the following steps:

1. The user sends ETH to the smart contract on Maker (this smart contract is called CDP, which can automatically save, lock, and return the user's mortgage assets);

2. The system will exchange a certain amount of DAI for you according to the value at that time, and the value of DAI will not exceed two-thirds of the value of the mortgaged ETH (the more the exchange ratio, the greater the risk of liquidation for users);

3. When the user wants to redeem ETH, the same amount of DAI will be returned, and a certain "interest" will be paid, which can only be paid with MKR (the token of the MakerDAO project);

4. After confirming the repayment of DAI and interest, the system returns the ETH mortgaged by the user.

Of course, if Ethereum plummets and the value of the user’s mortgaged Ethereum is lower than the value of the borrowed DAI, the user must repay the DAI in time or mortgage more Ethereum, otherwise the system will directly liquidate your previously mortgaged Ethereum.

Some people may be curious, why use Ethereum to mortgage for DAI? What can these DAI be used for?

Do you still remember the story of buying pizza with 20,000 bitcoins? If such a system existed at the beginning, this little brother would be able to mortgage his bitcoins and exchange them for $20 to pay for the pizza, and then redeem them after a few years, so he would not have to watch the $100 million disappear.

Similarly, if you believe that Ethereum is far more than the current price, you can go to Maker to borrow DAI to pay for other expenses.

Mortgage 1 ETH - get DAI worth 0.5 ETH - exchange DAI for 0.5 ETH on the exchange, then you have 1.5 Ethereum, and when Ethereum rises, you can get an additional 50% profit. If you repeat this process 1, 2, or 3 times, your extra income will be even greater.

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03 DeFi issues that have to be said

At present, although DeFi is highly anticipated by the market, like all emerging markets, there are certain internal problems and development drawbacks.

1. There is no credit system and liquidity is limited.

In the financial market, the core part is not transactions, but lending, which separates the ownership and use rights of funds, and lends based on the credit status of users. However, the DeFi market is based on the blockchain, and there are no third-party institutions like banks, so assets can only be "assumed" by the platform to obtain funds. And this will limit the liquidity and future development speed of the DeFi market to a certain extent.

2. The volatility of digital currency is too large, which aggravates financial risks.

In Maker DAO, we mentioned that if the mortgaged Ethereum suddenly plummets by 50% or more, the "bad debt rate" of the entire system will rise, and it will face insolvency. Although the foundation of the Maker project makes the final guarantee, there is no guarantee that the final system will regain the trust of users.

3. Commonly-talked-about regulatory issues

As the stable currency with the largest audience in the currency circle, USDT has been facing the regulatory pressure of the SEC all year round, and has to transfer bank accounts everywhere. DAI is a decentralized stable currency, and Maker is a lending system. If the volume reaches a certain level, it may also face policy supervision.

4. User, user, user