Just as the Internet was the hottest topic in some years ago, today, everyone is talking about cryptocurrencies, blockchain and the opportunities these new platforms present. The major area that captures the attention of many people is the monetary aspect, which is known as cryptocurrency trading. The majority of the people that talk about cryptocurrency trading don’t understand what it really entails. Should you be in this category, this article will put you through on what cryptocurrency trading is all about.
What is Cryptocurrency Trading
Cryptocurrency trading entails speculating and predicting the value and price of various cryptocurrencies, by buying and selling such cryptocurrencies from a spot market on an exchange, or by speculating on the price movement of these coins or tokens through contract for differences (CFD) accounts on a derivatives market.
How the Cryptocurrency Market Work
Cryptocurrencies are decentralized in the sense that no central body controls what goes on with these coins or tokens. This simply means that, anybody can venture into cryptocurrency trading in most countries, without taking permission from government agencies. However, there are countries which do not allow their citizens to partake in cryptocurrency trading. For this reason, many cryptocurrency exchanges never fail to outline countries that they won’t offer their services to. So, before you sign up with any exchange for trading, make sure you find out if your country of residence is allowed to use such an exchange.
Cryptocurrency markets offer the platform that enables individuals buy, sell, or speculate on the price movement of various cryptocurrencies. Unlike traditional physical markets where physical products are bought and sold, cryptocurrencies exist as digital records of ownership on the blockchain network. When one buys a cryptocurrency on the exchange, it simply means buying a digital record of ownership.
There are two ways these cryptocurrencies can be traded in the cryptocurrency markets. One of the ways is by trading them on the spot market, while the other way is the cryptocurrency futures market.
Cryptocurrency Trading on the Spot Market
A spot market is a platform where cryptocurrencies are traded for immediate exchange of the traded cryptocurrency to cash, or another cryptocurrency. We can simply say that trades are made on the spot on a spot market, and prices are known as spot prices. On the spot markets, you can exchange cryptocurrencies for cash or for another cryptocurrency.
Trading cryptocurrencies on the spot market is very easy and simple. It doesn’t require much to start. The major things you need to start cryptocurrency spot trading are: a device with internet connection, an account with a cryptocurrency exchange, trading capital, and patience. In the spot market, traders buy cryptocurrencies which they believe will increase in price within some time, and set a sell order at a higher price which will yield them some profits.
The goal here is to buy low and sell high. Any cryptocurrency a trader buys on the spot market that is not sold back immediately, is stored temporarily on the trader’s unique exchange account’s addresses, until it is sold or transferred out to a personal wallet or to another exchange. Cryptocurrency spot traders are classified into short-term traders and long-term traders.
The short-term traders (day traders and swing traders) buy and sell cryptocurrencies within a short period of time such as a day, few days, few weeks or few months. These traders are after the accumulation of small profits. The long-term traders are investors who believe in making it big. They buy a particular cryptocurrency they believe has a good prospect and hold it for a long time, in order to yield maximum profit. In the spot market trading, traders gain only when the price of their cryptocurrencies rise, but lose when the price drops.
Cryptocurrency Trading on Futures Markets
The futures market is a type of market where futures contracts and commodities are traded for delivery on a specified future date. This is another form of cryptocurrency trading. Here, the cryptocurrencies are not traded directly as obtainable on the spot market. Rather, traders speculate on the price movement of various cryptocurrencies, without the need to own the underlying cryptocurrencies. Examples of market where you can trade crypto futures include BitMex FTX, Binance Futures, etc. In this futures market, you can buy(long) when you think that such a coin or cryptocurrency is bullish(that is, the price is increasing or set to increase).
On the other hand, when you believe that the market or price of a particular coin you are trading is bearish( that is, prices are falling), you can sell(short) the market. In the futures market, leverage comes into play. Leverage trading is a form of trading where a trader deposits a small capital known as “Margin”, but gains full exposure to the underlying market. This is possible because your initial deposit is multiplied by the leverage you choose. The available leverages are x1 to x125.
For instance, when you make a deposit of $100 and choose to trade on the x20 leverage, your market exposure will be 100 x 20 = $2000. Trading with leverages magnifies your profit and at the same time, magnifies your losses.
How the Price of a Cryptocurrency is Determined
The price movement of cryptocurrencies is controlled by demand and supply. Like we stated above, no central body has full control of cryptocurrencies, since they are decentralized. However, there are some factors that influence the price movement of various cryptocurrencies. These factors include:
Each cryptocurrency has a specified maximum supply, total supply and circulating supply. Maximum supply of a cryptocurrency is the total units of that cryptocurrency that will ever exist. Once this number is reached, no other unit of that crypto can be minted again.
Total supply refers to the total units of a cryptocurrency that have been minted or are available at a given time. This number increases as more of the coins are minted from the maximum supply. The circulating supply is the total units of the coin that are unlocked. That is, those in individuals’ wallets and on the cryptocurrency exchanges.
The rate at which more coins are added to the circulating supply through more minting and more unlocking, and the rate at which the circulating supply is reduced through coin burn or loss of access by some users, both affect the coin’s price movement.
This refers to the value of a particular coin in circulation times the current price. Market capitalization of a coin, can be determined by multiplying the current price of the coin to circulating supply. For instance, Bitcoin market capitalization = Bitcoin current price times circulating supply.
Many traders consider the use case and the solution the project behind a particular cryptocurrency is bringing to the society. Most of the cryptocurrencies are in their infancy, and as such,they do not possess any tangible real world use case. Though the potential is there. However all of these comes into consideration and affects people’s trading reaction(s) to them.
The Fundamental Drive
Currently, the price of cryptocurrencies is heavily driven by press releases and major other announcements, such as exchange listing, mainnet launch, partnership deals, etc. When a project comes up with good news about its project, the price of its native token or coin always responds positively to the news. The opposite happens when there is any bad news about a particular coin. This is to say, the value of cryptocurrencies largely depends on price speculation.
Useful Terminologies in Cryptocurrency Trading
Order book: In cryptocurrency trading, an order book contains the list of buyers and sellers on a particular cryptocurrency.
Bid/Ask: The list of buy orders on the order book is known as bid, while the list of sell orders on the order book is known as ask.
Order History: This contains the record of completed trades on an exchange.
Spread: This is the difference between the bid price and ask price.
Arbitrage trading: This is the process in which a trader takes advantage of price differences on different cryptocurrency exchanges. For instance, a trader can buy a cryptocurrency on an exchange at a lesser price, and sell the same cryptocurrency on another exchange at a higher price.
Margin: The is the term used for the initial deposit a trader makes into a futures market.
Leverage: This is the process of using a borrowed fund to increase a trader’s position on the market.
Exchange: This is a platform where traders carry out trades on different cryptocurrencies. There are centralized exchanges which are controlled by a central body, and there are decentralized exchanges which have no central control.
Long: This is a term used to indicate a buy position.
Short: This is used to refer to a sell position.
Bullish/Bearish: A coin or token is said to be bullish when it is increasing in price, while it is regarded as bearish when its price is falling.
Quick Facts About Cryptocurrency Trading
Trading in cryptocurrencies is considered risky due the volatile nature of these coins. As such, one should seek proper guidance before investing. The following are vital pieces of information which every trader must bear in mind.
- Cryptocurrencies are highly volatile in the sense that their prices might experience a major increase in a day, and equally experience a drastic fall. For this reason, traders are expected to trade with the amount of money they can afford to lose.
- Traders are always advised to understand how cryptocurrency works, before venturing into crypto trading.
- Cryptocurrency trading should not be seen as a get-rich-quick-scheme, but it should be traded with patience.
How to Approach Cryptocurrency Investment in 2021
Years have gone by and many cryptocurrencies have come to be. Speculators and Investors now see cryptocurrency as an alternative to universal currencies like the dollar, euro, and naira. Today, virtually everyone wants to learn how to invest. If you’re looking to invest in cryptocurrency, this article is for you.
Before diving into the crypto journey, it is important to be aware of what is at stake. For everyone who has acquired immense wealth trading crypto, there is also someone who has lost massive finances while trading. Nevertheless, if you’re still focused on cryptocurrency investment, keep reading.
Only Invest Money You’re Prepared To Overlook
Needless to say, you should only invest money you can afford to lose. The main purpose of any form of investment is to add to your fortune. If an individual invests his entire savings, and the said investment doesn’t work out as planned, that is a big loss. So, when investing in Cryptocurrency, whatever amount you put in is completely up to you, but it should only occupy a small percentage of your income, such that, if there is a hiccup, you’re not left completely stranded.
Make Your Choice
Choose your cryptocurrency or cryptocurrencies. There are tons of cryptocurrencies to select from and while it’s fine to make good with just one, it’s also not a bad idea to invest in as many as you want, as long as you’re not spending above your means. That way, you gain some, and you lose some. However, if you would rather invest in one, Bitcoin seems to be the most reliable, followed closely by Ethereum.
A downside to trading in cryptocurrencies is that you can’t just walk into a bank or an investment brokerage firm to get them. You have to find sites dedicated to cryptocurrency exchanges. There are several sites like eToro, Coinbase, Gemini, Binance, etc. dedicated to this cause.
Save Your Cryptocurrency
Cryptocurrency is mainly stored in either a hot or cold wallet. This wallet permits users to keep and reclaim their digital assets. A user can store cryptocurrencies like Ethereum in their wallet and from there, use it to perform transactions. You have access to your wallet through a public key and a private key. The public key is referred to as your cryptocurrency address and it can be used by the other party in the transaction, while the private key is for you alone. It is important to have both keys to finalize a transaction. In addition, your wallet provides a history of all your transactions, as well as your present balance.
Safeguard Your Cryptocurrency
Keeping your cryptocurrency secure after buying it is principal. To encrypt your data, make use of VPNs, like NordVPN and ExpressVPN. These help in securing your transactions and making sure that your purchases are kept a secret from prying eyes.
Just as with other forms of investment, in cryptocurrency investment, it is important to focus less on what is being said, but rather carry out your own research and study the market to the best of your ability. Do your own fact-finding instead and select the strategy that works best for you. This will help you to have a clear picture of what it is you’re jumping into.
Bitcoin, Cryptocurrency-Maana Na Jinsi Inavyofanya Kazi
Sehemu ya kwanza
Miaka kuku na moja iliyopita, neno “cryptocurrency”lilionekana la ajabu kwa wengi. Hata Sasa hili neno limekuwa likisikika mara kwa mara lakini bado watu wengi wamekuwa hawajui linamaanisha nini hasa. Ni neno lililozoeleka Kama fedha za mtandaoni ama Bitcoin.
Je fedha za mtandaoni ni nini hasa?
Watu wengi Wana uelewa potofu juu ya fedha za mtandaoni, kwa baadhi ni neno linalohusishwa na wizi na njia zisizo halali za kifedha, kwa wengine hili neno limekuwa msamiati watu wakitumia kutengeneza fedha. Cryptocurrencies inaweza kuelezewa na kueleweka kwa njia rahisi. Uelewa wa mahesabu yake huchukua mda mrefu Sana. Ingawa, kuwa na uelewa kidogo juu ya mfumo wa thamani yake Ni kitu pekee kinachohitajika ili uweze kutumia.
Je Cryptocurrency ni nini?
Cryptocurrency ni fedha ya kimtandao iliyo dhahiri au halisi ambayo inaweza kutumika kubadilishana au kufanya manunuzi. Inaweza kuonekana Kama fedha ya kawaida, lakini ambayo mtu hawezi kushika. Ili kupata uelewa sahihi wa dhana hii,uione kama hawala ya fedha-naira ya Nigeria, Cedi ya Ghana, dola ya Marekani,Shilingi ya Kenya au Rand ya Afrika kusini. Cryptocurrencies inafanyanishwa na aina hizi za hawala, lakini ikiwa na tofauti kuu-cryptocurrency ni ya uhalisia.
Tofauti na hawala ya kawaida, Cryptocurrencies hazimilikiwi na eneo ama nchi Fulani, kwahiyo zenyewe zinaweza kutumiwa na mtu yeyote, popote (Ingawa, uhalalishaji wake ni hafifu kwa baadhi ya nchi).
Kitu gani kinafanya ziwe salama?
Cryptocurrencies zinadhibitiwa na fumbo (cryptography). Fumbo Ni njia ya kulinda ujumbe ndani ya mtandao. Katika kipindi ambacho biashara nyingi na miamala mingi imehamia katika mfumo wa digit, fumbo (cryptography) inabeba jukumu muhimu ya kulinda taarifa ambazo zinakuwa zinabadilishwa katika tovuti mbalimbali duniani. Fumbo inafumba taarifa au jumbe ili iweze kumfikia muhusika pekee (mlengwa). Cha kushangaza fumbo haikuanzia kwenye mitandao. Ni mfumo ulioanza kutumika tangu miaka ya 1900 Kabla ya Kristo.
Jinsi gani mfumo wa fumbo (cryptography) unavyofanya kazi na fedha za mtandaoni.
Kitu cha muhimu katika mfumo wa fumbo kwenye nadharia ya fedha za mtandao ni suala la saini ya digiti. Saini mara nyingi inatumika kuonesha uhalali katika dunia ya mtandao na vivyo hivyo ndivyo inavyotumika katika ulimwengu wa digiti. Saini itakuonesha mmiliki wa hati, hakitakiwi ighushike, na pindi hati ikisainiwa saini haiwezi kuondolewa. Hivi ndivyo saini za kidigiti hufanya.
Hata hivyo, japokuwa saini ni njia Bora ya kuonesha uhalali, bado zinaweza kughushika. Ili kuondokana na changamoto hii, mfumo wa fumbo unaenda hatua moja zaidi kwa kuongeza funguo katika sahihi hizi za kidigiti. Funguo hizi zinafunga hati ili kuhakikisha macho yanayochungulia kushindwa kuona sahihi.
Kuna mahesabu magumu mno katika mfumo wa fumbo ambazo zinasaidia katika fedha za mtandao hivyo huzifanya fedha hizo kutumika kwa ufasaha.
Historia fupi ya Bitcoin na fedha za mtandao
Flooz, Beenz na DigiCash ni Kati ya walionza mapema kutumia fedha za mtandaoni mnamo miaka ya 90, kwa bahati mbaya wote walishindwa. Kwa matokeo hayo, kushindwa kwa majaribio yao ya kwanza kuhusu fedha za kidigitali, kulifanya wazo zima kupoteza muelekeo na hakukuwa na kumbukumbu ya majaribio yaliyorekodiwa tena tangu kipindi hiko.
Kisha akaja Satoshi mwaka 2009 mtaalamu wa kompyuta asiyejulikana, aliyetumia jina la Satochi Nakamoto, alikuja na wazo la Bitcoin. Alielezea Bitcoin kuwa haipo chini ya mamlaka yeyote ambayo haikuhitaji mtu yeyote wa katikati. Kutuma fedha ilikuwa rahisi Kama kutuma faili kutoka kwenye simu moja kwenda kwemye simu nyingine.
Hali ya fedha ya mtandaoni kutokuwa chini ya mamlaka yeyote ni moja ya sifa yake bora zaidi. Kama ilivyo aina ya Mitandao mingine ya malipo ilitakiwa ishughulikie tatizo la kulipia kitu mara mbili. Kulipia Mara mbili ni kitendo Cha kitapeli Cha kutumia kiasi kile kile Cha fedha Mara mbili. Njia ya kawaida ya kutatua tatizo hili ni kwa kutengeneza mfumo ambao utatunza rekodi ya kila muamala na kumbukumbu ya salio. Hata hivyo, mfumo hu unahitaji mtu wa tatu ambaye atakuwa na taarifa sahihi baina ya watumiaji wawili. Bitcoin za Satoshi zinahitaji sehemu maalumu ha kutunzia kumbukumbu. Inatumia mfumo wa kutunza kumbukumbu ambao umetawanywa unaojulikana kama blockchain. Hii inaondoa haha ya kuwa na mfumo mmoja wa kuhifadhia kumbukumbu za miamala. Blockchain ni mfumo wa kumbukumbu ambao unaacha nakala ya kumbukumbu kwa kila mtumiaji. Mabadiliko yeyote yanayofanywa katika mfumo huu huweka kumbukumbu hiyo kwenye nakala ya watu wote, hivyo basi kufanya mtu mmojawapo asiweze kubadilisha taarifa kwenye kila kumbukumbu.
Ndani ya mtandao wa fedha za kimtandao kama Bitcoin, watumiaji wanathibitisha mialama. Watumiaji wanafanya hivi kwa kutatua mfumo mgumu uliowekwa.
Kwahiyo, namna gani tunaweza kutumia fedha za mtandao?
Kama fedha nyingine,fedha ya mtandao inaweza kutumika kulipia bidhaa na huduma. Mnamo tarehe 22 mwezi wa tano mwaka 2010, mwanamme mmoja kwa jina la Lazlo Hanyecza alilipia pizza yake kwa Bitcoin 10,000. Hii ilikuwa Mara ya kwanza kwa fedha ya mtandaoni kutumika Kama njia ya kufanya manunuzi. Hii siku inajulikana Kama siku ya Bitcoin pizza. Leo, Lazlo angelipia dola 231,000 kwa ajili ya hiyo pizza.
Kuna wafanyabiashara wengi ambao wangekubali fedha za mtandaoni Kama malipo. Katika maduka ya apple, fedha ya mtandaoni imethibitishwa Kama njia ya malipo. Katika maeneo mengi ya Afrika Kama vile Nigeria, Ni njia Bora ya kufanya malipo nje ya mipaka.
Ukiachana kutumika Kama njia ya malipo ,fedha za mtandaoni pia zinatumika Kama njia mojawapo ya uwekezaji. Mtu ambaye aliwekeza Bitcoin moja mwaka 2010, kipindi ambacho Bitcoin ilikuwa chini ya dola moja, angeweza kupata $ 18,000.
Ingawa Bitcoin inaweza kuwa Kati ya vitu vya thamani ndani ya miaka kumi ni muhimu kujua kwamba fedha za mtandao zinabadilika haraka Sana, hivyo kufanya uwekezaji wake uwe wa hatari.
Bitcoin, fedha ya mtandaoni iliyo imara zaidi ilishuka kwa ghafla Sana mwaka 2017. Thamani yake ilipanda Sana hadi $20,000 na ikashuka ghafla Hadi $3000. Hata hivyo, fedha hii imeendelea kupanda juu Sana. Kwa Sasa ina thamani ya $23,000 wakati wa kuandika makala hii.
Ushuhuda kutoka kwenye kazi za uvunaji
Fedha za mtandaoni pia zinaweza zikavunwa. Uvunaji ni muhimu Sana kwa fedha za mtandaoni, hasa kwa wale wanaotumia mfumo wa POW. Wavunaji wanathibitisha muamala ili iweze kuwekwa katika kumbukumbu. Kwa kufanya hivyo, wanaongeza huduma za utunzaji taarifa za miamala. Wavunaji wanatatua mafumbo mbalimbali ya fedha za mtandaoni. Mafumbo yanazidi kuwa magumu kwa fedha maarufu kadri siku zinavyozidi kwenda. Siku hizi mahesabu ya Hali ya juu mno yanahitajika ili mtu aweze kufanikiwa kuvuna. Kwa kila fumbo litakalotatuliwa mvunaji anapewa zawadi ya Bitcoin. Uvunaji ni kati ya njia inayoifanya sarafu kuzunguka. Miaka inavyozidi kwenda kiwango Cha zawadi kwa wavunaji kimekuwa kikipunguzwa ili kupunguza mzunguko wa fedha za mtandaoni. Hii pia imekuwa sababu ya Bitcoin kuongezeka thamani. Wavunaji walikuwa wanapewa zawadi ya Bitcoin 50 hawati fedha hii inaanza, Sasa hivi zawadi Ni Bitcoin 6.25. Hata hivyo zawadi hii itaendelea kushika mda unavyozidi kwenda. Bitcoin milioni mbili tu ndizo zilizobaki kuvunwa. Kuvunwa kwa hizo kutafanya kuwe na na Bitcoin milioni 21 katika mzunguko.
Uwekaji wa dau uhitaji waweka dau wabainishe kiasi Cha dau.
Ukiacha uvunaji, fedha nyingine zinatumia mfumo wa dau. Bitcoin inahitaji mvunaji kuthibitisha muamala, frledha nyingine za mtandao hazihitaji hivyo. Mfano Ni ethereum 2.0, fedha hii ikiwa ni ya pili kwa ukubwa ukiacha bitcoin. Ethereum inahitaji kuthibitisha muamala unaotokea ndani ya mtandao wa ethereum. Wahakiki wanahitaji dau la angalau ethereum 32 ili kukupa haki ya kuhakiki.
Uhakiki hatuhitaji mahesabu ya Hali ya juu Kama uvunaji. Kompyuta ya kawaida inaweza kuhakiki.
Uwekaji wa dau, hata hivyo haujaanza bado kutumika katika mtandao wa ethereum. Ni mfumo mpya ndani ya mtay ambao utaanza kutumika mnamo mwaka 2021.
Kujifunza kuhusu fedha za mtandao ni hatua ambayo inaanza kwa kuzimiliki kwanza. Kusoma maoni katika mitandao ya kijamii kutachangia uelewa zaidi. Fuatilia akaunti mbalimbali za mitandao ya kijamii na taarifa mbalimbali ili kufanya maamuzi sahihi kwenye fedha za mtandao
How Africans Can Leverage On Decentralized Finance (DeFi) For Passive Income
In African countries, the lockdown effect of the COVID-19 pandemic has totally changed the way we live, work and interact with each other. This is proof that the decentralized Web 3.0, the Fourth Industrial Revolution, Artificial Intelligence, Cryptocurrency, and Blockchain are already here- and in fact, here to stay.
Satoshi Nakamato created Bitcoin with the goal to serve as an alternative to fiat currency, but Decentralized Finance (DeFi) is taking it a mile further. As the name implies, DeFi is designed to provide a trustless and permissionless system which eliminates the need for middlemen, with a special focus on a community-driven financial services platform.
Decentralized finance (DeFi) has been one of the hottest topics in the crypto space, with a report from DeFi Pulse showing about $45.54B in Total Locked Value (TVL), with Market Dominance of 16.67% on different DeFi protocols at the time of writing this article. This is in sharp contrast to the world of Centralized Finance (CeFi) where there is high governance, lack of transparency, and no absolute control over funds.
Decentralized finance (DeFi) is here to innovate and deliver an alternative to the existing faulty banking mode, and disrupt traditional financial intermediaries. Also, it is not only targeting the banked, but also the unbanked- a population that is estimated to sit at around 60% in Africa, according to Microsoft.
Decentralized finance (DeFi) provides a lot of opportunities such as earning a passive income with little or no stress, either you choose to connect to DeFi dapps, or apps, via decentralized Web 3.0 platforms or simply through regular web interfaces.
In this article, we will take an adept look into the ways (such as staking, providing liquidity, yield farming, and lending) you can leverage on Decentralized finance (DeFi) products and services as an African for passive income.
It is a process of locking up your tokens and earning more of the same token (or another token, which will be specified by the platform) over an agreed specific period of time into a smart contract. It is similar to mining but uses less power and resource-intensive alternatives.
The locked tokens are referred to as stake, which usually involve keeping the stake in a suitable wallet (either online or offline) and this stake is used to perform several network functions such as validating transactions, decentralization, maintenance of the network’s security etc.
Therefore, the individual that provided the stake will be receiving staking rewards which can be claimed daily, periodically or annually.
Decentralized exchanges (DEXs), such as Pancakeswap, Uniswap, Bakeryswap, and Julswap etc fully support swapping of token pairs such as BNB and BUSD. This is made possible by liquidity providers which provide the liquidity needed.
The liquidity providers (LPs) contribute the tokens into a smart contract, which will control the contributed tokens, which is referred to as a pool. When you provide liquidity on these DEXs, you will be rewarded with 0.3% from all swaps which will be directly proportional to your pool share. The more swaps are conducted via that pool, the more your rewards.
The major setback to liquidity providers is impermanent loss – when the liquidity provided into the pool, and the price of one of the pooled tokens fluctuates significantly compared to when they were deposited. To reduce this, liquidity providers are advised to choose highly liquid pools that contain less volatile assets, such as WBTC/ETH.
Also, to increase your rewards as a liquidity provider, make sure you analyse real-time data from liquidity provider (LP) aggregators. This will help you predict your potential future gains from various pools.
It is the symbiotic relationship between liquidity providers and DeFi protocols. The users are known as yield farmers, which provide the liquidity first on decentralized exchanges (DEXs). For providing the liquidity, they are rewarded with this form of token (LP tokens) which can be locked into Yield Farms, which are DeFi protocols.
The rewards come in more of the same token being farmed or with another token known as harvest. Yield farming is a good passive income stream, since the earning is from both providing liquidity and farming.
Yield farmers are expected to perform due diligence on the Yield Farms, before investing or farming their LP tokens. This is to ensure they are valid with no intention of “rug pulling” (stealing LP tokens, which will be used to withdraw liquidity from DEX pools) and externally audited by reputable firms.
DeFi lending platforms such as Aave, Compound Finance, Maker etc provide loans to individuals or business owners without any form of intermediaries or third parties. These platforms make use of smart contracts – DeFi lending protocols to enable interested individuals (lenders) to deposit their assets, which is referred to as money market.
The process is made possible, by the lenders sending their assets (either stable coins or tokens) to the smart contract, in which the assets will be available for borrowing.
These lending platforms pay the lenders an APY for providing and sending the requested assets into their smart contract. The assets sent by the lenders are therefore made available by the platform to the borrowers, in which they pay an interest when they return what they borrowed.
A portion of the interest is returned back to the lender with his assets provided. The process is controlled by a smart contract, which means the lenders can be rest assured they will receive their money back with interest.
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