{"id":3796,"date":"2023-01-16T20:23:04","date_gmt":"2023-01-16T20:23:04","guid":{"rendered":"http:\/\/monsterblockhk.com\/?p=3796"},"modified":"2026-05-04T08:22:27","modified_gmt":"2026-05-04T00:22:27","slug":"what-is-defi","status":"publish","type":"post","link":"https:\/\/monsterblockhk.com\/en\/what-is-defi\/","title":{"rendered":"DeFi Newbie Lazybones 2023\uff5cDefi Security\uff5cHow to Invest Tutorials"},"content":{"rendered":"
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What is Defi? How is it different from traditional finance?<\/h1>\t\t\t\t<\/div>\n\t\t\t\t
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\"Defi\" is Decentralized Finance<\/b> Decentralized finance, which refers to all decentralized systems, mechanisms or smart contracts built on top of the blockchain.Turning traditional financial products into services that operate without unnecessary intermediaries is tantamount to applying blockchain technology in financial technology (Fintech), which<\/span>Both can be <\/span>Decentralized Finance<\/b>\u3002<\/span><\/div>\n<\/div>\n<\/div>\n

At present, the banking and investment financial system that we use every day, including all kinds of stocks, bank deposits, insurance savings and even funds, etc., are all centralized Centralized. Centralized means that there are<\/span>Unified Management Organization<\/b><\/span>\uff0c<\/span>Information is not fully transparent<\/b><\/span>furthermore<\/span>The mechanism for managing manpower is sometimes not made public.<\/b><\/span>The system.<\/span><\/p>\n\n \t

  • Global Openness Alternative to the Existing Financial System.<\/span><\/span><\/li>\n \t
  • Products that let you borrow, save, invest, trade and do more.<\/span><\/span><\/li>\n \t
  • Based on open source technology that can be written by anyone.<\/span><\/span><\/li>\n<\/ul>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t
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    How DeFi came to be<\/h1>\t\t\t\t<\/div>\n\t\t\t\t
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    Back then, Bitcoin was the first decentralized financial application that allowed you to literally own and control the value of money and send it anywhere in the world. Bitcoin also provided a way for a large number of distrustful people to agree to use the same set of books, while eliminating the need for a trusted intermediary to make transactions.<\/span><\/font><\/p>

    Bitcoin is open to everyone and no one has the right to change its rules. Bitcoin's rules, such as its rarity and openness, are inherent to the technology. In contrast to traditional finance, where governments can print money to devalue your assets and savings, and corporations can shut down markets, Bitcoin is very different from traditional finance.<\/span><\/font>
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    The Revolution: Developments in DeFi<\/h2>\t\t\t\t<\/div>\n\t\t\t\t
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    The concept of DeFi comes from Brendan Forster, co-founder of the lending product Dharma, who published a post on Medium on 2018\/08\/31, \"Announcing De.Fi , A Community for Decentralized Finance Platforms\" to Announcing the concept of DeFi, the article mentions that DeFi has to fulfill four requirements:<\/span><\/font><\/p>

    1. The project is building on a decentralized blockchain: building on a decentralized blockchain<\/span><\/font><\/li>
    2. The project is in the finance industry: for the finance industry<\/span><\/font><\/li>
    3. The project's code is open source\uff1a\u7a0b\u5f0f\u78bc\u958b\u6e90<\/span><\/font><\/li>
    4. The project includes a robust developer platform.<\/span><\/font><\/li><\/ol><\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t
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      How to Evaluate DeFi Program Security<\/h2>\t\t\t\t<\/div>\n\t\t\t\t
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      I. Mobility<\/h2>\t\t\t\t<\/div>\n\t\t\t\t
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      Whereas \"liquidity\" in traditional finance might be the same as \"liquidity\" provided by a quantitative fund or a professional organization, in DeFi, everyone can now provide liquidity to a Defi project such as\u00a0DEX (Decentralized Exchange)<\/span>\u3002<\/span><\/span><\/p>\n\n<\/div>\n<\/div>\n<\/div>\nThe feasibility or stability of any DeFi project must be based on sufficient liquidity, and since DeFi is a decentralized structure, theoretically the liquidity of any trading pairs or pools of funds is mainly provided by the users, and rarely by large organizations. If there is a liquidity problem on the platform and the currency pairs are not exchanged at a stable price, then the DeFi project will suffer from<\/span>Mobility Issues<\/b>The pool is not a liquidity pool, but it is a pool that provides the liquidity for the pool. At the same time, users who provide liquidity to the pool suffer losses, such as loss of slippage, inability to withdraw funds, and other losses.<\/span>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t

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      II. Uncommon Losses<\/h2>\t\t\t\t<\/div>\n\t\t\t\t
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      After we have put two different currencies into the pool in pairs and successfully provided liquidity in that currency, if the two currencies move up or down too much and the pool needs to be liquidated due to the automatic market maker mechanism, the pool will be able to provide liquidity in the two currencies.<\/span>Based on the latest exchange rate<\/b>\u4f86<\/span>reconsider<\/span>If you allocate two currencies, then the currency that has risen less or declined in value will incur a loss compared to simply holding the currency.<\/span><\/p><\/div><\/div><\/div>

      The no-currency loss is actually caused byValue Change<\/b>The pooling of liquidity by non-users would technically \"not\" result in the pooling of liquidity if non-users were to cash out and siphon off liquidity from the pool.<\/span><\/span>resulting in<\/span>Any actual loss.<\/span><\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t

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      iii. total locked-in value<\/h2>\t\t\t\t<\/div>\n\t\t\t\t
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      \n\nTotal Value Locked (TVL), known as Total Value Locked, refers to the total amount of liquid assets in a DeFi program agreement or platform.\nIt is often used as a measure of the total amount of token assets locked in a pool.<\/span><\/span>\n\n<\/div>\n<\/div>\n<\/div>\nMost people evaluate a DeFi project by the value of the assets deposited into the smart contract, so many people believe that the TVL can reflect the security of the project to some extent. The more assets you have locked up, the more secure the agreement is. Think of it this way, if the agreement can lock up so much money, then the people who deposited the money must have conducted a thorough investigation and confirmed the safety of the agreement before they dare to put their money into it.<\/span><\/span>\n\nUnfortunately, TVLs often give a false sense of security, as hackers likewise target these high TVLs to make more money.<\/span><\/span>\n\nWhat can we look out for?<\/i><\/span><\/span>\n
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      1. Floating Token Prices<\/span>\n<\/b>TVL is a measure of the total liquidity of a DeFi program agreement and is calculated as TVL = Token Count x Current Token Price. If the TVL has risen and fallen, but the number of tokens has not increased or decreased, we need to consider whether the price of the tokens has been constantly changing, which affects the accuracy of the TVL value.<\/span>\n<\/span><\/li>\n \t
      2. Available Assets in Locked Positions<\/b>\nThe DeFi program provides a lending service that allows investors to pledge assets and lend out other assets, but at the same time it means that users can utilize the lent funds in other DeFi agreements by pledging them repeatedly between the two program agreements, magnifying the asset multiplier. In this case, asset pledges will also multiply because the initial pledge and the repledged funds will be double-counted in the TVL, resulting in a significant deviation in the TVL's valuation as it grows significantly.<\/span>\n<\/span><\/li>\n<\/ol>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t
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        IV. Third-party security audits<\/h2>\t\t\t\t<\/div>\n\t\t\t\t
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        Whether a DeFi project's smart contract has passed a third-party security audit can also be an indicator, but it just means that the code has been seen by more people and is not technically flawed.<\/span><\/span><\/p><\/div><\/div><\/div>

        Of course, most people don't read audit reports so\u00a0Certik<\/a><\/span><\/strong> There is a data dashboard that contains all the reviewed items. In this dashboard, you can check the \"Trust Score\" of an item, where a higher number means it is safe.<\/span><\/span><\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t

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        Ask questions if you don't understand
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        The last simple method I want to introduce to you is:Join the project's community to ask questions directly<\/b>\u3002<\/span><\/span><\/p>