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What is DeFi?

DeFi stands for Decentralized Finance, it refers to the growing ecosystem of financial applications built on top of different blockchain platforms. Currently, most products or platforms are being launched on Ethereum as it is the original smart contract chain. The true craze happened after the release of SushiSwap, which started the popularity of Liquidity mining or Yield Farming. This is the concept of supplying and locking up liquidity (crypto assets) to a protocol, in return, users earn rewards.

However, the craze led to a rise in transactions costs due to high network usage. As a result, we find DeFi products are now being deployed on other networks. Notably, new applications launch on Tron, Cardano, Neo, Binance Smart Chain, Vite, and KavaChain – just to name a few.

Why is decentralized finance so popular?

Imagine an open alternative to every traditional financial service: savings, loans, trading, insurance, and much more. Currently, this is the fastest growing sector in cryptocurrency, with numerous new DeFi applications and protocols being released on a monthly basis. Many protocols use stablecoins to generate yield and interest. Consequently, they are seen as being safer and less volatile than investing in cryptocurrencies directly.

Surely one of the reasons why interest from the masses is rapidly growing for decentralized finance applications. However, it is also important to note that many of these applications are brand new and have not been heavily tested. Therefore, they come with their own risks, such as smart contract bugs. You should do your own research before depositing any funds.

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