Tips, Tricks, and Guides

What Is DeFi and Why Should I Care? A CoinMarketCap Step-by-Step Guide

In recent weeks, the word on everyone’s mind has been DeFi. DeFi is bringing more utility to the Ethereum blockchain, is that why ETH is reaching 2020 highs? DeFi is bringing more people into cryptocurrency, is that why Bitcoin (BTC) broke $11,000? Is DeFi just a buzzword? Is it worth my time trying to figure out how to become a yield farmer? Did I miss the boat on Compound? Can I still make a profit with YFI?

With all of the questions, new projects, bubble and hype accusations, and more, CoinMarketCap wanted to give our readers a place where they could tune down the noise and find as much accurate information as possible about the DeFi ecosystem in one place.

What Is DeFi? A One-Second Explanation

Simply put, decentralized finance is the idea of creating more open source, permissionless financial services in a decentralized financial system. DeFi protocols are usually built on the Ethereum blockchain and involve the use of smart contracts and other decentralized applications (DApps) as a way to promote open finance.

The use cases for DeFi products and DeFi services are almost infinite: they aim to use blockchain technology to create an entirely new, trustless system of financial products that is completely separate from traditional finance and financial institutions. DeFi’s goal is to bank the unbanked.

Step 1: Familiarize Yourself With DeFi Projects

CoinMarketCap is first and foremost a data ranking and aggregation site, and that means that we have given DeFi projects their very own ranking page. To get an idea of what projects in the crypto space are considered to be DeFi and what their market cap, price and circulating supply is, you can find it right off our homepage.

Screenshot taken at 6:30am EST

To create the rankings, our research team decided that they wanted the definition of “DeFi Protocol” and “DeFi token” to be as limited as possible, as the page would be meaningless if we started to have a wide definition of the term. Arguably all digital currencies can perform the role of a permissionless, decentralized transfer of value, and we wanted the definition of “DeFi” to be stricter than that. The methodology of the page can be found here.

Step 2: Do Your Own Research

There are some great resources in the crypto space that provide background information into each of the newest DeFi protocols, as well as the space as a whole. 

CMC has curated a list of some sources that will allow you to “do your own research” into DeFi and the idea of open financial systems:

The Defiant

The Defiant is a newsletter and content platform created by Camila Russo, a former Bloomberg financial journalist and author of The Infinite Machine, a history of Ethereum. Cami uses her platform to curate, create and analyze all information about decentralized finance that she can find.

DeFi Pulse

DeFi Pulse is a blog platform that both analyzes and ranks DeFi products and lending protocols. Their blog gives you a closer look at the workings of some of the various DeFi financial instruments.

DeFi Prime

DeFi Prime is a platform that clearly breaks down the different DeFi projects into categories, providing a quick snapshot of what they are, as well as creating blog posts that go into more depth about various topics.

Decrypt: What Is Decentralized Finance (DeFi)?

Crypto media outlet Decrypt has created a short learner page for those that don’t need a huge amount of various content and just need a short, easy to digest introduction to DeFi and how it is different from the traditional financial system.

CMC’s Guide to Liquidity Mining on Compound

Our head of research Gerald Chee gives you a step-by-step walkthrough of how liquidity mining on Compound Finance actually works.

Chris Blec on Decentralized Finance

For those who would rather watch a video than read an article, Chris Blec’s video explainers on DeFi and its various protocols on YouTube give you a large amount of detail into how to actually use some of these DeFi applications.

Binance Academy: DeFi Definition

Binance Academy provides a short, but sweet, definition and context for decentralized finance.

Step 3: Use DeFi Applications…or Don’t. It’s Up to You!

Now that you know how various DeFi protocols work, it’s up to you to decide if you want to take part in any trading, lending, investing or more, or if you’d rather just watch, content in your knowledge that you at least now know exactly what is going on.

CMC prides itself on always being the place where you can find accurate, up-to-date data about the crypto space. Keep a CMC tab open as the DeFi space continues to grow — we are definitely keeping a close eye on how to educate our users about DeFi!

This article contains links to third-party websites or other content for information purposes only (“Third-Party Sites”). The Third-Party Sites are not under the control of CoinMarketCap, and CoinMarketCap is not responsible for the content of any Third-Party Site, including without limitation any link contained in a Third-Party Site, or any changes or updates to a Third-Party Site. CoinMarketCap is providing these links to you only as a convenience, and the inclusion of any link does not imply endorsement, approval or recommendation by CoinMarketCap of the site or any association with its operators.

This article is intended to be used and must be used for informational purposes only. It is important to do your own research and analysis before making any material decisions related to any of the products or services described. This article is not intended as, and shall not be construed as, financial advice.

The views and opinions expressed in this article are the author’s own and do not necessarily reflect those of CoinMarketCap.

Molly Jane is a content manager at CoinMarketCap. Previously the head of news at Cointelegraph, she has also contributed to Decrypt and Modern Consensus. You can find her on Twitter at @MollyJZuckerman.

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