Welcome to the 3rd in this 8-part Getting started in DeFi series. In the last lesson we covered DeFi risks and what users need to be aware of when getting into this space.
The full series is as follows:
Introduction to DeFi: This lesson covers what DeFi is, why it's important, and how it's different from traditional finance.
Understanding DeFi risks: This covers the risks associated with DeFi, such as smart contract security, liquidity, and volatility.
Choosing a DeFi platform: This covers the different DeFi platforms available, and how to compare and choose the right one for your needs.
Wallets, Buying and More: This lesson covers the basic steps for getting started with DeFi, including setting up a wallet, buying cryptocurrency, and interacting with DeFi protocols.
DeFi projects and protocols: This lesson introduces some of the most popular DeFi projects and protocols, such as MakerDAO, Compound, and Uniswap, and explains how they work.
Advanced DeFi concepts: This lesson covers more advanced DeFi concepts, such as yield farming, liquidity mining, and composability.
DeFi best practices: This lesson covers best practices for using DeFi, including how to manage risk, protect your assets, and stay up to date with the latest developments in the DeFi space.
Conclusion: This lesson summarises the key takeaways from the course and provides resources for further learning and exploration.
Choosing a DeFi Platform
When choosing a DeFi platform, there are several factors to consider in order to find the right one for your needs.
Reputation: DeFi is a relatively new and rapidly evolving space, which means that not all platforms and protocols are equally reputable. It is important to research and compare the reputation of different DeFi platforms, including their track record, user reviews, and any relevant regulatory actions.
Security: Security is a critical factor when choosing a DeFi platform, as there have been instances of hacks and other security breaches in the past. It is important to choose a platform that has a strong security track record and uses best practices, such as secure storage, multi-signature transactions, and cold storage.
Functionality: DeFi platforms offer a wide range of services and products, including lending, borrowing, trading, and yield farming. It is important to choose a platform that offers the functionality that you need, such as low fees, high liquidity, or a wide selection of assets.
Interoperability: DeFi is a rapidly evolving space, and different platforms and protocols may not always be compatible with each other. It is important to choose a platform that is interoperable with other DeFi protocols and tools, such as wallets, exchanges, and DApps.
Governance: Many DeFi protocols are governed by their users, who have the ability to vote on key decisions and make changes to the protocol. It is important to understand the governance model of a DeFi platform and how it affects your rights and responsibilities as a user.
DeFi platforms differ to Centralised platforms in that they are governed and run by code, not people. A good thing at this juncture would be to review how DeFi platforms like UniSwap work (and you'll hear about other DeFi platforms in the next episode too). In this video from Whiteboard Crypto, users can see how something like this needs no manual intervention.
During times when loans/trades failed like we saw in crypto markets in 2022, CeFi platfroms still have to go through arbitrage and courts to sort out their issues (and who's owed what) whereas with DeFi platforms, bad loans were liquidated and lenders were paid back automatically.
So, when choosing a DeFi platform, it is important to consider factors such as reputation, security, functionality, interoperability, and governance. By carefully evaluating these factors, you can find a DeFi platform that is right for your needs and goals.