Welcome to the 6th in this 8-part Getting started in DeFi series. In the last lesson we covered DeFi projects and protocols. In this lesson, we'll take a look at some more advanced DeFi concepts.
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.
Advanced DeFi Concepts
While many people are familiar with the basics of DeFi, there are also many advanced concepts that are worth exploring. This article will introduce some of the more advanced DeFi concepts, such as yield farming, liquidity mining, and composability.
Yield farming is a strategy that involves using DeFi protocols to maximize the returns on your cryptocurrency holdings. The basic idea is to take advantage of the high-interest rates and other incentives offered by DeFi protocols to earn more money on your assets. For example, you might use a protocol like Compound to lend out your cryptocurrency and earn interest, or use a protocol like Uniswap to provide liquidity and earn fees.
Liquidity mining is a term used to describe the process of providing liquidity to a decentralized exchange (DEX) in order to earn rewards. Many DEXs, such as Uniswap, offer incentives for users to provide liquidity to the platform, in the form of fees or other rewards. By providing liquidity, users can earn passive income and help make the DEX more efficient.
Composability is a key feature of DeFi protocols that allows them to interact with each other in powerful ways. Because DeFi protocols are built on top of blockchain technology, they can be easily combined and used together to create new financial products and services. For example, you could use a protocol like MakerDAO to generate stablecoins, and then use a protocol like Compound to lend those stablecoins out and earn interest.
Here Sergei Nazarov, founder of Chainlink, explains composability
Overall, yield farming, liquidity mining, and composability are just a few of the advanced concepts that are worth exploring in the world of DeFi. By understanding these concepts, you can gain a deeper understanding of how DeFi works and how to make the most of your cryptocurrency holdings.