Defi Explained has been driving a cryptocurrency Prediction Markets

 Defi Explained has been driving a cryptocurrency Prediction Markets

Prediction Markets: these allow you to bet on the outcome of a future 

event, such as a presidential election. 

In fact, they flourished during the 2020 elections, with Augur recording 

a milestone volume of over $8 million. 

Prediction market platforms act like traditional prediction markets, but 

with blockchain functionality, which means no intermediaries. Some 

examples include Gnosis, Augur, and FTX.

Yield Farming: this is the hottest new term in DeFi. It’s the process of 

locking up cryptocurrencies in exchange for some sort of reward. 

Yield farmers stake popular coins like ether, tether, dai, etc. Aave and 

Compound are two of the major platforms to farm DeFi yields.The True Power of DeFi 

Traditional banks are bureaucratic. They’re expensive to run, too. They 

take too long to process transactions—sometimes days—and have 

excluded many people from the financial system due to their stringent 

requirements. 

Here are some of the benefits of decentralized finance.

It is permissionless. 

DeFi opens the financial system to everyone regardless of race, income, 

culture, or geographic location. 

All anyone needs is a connection to the internet via a smartphone or 

computer. 

In 2018, the World Bank estimated that some 20% of the world’s 

population has no access to banking services. Mostly, this is because 

they lack required government-issued identification cards. There are several DeFi platforms that allow these people to access 

banking services.

For example, you can take out a Maker loan without identification or 

even a credit score.

It offers interest rates for investors. 

You can keep your assets like a traditional savings account if you wish, 

but DeFi also offers the chance to earn interest on your assets. 

Platforms like Compound and Aave will let you deposit your 

cryptocurrency and then loan it out to borrowers. 

At some agreed-upon time, you collect your interest on that 

cryptocurrency and can return your capital to the system. 

Compound offers up to 4.3% interest on deposits from some tokens 

and Aave is offering as much as 5.73%. 

Compared to the pittance (0.06% or 0.07%) offered by traditional 

banking establishments for savings accounts, this is an amazingly high interest rate. You can see why people are switching from traditional 

banking to DeFi.

If offers control over your own finances. 

No one can ban you from a DeFi protocol. You have control over your 

own finances instead of depending on a third party to approve your 

loan. 

While you do have to deposit your funds into the platform, what 

happens to those funds is up to you. The underlying smart contract 

takes the place of the traditional human intermediary.

It offers heightened transparency. 

DeFi allows a far greater degree of openness and accessibility. Since 

most of the DeFi protocols are built on the public ledger of a 

blockchain, every activity is available to the public. 

Anyone can view any transaction, but these transactions are not tied to 

any individual the way they are with a traditional bank.

Instead, DeFi accounts list only numerical addresses. Also, users with programming knowledge can access most of the source 

code to audit or build upon, since these are open-source codes. 

This type of code is of a higher quality and far more secure than 

proprietary software, thanks to community interaction.

It offers increased access. 

One of the biggest reasons people without bank accounts can’t make 

financial transactions is that they lack documentation proving their 

identity, such as government-issued identification cards, credit cards, or 

passports. 

This also prevents them from enjoying social benefits like owning 

property, which severly limits their opportunity for growth. 

That barrier is lifted when you use DeFi. “Digital identities,” says 

Entrepreneur, “serve one of the essential components of DeFi.” A 

digital identity may be a profile that is linked to a device’s IP address, or 

a randomly generated unique ID. 

It could also be tied to a user ID and password. With this identification, any user anywhere in the world could buy, sell, 

loan, or borroy cryptocurrency.The Downsides to DeFi

Nothing is perfect and decentralized finance is no exception. Here are 

some of the negative aspects of0 the platform.

Security issues: 

The smart contracts which form the backbone of the DeFi platform are 

susceptible to manipulation. 

By default, these contracts are open-source. 

This design allows you to inspect and review them before making your 

decision to invest in the DeFi protocol. 

Most DeFi protocols hand their contracts over to security firms for 

auditing—and that’s where they may run into trouble. Human beings 

can miss flaws in these contracts that might be exploited at some 

future date. As an example, take a look at the DAO or Decentralized Autonomous 

Organization. 

This investor-directed venture capital fund was launched in April of 

2016. It quickly grew to become one of the world’s biggest 

crowdfunding platform, managing around $120 million. 

By June of that same year, hackers had located and exploited a 

vulnerability in the smart contract. 

They stole about a third of the funds, relocating them into a “child 

DAO” with the same structure as the parent protocol. It took weeks for 

some users to be able to access their funds, making this the largest 

hack in crowdfunding history. 

This incident alerted the DeFi community and now, developers who 

build protocols ensure that their smart contracts undergo multiple 

rounds of auditing.

Data feed centralization: Blockchain protocols can’t access data that is 

off-chain. In order to remedy this shortcoming, many use third-party services called oracles. These allow access to needed external 

information. 

As Forkast puts it, “Oracles serve as bridges between blockchains and 

the external world, relaying information to smart contracts for them to 

utilize.” 

The major issue with all this is how to create a central trust point in a 

trustless and decentralized setup.

This can provide a vulnerability for the entire smart contract. If an 

oracle should broadcast the wrong information, it could wreak havoc 

with the entire system. 

Let’s look at the case of Synthetix, for example. 

This is a DeFi asset issuance platform. In June, 2019, an oracle 

transmitted false price feed information to the platform’s smart 

contract. 

One user’s trading bot took advantage of this error and bought big, 

inflating the user’s balance, allowing that user to convert around 37 million Synthetic ETH (sETH) tokens—worth around $70 million! The 

company later reached out to the user, who agreed to reverse the 

transaction in return for an undisclosed “bug bounty.”

Hackers:

In September 2020, top crypto exchange KuCoin confirmed that 

hackers had transferred about $150 million in Bitcoun and ERC-20 

tokens from its hot wallets. 

Days after the actual event, blockchain intelligence software Elliptic did 

the math and discovered that the exchange had actually lost about 

$281 million. 

The hackers laundered the funds through DeFi protocols Kyber 

Network, Uniswap, and others. 

Elliptic explained that many centralized exchanges had frozen the 

hackers’ accounts so they couldn’t move the funds, but that they had 

utilized decentralized exchanges which had no central authorities to 

freeze their illegally obtained funds.