Decentralized finance (DeFi) is a sector within the cryptocurrency industry focused on providing decentralized financial services.
These native tokens are used to pay for transactions on these blockchains, so you’ll need some of those tokens to move funds around. You can choose to just buy these native assets before delving into DeFi, or you can add stablecoins or other assets.that supports that network.
To start using a wallet compatible with DeFi protocols, all you need to do is head over to the website of these protocols and connect your wallet to them. This is either done via a pop-up window or through a button that says “connect” on one of the upper corners of the website. If the price of BTC plunges and the value of their collateral drops to $1,000, the DeFi protocol’s smart contracts will liquidate the coins to pay back the lender. If the price of Bitcoin goes up while they repay the loan, the move was justified as the user did not lose exposure.Decentralized exchanges are some of the leading DeFi protocols.
These tokens then have to be redeemed for the invested principal, or the amount originally invested. If a user deposits 100 DAI into a platform, they get a variable amount of cDAI worth 100 DAI sent to their wallets. Similarly, if a user deposits 100 DAI and 100 ETH into a liquidity pool, they get lpETHDAI sent to their wallets.
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