DeFi’s fame is rising alongside with blockchain technology development. Many people heard of it but still don’t know what is it exactly. This article will be especially useful for Q DAO holders and BTCNEXT users because both projects are all about the classic DeFi but with even bigger advantages.
A brief history of DeFi
When we’re saying DeFi, we mean Decentralized Finance or Open Finance. The main idea of DeFi is a recreation of traditional financial instruments in a decentralized architecture without falling under the control of companies and governments. So it turns out that the first examples of DeFi are Bitcoin and Ethereum.
But the time is ticking and brand new assets, like DAI, are coming to the financial market with even more abilities to change the rules of the game. No matter what, the idea stays the same. There are three main principles to describe DeFi:
- Compatibility and open source.
- Accessibility and financial inclusion.
- Financial transparency.
Nowadays, DeFi is a community of open-source projects that develops solutions in the field of decentralized finance. All these applications are developing on top of Ethereum blockchain, which makes them follow its rules. And here we come to scalability question.
Scalability brings success
To take all the advantages out of financial DApps, the blockchain they are built on must be scalable, in other words, they must have a good bandwidth. Logical question — what is scalability?
Scalability is a characteristic of a system that describes how well the system works with increasing load. Any system that scales well can support high performance or increase efficiency.
Scalability issues are also one of the most serious issues that the blockchain industry is facing today. And, as we said earlier, DeFi is all about Ethereum blockchain that is pretty much loaded with growing numbers of new DApps.
Is there a solution? Maybe it’s sharding. In simple words, Sharding is a scaling strategy for applications. As part of sharding, information from a common database is divided into blocks and distributed across different servers, which are called shards.
The technology itself involves splitting large databases into smaller, faster, and easier to process parts called data fragments. Most often, basic sharding data is pretty simple. This is similar to storing client information on different servers depending on their geographical location. For now, it’s hard to say how fast sharding can be implemented in blockchain technology. But when this day will come, the scalability issue will be gone forever.
The real potential of loans and margin trading
DeFi of a new model created even more opportunities for trading and making profits, and also returned interest in crypto trading. Collateralized debt positions along with margin trading became the next step for earning on market.
Collateralized debt positions (CDP) is a very convenient way to protect your crypto from volatility and get the opportunity for profit. To create a CDP you must lockup some amount in cryptocurrency and loan part of it in stable coins. Now, you can use them as you want: trade, exchange or do nothing. To take your crypto back, just return the same amount of stable coins that you have loaned.
Another important thing is margin trading. It gives you the opportunity to trade with more assets than you have. Of course, trading with leverage is a risky business but your profit is growing exponentially! E.g. you have 1 BTC and want to pick x10 leverage, then you’ll be trading 10 BTC and even 10% profit will give you 100% of your own assets. That sounds great when you know what you’re doing.
Now, let’s imagine that you can combine CDP and margin trading. Your own crypto is locked up in Collateralized Debt Position and you have loaned some stable coins for trading. In that situation, even if you lose some part of stable coins your own crypto is still ok. If you’re using a good trading strategy, then you don’t have a chance for failure.
Q DAO + BTCNEXT = success?
Summarizing all of the above, we have good news. Q DAO and BTCNEXT combined cryptocurrency lending and margin trading together but took them to another level. Q DAO lets you borrow crypto with up to the 200% collateralization rate, which is giving you even more stability. And BTCNEXT margin trading platform allows to choose up to x100 leverage to fit any of your expectations!
Moreover, we can work as a classic DeFi or create our own game rules, so every trader would feel even more comfortable. Think about it as a really juicy opportunity.
Time to make a profit!
So, DeFi is called to break borders and create a truly free and transparent financial world. This was especially noticeable in 2019, when DeFi began to actively gain popularity. However, do not forget that progress does not stand still and today there are even more profitable combinations, for example, CDP and margin trading.
A wise trader listens to advise, draws conclusions and makes even more profit. Thank you for attention, don’t forget to clap, and let your assets grow!