What is DeFi?Not to be confused with the refrigerator brand, DeFi offers a democratized alternative to traditional financial systems. By using cryptocurrencies such as Bitcoin and Ether as collateral, you can now borrow fiat to finance a project and turn a dream into reality.
With DeFi lending you can borrow up to 75% of your available collateral. Participants do not know one another and therefore no KYC is required. The deal is sealed with a smart contract.
Should the price of the crypto you put up as collateral drop, the smart contract will automatically sell your asset at a certain agreed-upon spot price. This is done in an effort to protect the parties who loaned you the fiat.
The process is truly effortless and includes working through a decentralized exchange (DEX).
How to get financing with DeFiAltCoinTrader’s Richard de Sousa recently bought a house with DeFi and explains how he obtained the required finance for the property within 10 minutes.
Addressing the audience at the recently held Blockchain Africa 2020 convention, de Sousa explained how he effortlessly used Ether as collateral. Using the Ether, he bought DAI, a stable coin that is softly pegged to the US dollar. With the help of a DEX and AltCoinTrader, the full amount was paid to the conveyancing attorneys and de Sous got the title deed to the property.
He said the upside to DeFi loans is that you are the owner of the title deed and no one can take the property from you in case of non-payment. With regards to repayment of the loan, an annual interest of 8% is charged. Furthermore, you can decide at any stage to close your position but will forfeit your Ether. Should the price of Ether go up, the property could end up costing less. Sounds like a win-win situation.
How to profit from flash loansA flash loan is another side to DeFi and can be equally profitable. It is a form of uncollateralized loans. These types of loans are popular amongst arbitrageurs who can quickly make money to repay the loan. All you have to do is take out an uncollateralized loan on DeFi capital and profit from a well-executed DEX trade. The process takes place in a very short period of time to minimise the risk of losing funds should the market drop. Flash loans are executed with a smart contract.
In conclusion, there are a number of sites that offer DeFi options such as Oasis, Aave and Compound that you can try out. Besides DeFi loans, there are other products on offer as well like ways to save and a lottery. But, as with everything in life, be sure to do your own research before going all in. It is advisable to test the platforms to see what works for you.