Decentralized Finance

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 What is DEFI?

 Decentralized finance eliminates

intermediaries

 By allowing to conduct financial

transactions through emerging
technology.

 Through peer-to-peer financial

networks using distributed ledgers.

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Traditional Finance vs DEFI

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Problems with Centralized
Financial Systems

╸ Centralized control The bank controls rates and fees. Switching is possible, but it
can be costly.

╸ Limited access Today, 1.7 billion people are unbanked making it very
challenging for them to obtain loans.

╸ Inefficiency Costly and slow transfer of funds.

╸ Opacity The current financial system is not transparent.

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 Financial Crisis of 2008

• The global financial crisis of 2008 exemplified

excessive risk-taking by banks.
• The crisis exposed the shortcomings of the
traditional financial system.
• Washington Mutual, with over $188 billion in
deposits,
• and Lehman Brothers, with $639 billion in
assets, have both failed in 2008 and triggered
the Financial crisis

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“ Power tends to corrupt
and absolute power
corrupts absolutely
( Lord Acton)

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Evolution

╸ Barter System (9000 BCE)

╸ Metal coins (600 BCE in lydia)
╸ Paper Money (1871)
╸ Credit Cards (1950)
╸ Internet Banking (1984)
╸ Fintech (2001)

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 The dozens of digital currency initiatives beginning in the early 1980s all failed.

 Double-spending is a potential flaw in a digital cash scheme in which the same

single digital token can be spent more than once.

 With the publication of the famous Satoshi Nakamoto Bitcoin white paper in
2008 problem was solved.

 The paper presents a peer-to-peer system that is decentralized and utilizes the
concept of blockchain which work on consensus mechanism called proof of
work.

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What is Blockchain?

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Blockchain 11
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DECENTRALIZED
STABLECOINS

 Decentralised stable coin functions by

providing cryptocurrency
 certain risk
 Medium of exchange
 Hedging against price volatility
 Quickly developed

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Three different forms
of stable coins

Over
Fractional Algorithum
Collaterized
Stable Coin

Algorithumic Non Pegged Stable

Stable Coin coin

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 Maker
• Ethereum blockchain-based smart-
contract platform
Two tokens
• DAI
• Governance token

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Differences between
SAI and DAI

 December 19th, 2017

 Issued with ETH
 Multi-Collateral DAI
 November 18, 2019.
Single-Collateral DAI = Legacy DAI = SAI
Multi-Collateral DAI = New DAI = DAI

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Collateral Ratio DAI Savings
The amount of DAI that can
be minted Rate (DSR)
Stability Fee Interest obtained from
Comparable to the “interest owning DAI
rate”

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Motivations to Issue
DAI:

 You might hold your asset in the Maker vault and issue DAI to
obtain cash today if you need it now and have an asset that
you think will increase in value in the future.
 You need money right away but don't want to run the danger
of creating a taxable event when you sell your asset, so you'll
take the loans by issuing DAI instead.
 Investment Leverage If you think the value of your assets will
increase, you can use investment leverage on them
TOPICS

1. How do I get my
hands on some
DAI?
2. Black Swan Event
3. Why Use Maker?

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How do I get my
hands on some
DAI?
Two ways:
1. Minting DAI
2. Trading DAI

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1. Minting DAI

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 Terminology for DAI
Gold bars (Collateral)
Ether (one of the
collateral examples)
Cash loan
Dai(DAI)
The pawnshop
Maker

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Contract agreement
Smart Contract (Vault)

Loan Interest
Stability fee

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2. Trading DAI
i. Users send their DAI to cryptocurrency
exchanges
ii. No need to lock up collateral
iii. Not to worry about collateral ratio
iv. No stability fee

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Black Swan Event

╸ An unpredictable and extreme event that may cause severe

consequences
╸ In March 2020 (also known as Black Thursday), an
Emergency Shutdown was almost triggered, where the price of
ETH dropped by 50% within 24 hours
╸ In this scenario, a new collateral is issued to back the system
for the time being

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Why Use Maker?

Maker inherently possesses the characteristics

of the blockchain:
A. secured, immutable, and most importantly,
transparent
B. (i) mint some DAI for yourself and (ii)
save DAI to earn interest

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i. Minting your own DAI

A complex idea can be conveyed

with just a single still image,
namely making it possible to
absorb large amounts of data
quickly.

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ii. Saving your DAI

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DECENTRALIZED LENDING AND BORROWING
• Lender offers to lend or invest
• Borrower posts loan request
• Agreement between both the
parties through smart contracts
• No government involvement
EXAMPLE
• Person A wants to earn interest
on his coins while person B
wants to borrow some coins.
• A deposits his coins into a smart
contract.
• A in turn earns C tokens.
• No human being involved to do
the transaction.
EXAMPLE
• B must overcollateralize his
loan.
• B submits Ethereum and gets
USD coins.
• B pays back the USD coins and
interest on it as agreed in the
contract and gets back the
ethereum.
• B can both gain or loss some
money in all preceding's.
Flash Loan
• It lasts for only 10 seconds
• Buy from the one offering at
lower price
• Sell to the one offering at higher
price
How much money one can borrow?

• people want to borrow crypto assets from a DeFi protocol is for

trading and speculation purposes
• you cannot borrow more funds than what is there is the lending pool
of the particular lending protocol.
• how much collateral the borrower can put down against the
borrowing amount.
• can be borrowed up to 66% of the user’s collateral value.
• In the case of default 3% discount, liquidated collateral is sold in an
open market.
INTEREST RETURNS IN DEFI?
• calculated by using the ratio that exists between the supplied and
borrowed tokens in a particular market.
• depending on tokens, platforms, and market conditions, but are
normally between 2% - 10%+ APY.
Advantages of DEFI Lending and
Borrowing
ADVANTAGES

• Improved speed of loan procedure

• Greater consistency in lending decisions
• Permission less
• Transparency
• Self-custody
Muhammad Hamza Mazari
roll no 41
Ethereum
 Ethereum and Blockchain Technology
• The majority of the Dapps are currently being built on the Ethereum blockchain.
• But what exactly is Ethereum?

• Ethereum is a global, open-source platform for decentralized applications. You

can think of Ethereum as a world computer that no one can shut down.
• On Ethereum, software developers can write smart contracts that control digital
value through a set of criteria and are accessible anywhere in the world.
 What is Ether (ETH)?

  Ether is the native currency of the Ethereum blockchain.

 It is like money and can be used for everyday transactions similar to Bitcoin.

 You can send Ether to another person to purchase goods and services based on the
current market value.
More on Ether

 The Ethereum blockchain records the transfer and ensures the finality of
the transaction.

 Besides that, Ether is also used to pay the fee that allows smart contracts
and Dapps to run on the Ethereum network.

 You can think of executing smart contracts on the Ethereum network as

driving a car. To drive a car, you require fuel. To execute a smart contract on
Ethereum, you need to use Ether to pay a fee known as Gas.
 What is Gas?

  On Ethereum, all transactions and smart contract executions require a small
fee to be paid.
 This fee is called Gas
 Gas refers to the unit of measure on the amount of computational effort
required to execute an operation or a smart contract.
 The more complex the execution operation is, the more Gas that is needed to
fulfill that operation.
 For Example

• Gas price is typically denoted in gwei. 1 gwei = 0.000000001 ether

• Assume a smart contract execution to transfer tokens require 21,000 gas units.
Assume the average market rate for gas price is 3 gwei. 21,000 gas x 3 gwei =
63,000 gwei = 0.000063. ETH When executing the transactions, you will pay a gas
fee of 0.000063 ETH to process and validate your transaction in the network. 
What else can Ethereum be used for?
 Besides creating Dapps, Ethereum can
also be used for two other functions—

• creating Decentralized Autonomous

Organizations (DAO)

• Issuing other cryptocurrencies. 

 Ethereum’s Future
Ethereum’s popularity continues to grow as it becomes the central pillar of DeFi
growth.

With the first mover’s advantage in hand, the number of users and transactions
continues to grow each day.

To ensure the continued success of the Ethereum network, the Ethereum

community is planning to introduce an upgrade known as ETH 2.0.
 Advantages
1. No chances of human error : Server computer connection make sure
there is no human participation.
2. Permissionless operation : One can interact With financial services
without taking permission from anyone.
3. Lending : Both are in a win win situation.
4. Decentralized exchanges : on providing security and confirming the
transaction of blocKchain network, defi allow them rewards.
5. No loss game and lotteries : Defi system offer them to participate in
lotttery that runs on no loss, where only one lucky winner earns all profit.
 Disadvantages
1. Scalability : Defi system is not growing as much as the transactions
rates are increasing day by day.
2. Uncertainty : There is always market uncertainty for the
cryptocurrency.
3. Liquidity : Defi system only possess 12.5 billion dollar. Therefore it
is clear that defi market is not as big as traditional market. So it is
difficult to put trust on this sector.
4. Lack of insurance : Another setback of defi system is that, it does
not provide insurance to their investors.
Thanks!

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