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DeFi in-depth

DeFi FAQs

1. Are DeFi protocols difficult to use?

   Using DeFi protocols might seem like a daunting task, but in reality all you need is a compatible crypto wallet, and some funds — such as Ether (ETH) or Solana (SOL).

    

   Many protocols work the same. There’s a connect wallet button on the home page that links your crypto wallet to the platform (supported wallet options can vary depending on the platform). Once connected, you can begin using the platform.

    

   To perform functions such as providing liquidity, you may need to purchase or swap tokens first using a decentralized exchange (DEX). To become a yield farmer, you might also need to research which platforms are best to use and what tokens return the best yields at that time.

    

   Take time to get to know each platform and how it works, and be mindful to learn about all the associated risks before parting with any funds. After that, you know all the basics you need to start exploring the various DeFi protocols available today.

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2. Will DeFi replace the banks?

   Decentralized finance protocols have certainly proven how financial services do not need traditional intermediaries to function. However, the sector is still very much in its infancy and has yet to experience significant adoption.

    

   Perhaps one day it might replace the banks, but at least for the immediate future, many would argue it’s unlikely DeFi will completely replace banks today.

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3. Is using DeFi services risky? 

   DeFi protocols present a number of unique risks and challenges to users, including impermanent loss and smart contract risk. But that doesn’t mean they’re necessarily too risky for people to use, and outweigh the many benefits that DeFi has to offer.

    

   Educating yourself on the risks of DeFi can be invaluable for helping you to safely navigate the pitfalls of this emerging sector. Check out our What is decentralized finance (DeFi)? article for everything you need to know about the DeFi space.

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4. What does it mean to “become your own bank?”

   Some DeFi protocols offer people the ability to perform some functions that can be likened to traditional banking services. For example, lending assets to another person in exchange for interest payments.

    

   Instead of humans acting as middlemen in these transactions, automated computer programs called smart contracts handle these processes.

    

   These programs remove the need to track, manage, and dispute contractual obligations, allowing people to access decentralized financial services quickly and easily.

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5. How is DeFi different from the rest of crypto?

   DeFi is a term used to describe any blockchain-based protocol that provides a decentralized financial service. Services can include decentralized exchanges (DEXs) for swapping assets and lending protocols for loaning and borrowing cryptoassets.

    

   From a technology standpoint, cryptocurrencies involved in DeFi are exactly the same as any other cryptocurrency in the market. It’s only their functions that might be considered different. For example, some DeFi tokens provide users with governance powers to vote on important decisions related to the associated DeFi protocols.

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