This is your go-to hub for learning about crypto, Web3, and decentralized finance (DeFi)—think of it as a DeFi textbook. Whether you're new to the space or a seasoned user, this resource will keep you ahead with up-to-date research, clear explanations, and actionable insights. > *This content is for informational and educational purposes only and should not be considered financial or investment advice. Always do your own research (DYOR) before making any financial decisions. Cryptocurrency and DeFi investments carry risks, including potential loss of capital.* # TL:DR; - **DeFi** is an open financial system that lets you send, save, and invest without intermediaries. - **Blockchains** are databases that enable DeFi by providing security, transparency, and decentralization for transactions. - **Web3** is the next phase of the internet, powered by blockchains and decentralized applications (dApps). - **DeFi’s benefits** include self-custody, faster transactions, and access to new financial tools, but it also comes with risks like smart contract exploits. ![[Screenshot 2024-12-13 175058.png]] # Primer on Decentralized Finance (DeFi) Decentralized finance (DeFi) lets anyone use cryptocurrencies for financial activities, like sending money and investing, among other things. To understand how DeFi is different from traditional finance (TradFi), it’s important to know how it connects to blockchains and the larger Web3 industry: ## **Web3 is...** Web3 represents the "next generation" of the internet fueled by blockchains. Here’s a quick breakdown: - **Web 1.0**: The era of static web pages, where users could only read information. - **Web 2.0**: The social web, enabling interaction and content creation among users. - **Web 3.0**: The decentralized web, where you can engage with blockchain-powered applications, cryptocurrencies, NFTs, and more. Web3 has become a term that encompasses the entire ecosystem of crypto, blockchain technology, and decentralized applications (dApps). Think of Web3 as a way to connect with services like DeFi, allowing you to participate in the digital economy without relying on traditional institutions or centralized platforms. ## **Blockchains are...** Public (permissionless) blockchains are distributed, decentralized ledgers (databases) that record transactions across a network of computers. Permissionless means anyone can participate without needing approval from a central authority or entity. Simply put, individuals worldwide, known as validators, run code on their computers to validate and record transactions. In the case of public blockchain networks, this ensures that no single entity has control over the entire network. Since public blockchains allow anyone to participate in validating, they must impose barrier's to entry to ensure honest behavior and avoid [sybil attacks](https://en.wikipedia.org/wiki/Sybil_attack), [51% attacks](https://dci.mit.edu/51-attacks), and more. >The [Nakamoto coefficient](https://nakaflow.io/) is a helpful measure that gives insight into how well a blockchain network can resist manipulation by bad actors. To protect against Sybil attacks, blockchains rely on various consensus mechanisms. Some common mechanisms include: - **Proof of Work (PoW)**: Validators (miners) solve complex mathematical problems to validate transactions. This requires significant computational power and energy. - **Proof of Stake (PoS)**: Validators are chosen to create new blocks based on the amount of cryptocurrency they hold and are willing to "stake" as collateral. If they act dishonestly, they can lose a portion of their stake. - **Delegated Proof of Stake (DPoS)**: Token holders vote to elect a small number of validators who then validate transactions on behalf of the network. This creates a more efficient and faster system. Validators earn rewards for their work, usually in the form of the blockchain's native cryptocurrency. This system incentivizes validators to participate, act honestly and verify transactions accurately, as dishonest behavior can lead to penalties or loss of rewards. This allows blockchains to provide the following features: - **Transparency**: Every transaction is recorded and viewable on blockchain explorers (for public blockchain networks). - **Security**: Transactions are secured through cryptography and decentralized consensus, making it nearly impossible to alter or hack funds stored in wallets on blockchains. - **Immutability**: Once a transaction is added to the blockchain, it cannot be changed or deleted, ensuring a permanent and reliable record. **But, why is this important?** Blockchains enable new asset classes like **NFTs, cryptocurrencies, stablecoins, memecoins, and real-world assets (RWAs)**. They also power **decentralized apps (dApps)**, which automate financial transactions through smart contracts, expanding financial use cases beyond traditional banking systems. Blockchain networks securely record and verify transactions, creating a **trustless** environment where trust is placed in code and consensus mechanisms rather than intermediaries like banks. ## **Decentralized finance (DeFi) is...** Decentralized finance (DeFi) refers to the concept of using cryptocurrencies to carry out financial transactions like sending money, saving, and investing. With the rise of cryptocurrencies like stablecoins and real-world assets (RWAs), along with decentralized applications (dApps) like money markets and decentralized exchanges (DEXs), DeFi is becoming more appealing. For example, DeFi dApps enable users to lend, borrow, trade, and invest in digital assets without relying on centralized banks or governments—mostly. These DeFi protocols use smart contracts—self-executing contracts with the terms written in code—to automate financial transactions. Here are some benefits of DeFi: - **Faster Settlements & Lower Fees than Traditional Finance (TradFi)**: Sending money across borders and settling transactions is quicker and cheaper on-chain. - **Access to New Financial Instruments**: Blockchain-powered apps create new economic models and unique financial primitives, leading to novel use cases. - **Increased benefits for token holders:** Projects that issue tokens often provide holders with perks, like: - Governance voting rights - Revenue share - And more - **Security & Self-Custody**: By creating a non-custodial wallet linked to a blockchain address, you gain complete control over your funds. The choice of blockchain is crucial, as the security of your assets depends on the security measures of the underlying blockchain. Of course, this system has its flaws; smart contracts—decentralized applications—can introduce risks such as bugs or exploits. This is why it's important to interact with audited projects and adhere to self-custody security best practices. --- Now that you have a foundation, explore deeper topics and resources like [[Blockchain Analytics & News]], [[Hitchhiker's Guide to Meteora DLMM Vaults]], and [[Futarchy for Dummies]].