1.
What the Duck Is DeFi:
Lending, Borrowing and Farming for Crypto

2.
• Reimagining legacy financial products as
decentralized primitives using smart contracts
• Money markets, lending, borrowing,
derivatives and much more
• Composable, protocols become “money
legos” allowing stackable financial products
• It’s (whisper it…) fun
What is Decentralized Finance (DeFi)?

3.
Almost $80 billion locked in DeFi

4.
Back to $51 billion locked in DeFi!

5.
DeFi has launched

6.
DeFi = Open Finance?
• Permissionless
• Trustless
• Decentralized

7.
DeFi Jargon
• Stablecoins
• Wrapping
• AMM
• LP
• Liquidity mining/Farm/
• Impermanent Loss
• Composability
• Layer 2
• Bridge

8.
Stablecoins
• Not ideal in most financial transactions to
use a cryptocurrency that has price
volatility e.g. taking out a loan
• Stablecoins aim to reduce price volatility
(many pegged to USD)
• Centralized stablecoins backed 1:1 by fiat
in a bank account e.g. USDC
• Decentralized stablecoins can be crypto
collateralized or algorithmic

9.
Maker
• Decentralized stablecoin on Ethereum that is
overcollateralized by crypto
• Stablecoin DAI can be minted by anyone through
locking up crypto as collateral to take out a DAI
loan e.g. lock up $200 of ETH to borrow $100 of
DAI
• If price of collateral drops, then assets are seized
and liquidated
• Common use case is leverage

10.
Wrapping
• Wrapping creates a tokenized version of one
token in the form of another
• It’s pegged to the value of the asset it
represents and typically can be redeemed for
it (unwrapped) at any point.
• It usually represents an asset that doesn’t
natively live on the blockchain that it’s
issued on.

11.
Automated Market Maker
• An automated market maker (AMM) is a
type of decentralized exchange (DEX)
protocol that relies on a mathematical
formula to price assets.
• Instead of using an order book like a
traditional exchange, assets are priced
according to a pricing algorithm.
• Market makers help you get a good price
and tight bid-ask spread on an order book
exchange like Binance.

12.
LP - Liquidity Provider
• Users called liquidity providers (LP) add an
equal value of two tokens in a pool to create a
market.
• In exchange for providing their funds, they
earn trading fees from the trades that happen
in their pool, proportional to their share of the
total liquidity.
• As anyone can be a liquidity provider, AMMs
have made market making more accessible.

13.
Liquidity mining
• Projects distribute governance tokens
to community
• Often reward adding liquidity through
“liquidity mining”
• Different levels of rewards based on
requirements e.g. lock up for longer,
reward vesting, retroactive rewards

14.
Farming
• Staking or locking up cryptocurrencies in return
for rewards.
• Individuals can earn tokens in exchange for
their participation in DeFi applications. Yield
farming can also be called liquidity mining.
• As each new project that emerges offers new
tokens or ways to earn rewards, users have
been flocking to it, hoping to get a cut of the
yield on offer.
• In turn, this creates a demand that pushes up
the value invested in the project and the
tokens.

15.
Farming

16.
Farms

17.
Impermanent Loss
• A temporary loss of funds occasionally
experienced by liquidity providers because of
volatility in a trading pair.
• This also illustrates how much more money
someone would have had if they simply held
onto their assets instead of providing liquidity.
• The loss only becomes permanent if a provider
decides to withdraw their liquidity for good.

18.
Composability
• Enables products and services to interlock
permissionlessly, which expands the
innovation vector outside of a siloed
company.
• Entrepreneurs don’t need to build things
that already exist, but only use existing
products to make something new.
• So far, tokens and smart contract calls are
the best examples of DeFi composability

19.
Layer 2
• Layer 2 refers to a secondary framework
or protocol that is built on top of an
existing blockchain system.
• These protocols are designed to solve the
transaction speed and scaling difficulties
of major cryptocurrency networks.
• Two major examples of layer 2 solutions
are the Bitcoin Lightning Network and the
Ethereum Plasma.

20.
Bridge
• Blockchain bridges enable interoperability
between vastly different networks such as
Bitcoin and Ethereum.
• It either operates under different consensus
rules or inherits its security from the parent
blockchain (e.g., rollups built on Ethereum).
• Deploy digital assets hosted on one blockchain
to dapps on another.
• Conduct fast, low-cost transactions of tokens
hosted on otherwise less scalable chains.
• Execute dapps across more than one platform.

21.
What can we do with DeFi?
• Lending and Borrowing
• Decentralized Exchanges
• Token governance
• Flash loans
• Composability (Money Legos)
• Magic...

22.
Decentralized lending and borrowing
• Lend or borrow directly from smart
contract
• Some have interest rates that
dynamically change based on supply
and demand e.g. Compound and Aave
• Provide collateral in crypto in order to
borrow funds (loan needs to be
overcollateralized)

23.
Lending as a savings account
• Anchor offers 20% fixed interest on UST
• Tranched products offer degrees of
exposure allowing for fixed rates of return
on lending (Barnbridge, Saffron Finance)

24.
Decentralized exchange (DEX)
• Anyone can trade assets that conform to
token standard (e.g. ERC-20, ERC-721)
• Can have decentralized order books that
look like traditional exchange e.g. 0x,
dYdX
• Automated market maker (AMM)
provides pricing algorithmically based on
liquidity available and will always provide a
price e.g. Uniswap, Sushiswap
• Aggregators pull liquidity from all e.g.
Matcha, 1inch

25.
Over $60 billion in monthly DEX volume

26.
Token governance
• Token holders vote on direction of project or various parameter settings e.g. Maker
(MKR) holders can vote on parameters such as fees charged
• Can be referred to as a decentralized autonomous organization (DAO)

27.
Flash loans
• Someone can borrow funds
and repay in same transaction
• If not repaid in same
transaction, then it fails
• Enables uncollateralized loans
• Common use case is for
arbitrage opportunities in DeFi

28.
Composability with DeFi
• Interesting possibilities when
combining DeFi building blocks or
“money legos”
• Refinancing loans
• Leveraged positions

29.
Composability enabling sophisticated hacks

30.
Using Flash Loans to refinance a loan
• A debt is taken from a Compound protocol at a 9.5%
interest rate.
• But there is another protocol that offers debt at 7%
interest. The smart contract contains logic that can
explore these rates and refinance your debt at 7%.
• This can be accomplished using these money lego
components:
• Take out a flash loan using the Aave protocol
• Pay the debt on the Compound protocol
• Borrow from the 7% debt offer
• Payback the flash loan on the Aave protocol
All this happens in a single transaction.

31.
Magic...
• DeFi can accomplish what looks like magic
• Realise future gains right now (for a price)
• Turn illiquid assets into liquid ones

32.
Walk in my shoes
• DefiRate
• Coingecko
• Daily Ape
• Loanscan
• Bankless
• Zapper

33.
We are living in a simulation
Head over to defisaver.com