In the crypto currency universe, Bitcoin reigns supreme, but decentralized finance (DeFi) currencies are coming on strong, proving crypto has expanse as an asset class. There’s more to the group than just Bitcoin and Ethereum.
DeFi refers to the emerging category of digital, peer-to-peer financial services technologies that enable trading, loans, interest accounts, and more. Using public blockchains and crypto assets rather than legacy systems, DeFi services aim to cut out traditional Wall Street intermediaries, allowing for the potential to facilitate faster operation, 24/7 availability, no minimums or paperwork, full transparency, and auditability.
Examples of DeFi currencies include Aave, Compound, Loopspring, Maker, and Uniswap.
“DeFi is, we think, the most fundamental challenge to modern finance that we’ve encountered,” Bank of America analyst Francisco Blanch wrote.
Getting in the DeFi Game
Last month, Bitwise Asset Management, creator of the world’s largest crypto index fund, the fast-growing Bitwise 10 Crypto Index Fund (OTCQX: BITW), announced the launch of the Bitwise DeFi Crypto Index Fund. That’s the primary fund vehicle for accessing DeFi currencies.
The new Bitwise fund holds a portfolio of crypto assets that power these services. The asset seeks to track the Bitwise Decentralized Finance Crypto Index. Holdings are screened for important risks, weighted by market capitalization, and rebalanced monthly.
“Decentralized finance seeks to replace a range of centralized and regulated banking institutions with decentralized systems and products, which are typically built on the Ethereum blockchain,” reports Business Insider. “Modern finance currently works on the basis that there are trusted entities acting as central points for providing services and functions, Blanch said. In turn, these entities are then regulated to provide consumer protection.”
Many DeFi concepts are built on Ethereum, the second-largest digital asset. Ethereum is an open-source, blockchain-based distributed computing platform that can support smart contract functionality. That’s a complicated way of saying that Ethereum not only makes a cryptocurrency called Ether possible, but can also support the launch of new cryptocurrencies and make it possible to crowdsource funding for new projects. The simplest way to think about Ethereum is to compare it to something you probably use every day: your mobile phone. If you have an Android or iOS phone, you have apps that can perform a wide variety of functions from ordering an Uber to mapping a route across town.
“The analysts conclude there is a significant amount of innovation in the decentralized finance space. However, at the moment, there isn’t a material challenge to mainstream finance,” concludes Business Insider.
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