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Ethereum's usability case

The leading dApps blockchain at this current stage is clearly Ethereum. Ethereum has expanded on Bitcoin’s decentralized digital currency by building a global network that undergirds an interconnected marketplace of decentralized applications (dApps). Ethereum’s use cases are vast and expanding fast, offering blockchain projects enhanced efficiency, security, and decentralized equity to industries across the globe. The article goes on to describe some of the major use cases that have arisen on Ethereum so far including Decentralized Autonomous Organizations (DAOs), Initial Coin Offerings (ICOs), Enterprise Ethereum, Non-Fungible Tokens (NFTs), Stablecoins and Decentralized Finance (DeFi). The article concludes by stating that with its flexibility and robustness, new applications continue to emerge on Ethereum and increased scalability in the future will continue to support development.

What is DeFi?

Decentralized finance (DeFi) is a recent innovation with an avalanche of use and growth on Ethereum. DeFi platforms are reinventing traditional financial products and services by adding programmable, decentralized, and censorship-resistant features to create brand-new financial products. For example, DeFi platforms offer peer-to-peer (P2P) borrowing and lending, interest on crypto holdings, decentralized exchange (DEX) mechanisms, stablecoins, and composable features that maximize passive earning opportunities. Popular DeFi platforms include Compound, MakerDAO and Aave. In 2020 the total value locked in DeFi platforms eclipsed $4 billion 

Further elaborating on P2P borrowing DeFi

P2P borrowing in DeFi refers to peer-to-peer lending and borrowing of cryptocurrency assets on decentralized platforms. These platforms enable crypto users to deposit their assets for lending and borrowers can take a loan using a decentralized platform called P2P crypto lending. Lending and borrowing in DeFi platforms are real peer-to-peer transactions without intermediaries. This allows lenders to earn interest on their loaned assets while borrowers can access loans without going through traditional financial institutions. Interest rates on P2P loans in DeFi can vary depending on the platform and the creditworthiness of the borrower.

Risks of P2P borrowing DeFi

With each financial endeavour, there are always risks associated. . One of the biggest risks is credit risk, as P2P loans are exposed to high credit risks. Another risk is that there is no insurance or government protection for lenders in case of borrower default 1. Additionally, some jurisdictions do not allow P2P lending or require companies that provide such services to comply with investment regulations. There are risks and potential rewards associated with decentralized finance (DeFi) lending. There is a potential for high returns through DeFi lending but also cautions readers about the associated risks.

One of the key risks is impermanent loss, which occurs when the price of assets locked up in a liquidity pool changes after being deposited. This can result in an unrealized loss for liquidity providers. There are also flash loan attacks and rug pulls as other potential risks associated with DeFi lending.

Impermanent loss occurs due to the way DeFi pools maintain a ratio of assets in the pool. For example, an ETH/LINK pool might fix the ratio of ether and link tokens in the pool at 1:50 (respectively). When arbitrage traders flood the pool with one token in order to remove another token that is discounted, it changes the ratio of coins. In order to regain balance, the liquidity pool automatically increases the price of one token and reduces the price of another token to encourage arbitrage traders to rebalance the pool. Once rebalanced, however, it often results in an impermanent loss for liquidity providers.