Understanding DeFi Chorzów

Decentralized finance (DeFi) is a rapidly growing field in fintech, having grown from $700 million to $100 billion over the past three years alone. But the lack of reliable information makes this area both risky and murky. In this practical book, experienced securities attorney Alexandra Damsker explains DeFi's role in both blockchain and finance.Ideal for developers looking to build decentralized applications (DApps), this book compares DeFi to traditional bank-led fintech and explains why DeFi is exploding in interest and popularity. You'll explore the growing array of DApps and platforms in various categories, including their benefits and drawbacks, and learn how DeFi tools work together from the perspective of both users and developers.With this book, you will:Learn how DeFi fits into the blockchain and fintech worldsUnderstand why it's important to move beyond the banking systemExplore the tools for building a useful, functional DeFi applicationLearn the risks, benefits, regulatory concerns, and unresolved issues in this nascent and fast-growing industrySee which technologies are well-positioned to be incorporated into DeFi blockchains in the near futureAssess your own risk level to determine which strategies are most appropriate Spis treści: Preface How Is This Book Organized? Who Is This Book for, and What Will You Learn? Conventions Used in This Book OReilly Online Learning How to Contact Us Acknowledgments 1. Introduction to DeFi What Is Blockchain, Anyway? A Brief History of Accounting Single-Entry Bookkeeping Double-Entry Bookkeeping Massive Fraud, or the Status Quo Officially Doesnt Work Any Longer Triple-Entry Bookkeeping Triple-Entry Accounting The Bitcoin Revolution: The First Blockchain Use Case Ethereum and the Smart Contract Revelation Smart Contracts Ethereums Innovation: Self-Executing Programming Smart Contracts Tenets of Blockchain (According to Me) Open Shared Distributed Distribution versus decentralization Three types of decentralization Architectural decentralization Political decentralization Tolerance and decentralization Consensus Permanence (or Immutability) Anonymity Trustless What Does Any of This Have to Do with Finance? What Is Finance? How Money Flows in Banks and Economies Banks Are Using Your Cashand Not Paying for It What Is Decentralized Finance, and Why Is It Important? Conclusion 2. The Building Blocks of DeFi Protocols Platforms A Trilemma Solution Decentralization Scalability Security Deployment Network An architectural base A common token A common client software Application access (automated or bespoke) Virtual machine Decentralized Applications Incentivized Decentralized Blockchain-Based Protocol Open Source (Maybe) A Word on Wallets Custodial Versus Noncustodial Hot wallets Warm wallets Cold wallets How do wallets work? Are There Any Problems? Stablecoins Asset Versus Currency Enter Stablecoins Types of Stablecoins Backed by fiat Backed by commodities Downward economic pressure Limitations on economic growth Monetary policy restrictions Backed by crypto Algorithmic and seignorage coins Algorithmic stablecoins Seigniorage stablecoins Rebasing Backed by other assets Governance Tokens Lending Collateralized loans Other collateralized lending protocols Uncollateralized loans Flash loans Third-party risk assessment Crypto-native credit scores Off-chain credit score integration Personal network bootstrap Derivatives and Synthetics Insurance Prediction and Betting Conclusion 3. The Tools of DeFi Smart Contracts Wallets (Again!) and Oracles The Oracle Problem Stablecoins Versus CBDCs Incentivized Governance Tokens Wallets Part III: Hosted Versus Unhosted and the Purpose of Knowing Customer Identity True or False? Anti-Money Laundering and Know Your Customer AML Who is FATF, and why do we care? The (damn) Travel Rule KYC Versus AML What Is Required? KYC AML What Is the Impact? Decentralized exchanges DApps Stablecoins Nonfungible tokens Unhosted wallets US Regulation Custodians and Intermediaries Conclusion 4. How to Build a DeFi Application or Protocol Basic Principles of Financial Tools Developing Your Application Rule 1: Which Market? Rule 2: Did You Apply Basic Business Principles and Process? Find a problem Build your community Examine the problem Design Release the beta Public launch Rule 3: Where Do You Build? Option 1: Layer 2 options Option 1A: State channels Option 1B: Rollups Optimistic Zero-knowledge Option 1C: Plasma The data unavailability problem Sidechains Post-merge Ethereum Option 2: Wallets! Option 3: Non-Ethereum ecosystems Option 3A: Binance Option 3B: Tron Option 3C: Solana Option 3D: Tezos Option 3E: Avalanche Option 3F: Cardano Option 3G: Polkadot Option 3H: Cosmos Option 3I: Algorand Option 3J: Sui and Aptos Rule 4: Whats Your Token, and Did You Apply Proper Tokenomics? Types of tokens Utility tokens Currency tokens Securities tokens Governance tokens Nonfungible tokens Applying Tokenomics Supply Distribution Moderation Backing Cash-in/cash-out Incentivization Rule 5: Did You Audit Your Tech? Rule 6: How Do You Launch? Conclusion 5. Making Money with DeFi Investing with a DeFi Protocol on Blockchain Is It Really Investing? DeFi Protocol Types Protocol 1: Staking a Token Protocol 2: Lending Protocols Subprotocol 2A: Liquidity Provider on a Swap or Decentralized Exchange Procedure Pricing Average returns Risks Subprotocol 2B: Borrower-Lender Platforms Procedure Pricing Average returns Risks Subprotocol 2C: Borrowing Platforms Subprotocol 2D: Yield Farming Average returns Risks Protocol 3: Memecoins Things to Consider Harvesting Profits and Losses Taxes Conclusion 6. The Future of DeFi The Rise of Asset-Backed Tokens Real-World Assets Situation 1 Situation 2 Does DeFi Even Need Regulation? What about current laws? What happens when transactions cross borders? Is it just because crypto and DeFi attract retail (nonaccredited) investors? A Better Regulatory Structure for Crypto and DeFi Who Is Issuing Tokens and Coins, Anyway? What About Tokens That Do Many Things? Tokens As Securities But the regulations need work Why are there so many unregistered securities offerings in crypto, anyway? Lie number one Lie number two Artificial third parties What kind of reporting, then? Commodities What are commodities? Contracts for the future Derivatives How Does Crypto Come into This? Smarter Regulation Securitization and Collateral Collateral Overhypothecation Perfecting your interest Securitization Better Regulation Currency We Need Fiat Alternatives Future Regulation Promoters Community Projects How Should They Be Regulated? Customers Versus Traders Centralized Marketplaces Decentralized Marketplaces Dark Pools Intellectual Property Problems and Solutions Identity A Viable Solution The Need for Accountability Accredited Investor Rules Taxes Conclusion Index