Crypto Academy / Season 3 / Week 4 - Homework Post for @stream4u - CeFi - DeFi - Yield by focusnow

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Crypto Academy / Season 3 / Week 4 - Homework Post for @stream4u - CeFi - DeFi - Yield

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# <center>Introduction</center>

The development of blockchain technology in the last decade has brought unprecedented changes in various sectors of human endeavor. Today, you can find the application of blockchains in all major sectors such as health, education, agriculture and many other sectors. Although it has so many challenges, the blockchain has always been a better platform to launch and sustain various projects in the technology sector. One area or sector that has seen a large-scale application of blockchain is the finance sector. 

The centralized financial institutions have had a great monopoly over the years. The challenges of centralized financial institutions are many and well documented. Holding the monopoly of control has been a big bottleneck of centralized finance. This has given birth to a brand new branch of blockchain technology called **Decentralized Finance** or **Defi** in short. Before I go on to evaluate Defi, it would be great to look at the challenges of Centralized finance.

# <center>Centralized Finance - The Problems</center>

The traditional financial institutions we have are centralized, which simply means there is a central point of authority. This is the economic model found in almost all countries of the world. Literally, there is a central bank in every country of the world and commercial banks too. These banks make and implement all the laws that govern how we save or move money.  A centralized financial system gives one individual or organization absolute powers to dictate how our money is managed. There are many challenges that arise as a result. Consider a few of them:

* **Who is in Control:** One problem of centralized finance is that a single organization or individual controls the entire financial system. So individuals work hard to make money, but them hand over the money to a financial system, usually banks, that will make laws on how the money is managed. For example, most banks in Nigeria today implement a **minimum savings balance.** This means that you cannot withdraw all they money you gave them. You must leave some part of it with the bank by force. You have no power to withdraw such money designated as a minimum balance. This is shows how little you can control your funds kept in centralized systems. You make the money, some other persons make laws on how your money is saved or withdrawn. Isn't that laughable? There is more though.

* **Limited by Location:** Centralized finance is limited by area of operation. Because no single person or organization can control unlimited space, centralized finance cannot operate beyond a geographic location. Little wonder it is very difficult to open and operate bank accounts in foreign countries because they have different authorities - the central banks - that govern them there. It is also very difficult to maintain the value of funds as they move from one area of control to another. Money losses value as many different authorities have different laws that govern the transfer of funds. So centralized finance is inoperative beyond its defined boundaries.

* **Intermediaries:** Centralized financial organizations work with many agents and supposed experts who make savings or  investment decisions for us. Most times, financial systems are not predictable and these agents can alsways make mistakes. In that case, the customers records losses caused by some other person because they are in control of the funds. Besides, bank agents and account officers can be fraudulent. There are many cases of financial mismanagement as a result of dishonesty on the part of financial agents. This is another problem with centralized finance.

* **Domain:** In what form or manner do centralized institutions function? Its mainly physical. Banks need large structures, buildings, cars and staff quarters in order to exist and function properly. These facilities are paid for, from the hidden charges they take from customer savings. Without such big facilities, centralized systems would not operate effectively. As a result of having a physical point of operation and control, traditional systems have their services disrupted when natural disasters or some accidents happen. Therefore, besides the huge amount required to set up a centralized financial system, it makes them easy target in cases of burglary, accidents or natural disasters.

The above are just four of the several limitations associated with centralized finance. If there should be a better service for the management of our funds, then we need to think about a more modern way, a technology solution that will overcome the limitations listed above. That technology is now here with us. It is the very essence of this publication. This blockchain technology that will give us a new and autonomous way to manage of finances is called **Decentralized Finance** or **Defi.** What is it and how does it solve the problems of Centralized Finance? You just have to read on.

# <center>Decentralized Finance - The Solution</center>

**Defi** or **Decentralized Finance** is the blockchain solution designed to eliminate all the challenges of centralized finance. In defi, decentralized applications (dApps) and smart contracts deployed public blockchains are used to manage funds in such a way that the user maintain absolute control of their assets. Ethereum is a popular blockchain for developers of smart contracts and dApps. There are other emerging blockchains that have provided the infrastructure and tools needed to host decentralized finance projects. The main selling point of Defi is that you are in charge of your assets. Thats not all. Consider just the 4 benefits of Decentralized finance below:

* **Who is in control?** The answer is - **You.** Yes decentralized finance gives you back the whole authority to make decisions regarding the storage, use and transfer of your funds. You are free to enter a trade or not. You decide when to buy cryptocurrencies, when to hold or when to sell. You are free to decide who to trade with or what blockchain platform to use. There is no end to how much decisions you are allowed to make under defi because you are fully in control of your assets. Its a free world, isn't it? There is more to it.

* **Physically Limitless** Decentralized finance is not limited by some national boundaries or space. They exist on the internet which is everywhere. So it is easy for me to move my funds from Africa to the North pole without leaving the comfort of my home. Anyone with internet access is well within the reach of defi products or services. Decentralized finance erases national boundaries and other geographical limitations. Just put on your device, connect to the internet and in few seconds, you are sending or receiving funds limitlessly

* **Easy to build and Operate:** Decentralized finance does not require physical structures to operate. dApps and smart contracts need no big buildings or sleeping quarters. They are built using simple and cost effective blockchain tools that are available and accessible. It is not surprising at all to see hundreds of Defi products or services launched within few hours or just a week. By way of contrast, how much does it cost to build a bank branch and pay staff? You know the answer, dont you?

* **No Intermediaries:** Defi eliminates the need for a funds officer or agent. Trading parties are brought together in smart contracts, making it possible to transact directly. So no need for a third party. Person-to-person transactions does not require hiring the services of a middleman or any supposed financial expert. This beats centralized systems that cannot operate without an agent of staff.

There are many other benefits of Defi that we will lose track of time to explain them exhaustively here. For more example, defi transactions are very fast when compared with Centralized finance. Besides, more people now have access to the interent and can use defi products, unlike the millions of people who cannot operate a bank account which is a local example of centralized finance. The benefit of defi is many, not few. So would you like me to introduce to you two Defi products at least? Lets do it.

# <center>Decentralized Finance - Two Sample Products</center>

Here are the 2 Defi products I would love you to see.

# <center>1.[JustSwap](</center>


Built on the Tron Platform, [JustSwap]( is a defi product that allows the instant exchange of tokens based on TRC20. In JustSwap, liquidity providers can earn commission from the trades they facilitated and enjoy many other benefits.

The transaction fees on JustSwap is very competitive at less than 0.5%.  The liquidity pool on JustSwap is unlimited, enabling traders to transact listed pairs at virtually any volume they choose. Developed on the Tron framework menas that you will download a Tron wallet such as TronLink Pro in other to use the exchange. Having provided these basic information, I would like to demonstrate a live transaction using JustSwap.

### <center>How to Swap token pairs in JustSwap.</center>

Using JustSwap is one of the easiest ways to exchange any Tron-based token pairs. In this example below, I swapped 300 Tron for Ethereum. Here are the steps.

*Note: I have already downloaded Tronwallet Pro app and linked it to JustSwap.*

* **Open Tronwallet app and go to the Discover tab. Click to reveal the dApps list.**
* **Click on JustSwap as shown below**
* **On the New page, you can see Tron is selected by default since its the only coin with funds. I entered 300 in the amount box**

* **I then choose Ethereum as the pair and clicked the Swap button. Check below**

* **On the new confirmation window, I simply clicked Confirm. Thats all**


My 300Tron was successfully swapped to the Ethereum equivalent. This is just how easy and cool it is to swap token pairs on JustSwap. Am sure you would like to try it out after this lesson.

# <center>Uniswap</center>

[Image Source](</center>

The next Decentralized product I will review is called UniSwap. Built on the Ethereum frame work, UniSwap provides liquidity for trading ERC-20 tokens. Uniswap is not just an exchange, it also powers Ethereum dApps as a launching pad for developers. The platform utilizes smart contracts that determine how Ethereum tokens are exchanged with lists pairs on the platform.

Thousands of Users and investors provide the liquidity which is used to facilitate swapping of tokens. Each liquidity provider earns from trading  commissions charged on the listed pairs they participated in, according to the amount of pool they provided. UniSwap has so many cool features which make it a top Decentralized exchange. Here are just 3 of them.

* **Large Liquidity Pool:** More than 72,000 users provide liquidity on the platform. This makes it possible to trading large volumes of ERC-20 tokens. According to the platform, more than 56 milllion trades of Ethereum token has been facilitated through UniSwap, making it a popular destination for DEX lovers

* **Automated Market Marking:** As with many decentralized platforms, UniSwap does not have an order book where tokens and their volume are listed for trading. Instead, tokens are traded based on the instructions provided by the smart contract. This ensures that transactions happen without the need for an intermediary. Also, AMM enhances the speed of transactions since their is no human third-party that usually slow centralized financial products.

* **Low trading fees:** Unlike other platforms, UniSwap has very low fees when tokens are swapped. The have a flat rate of 0.03% charged when tokens are swapped. Even among other DEX platforms, that rate is really competitive.

* **Large list of trading Pairs:** UniSwap has more than 2000 Ethereum token pairs listed and supported for swapping. Again, this is among the top largest collections of trading pairs anywhere.

There are many other amazing Defi products/Services out there which you can discover through little research. From the discussion so far, its seems that Defi is all benefits 100% and no downside. Well, there are definitely flaws in each system. So in the next section, lets look at the risks involved in Defi.

# <center>Decentralized Finance - The Risks</center> 
While Defi has a lot of positives, there are still obvious risks involved in thos economic model. Lets look at a few though:

* **Insufficient Liquidity:** It is safe to safe the liquidity is the lifeline of decentralized finance. Trades are executed from the liquidity pool. When there is a large number of investors who deposited into the pool, there will always be enough liquidity to sustain large volume transactions. However, that has not always been the case. Sometimes the liquidity is low in volume. It simply means that there is not enough locked funds to facilitate transaction in a decentralized exchange for example. When we compare the volume of funds available to decentralized finance to that of traditional centralized systems like banks, Defi lags behind in with considerable gap. So some Defi Projects lack enough liquid to sustain larg-volume transactions.

* **Interoperability challenges:** There are many different blockchain platforms like Ethereum, Bitcoin and the rest. Eacch of these blockchains hosts different dApps and have their unique ways of executing smart contracts. Sadly, some of the blockchains have no way to integrate with others when performing transactions. In a situation where a transaction involves two or more blockchains that are not designed work together, the whole process breaks down. Defi will reach even greater heights if dApps, smart contracts and projects hosted across chains are made to become interoperable.

* **Blockchain Hardforks:** Changes to the nature or structure of parent blockchains hosting a defi project will always affect the defi project itself. If a blockchain undergoes a hardfork and undesirable features are implemented, the defi project will inherit such feature and its performance becomes compromised. So the huge uncertainty that may arise from blockchain hardforks is a serious headache for Defi Prrojects.

* **Human Error:** While removing intermediaries seem an advantage, it is also a big disadvantage. New users will always make mistakes that could lead to irreversible loss of funds. In centralized models, the human agents are usually trained to assist us keep and manage our funds securely. But in defi, you are responsible for whatevere happens to your digital assets. If you make a mistake and loose your funds, smart contracts cannot stop you or are not held accountable. Human error happens in Defi and is a big negative to it.

These are some of the many risks associated with Defi. Like every other system, it has its downside. But we can always find a way to work around or mitigate them. We now want to discuss an important way to earn more cryptocurrency in decentralized finance. It is called Yield farming. Dont worry, you are not going to plant tomatoes or harvest corn. the name could be misleading. So, lets see what it is.

# <center>What is Yield farming - how does it work?</center>  
### <center>Defining Yield Farming</center>

Yield farming is really a smart way to earn more cryptocurrencies by holding them. In Defi, investors often called Liquidity providers deposit their cryptocurrencies in a lending pool through smart contracts and earn rewards from trading fees and even native tokens of the defi project. Yield farming provide passive income to cryptocurrency holders while providing the tokens required to complete trading on a Defi platform. The amount of rewards earned in Yield farming depends on the amount locked and the period of time it was locked. So basically, yield farming involves investors -called Liquidity Providers - locking up cryptocurrencies in a liquidity pool and earning rewards from the transaction fees collected from traders. 

### <center>Understanding how Yield Farming Works</center>
There are important parties to Yield farming that should be clearly explained to make it easy to undertsnad yeild farming. They are:

* **Liquidity Provider:** This is an investor that locks up his cryptocurrency in the liquidity pool and earns usually from the network fees charged on transactions on the DEX.

* **Liquidity Pool:** This is a smart contract which contains the funds deposited and locked by the liquidity providers. From this pool, trading and exchanging of token pairs are facilitated on the DEX.

* **Automated Market Maker:** In centralized exchanges, order books are used to list the sell and buy orders including the prices of token pairs. That is different in DEX. Automated Market Maker is the popular model used in Decentralized exchanges. The AMM utilizes smart contracts containing trading instructions to create liquidity pools that execute transactions.

So having understand these 3 terms above, here is how yield farming works. **Liquidity Providers** invest their cryptocurrency by locking them in the liquidity pools. Automated market Marker creates the Liquidity pool and implements a smart contract which governs how funs are swapped, or traded on the Decentralized exchange. Liquidity providers earn from the funds deposited through transaction fees charge on traders and other means.

There are many Yield farming platforms. Some are definitely better than others in terms of rewards from farming and other parameters. Consider the following two:

# <center>Top two Yield farming platforms</center>
Its time to review the top 2  yield farming platforms. I would generally recommend one from bitcoin and one from the ethereum chain. So here is my choice:

### <center>PancakeSwap</center>

[PancakeSwap Website](</center>
PancakeSwap is a very popular Decentralized exchange launched on the Binance Smart Chain (BSC) network. BNB is the native token used on the Binance Smart Chain, although there is support for other tokens often referred to as BEP-20 tokens on the chain. When liquidity providers lock up their cryptocurrencies in the liquidity pool, they are rewarded with tokens called liquidity pool tokens. Liquidity providers can choose from a host of pools available on PancakeSwap such as BNB prediction pools and gambling pools. Art lovers are not to e left out as the exchange offers pools where liquidity providers can earn non-fungible token. PancakeSwap solves a lot of issues associated with Ethereum based DEX platforms such as expensive gas fees and slow speed of transactions. Little wonder it has remained popular in the world of Decentralized exchange platforms. Lets take a look at some the the major reasons why I choose PancakeSwap.

* **Transaction Cost:** Ethereum gas fees charged on Ethereum-based decentralized exchanges is costly. Some transactions are charged higher than $15 dollars. This expensive gas fees is effectively tackled on PancakeSwap. Its very low fees is suitable for low value transactions and is welcoming for the large number of transactions that have low value. Most transactions are charged as low as $0.08

* **Speed of transactions:**Scalability has been a major drawback of blockchains and this has affected Decentralized exchanges. However, PancakeSwap fares better big thanks to Binance Smart Chain improved speed. When there are large transactions, slower transaction times keep investor funds stuck for longer and could result in some loss depending on market price movement. But on PanCakeSwap, transactions are completed within some seconds - most are done in 5 seconds. 

* **High Percentage profits:** Who like to do business where the returns is small? Investors go where more rewards are realizable. PancakeSwap is one of the most profitable liquidity rewards. Little wonder it remains popular in the DEX space. Liquidity returns can go from 8% to 250% APR. This makes it a cool place to lock up funds. 

There are however some disadvantages that investors need to watch out for in PancakeSwap. Lets look at 2 of them:

* **Impermanent loss:** The price of cryptocurrencies fluctuate. Impermanent loss happens when the staked coin value reduces when withdrawing it than when it was deposited. This is is because crypto market prices are largely unpredictable. Liquidity providers should be wary of this in PancakeSwap. Although one way to mitigate this loss is by selling off the coin whos value dropped and using the funds to acquire the other pair whose value dropped drastically. So in essence, investros need to be aware of impermanent loss and errors that arise from smart contract execution

* **Low liquidity:** While PancakeSwap has a lot of token pairs listed, some of them have very little liquidity. Their market capitalization is not as big as others. This can quickly lead to impermanent loss too. Challenges also arise when trading volumes exceed the liquidity available for these pairs. Liquidity providers would be wise to choose pairs with higher market capitalization.

Lets look at another top Yield farming platform.

### <center>Curve Finance</center>

Curve finance provides many Unique opportunities to liquidity providers in the yield farming space. With the total liquidity locked in excess of $7 billion, Curve represents one of the most valued Decentralized exchange running on the Ethereum framework. It uses a special market marking protocol to list token pairs. Curve finance has a large list of stable coins as well as other types of digital tokens pairs available for swapping. 

* **Features lots of Stable Coins:** This could be seen as a big selling point because stablecoins maintain their value more than other types of tokens as their value are pegged to a fiat such as USD. Liquidity providers have higher chances of retaining the value of their investment since stablecoins are not largely affected by crypto price flunctuations. There are up to 15 stablecoins pools available on Curve Finance.

* **High returns:** Another great advantage of Curve finance is in their returns. Liquidity providers can earn anything from 2.5% to 25% APR. This is a big selling point for investors looking to make more from locked funds.

**The down sides of Curve Finance**

* **Smart Contract Error** Although Curve finance audits it smart contracts to ensure its error free, all decentralized exchanges have this as a disadvantage. So liquidity providers should be aware that a hardfork or other changes can lead to errors in the execution of a smart contract. That in turn can lead to loss of funds. 'Here is an advice from Curve finance with regards to smart contracts:

>  Please don’t supply your life savings, or assets you can’t afford to lose, to Curve, especially as a liquidity provider. [Source](

* **Impermanent Loss:** Although this is less in Curve Finance since it lists more of stablecoins whose value does not fluctuate like others, it is still a possibility. Stablecoins do drop value and may take a long time to recover. in this case, the liquidity provider may not easily recover the value of their tokens. Again, this does not happen always.

Having seen two of my popular selections, we need to know how Yield Farming Returns are calculated. Let see that

# <center>How Yield Farming Returns are calculated</center>

There are 2 distinct ways to caluclate Yield Farming returns. they are as follows:

* **Annual Percentage Rate (APR):** This method involves paying the investor an agreed percentage of the entire funds invested initially. It is annual, meaning that the percentage is paid at the end of a one-year period. If you you have a working idea of simple interest, then it wont be hard to understand APR. Lets look at a common example:

Lets say I invested $50 in a liquidity pool and its return is calculated at 100% per annum. Then,
100% of $50 is $50. And this amount is to be paid once per year. So,
Original fund invested = $50
100% interest = $50
Total funds at the end of the year = $50 + $50 = $100

So I will take home extra $50 which is the return together with the capital, that is $100.

* **Annual Percentrage Yield(APY):** This is the same as APR explained above. The only difference is that the in APY, the returns is reinvested to increase the rewards for the investor. So while APR can be thought of as simple interest, APY is compound interest. We can apply the following formular to calculate APY:

APY = (1+r/n)n - 1 
r represents the rate of the period
n is the compounding periods

Lets give this example: An investor that invested $100 at a 50% APY. Here is his Returns

APY = 100 (1+0.5/365)365 - 1
APY = 100(1+0.0014)365-1
APY = 100(1.0014)365-1
APY = $165.0

So the total is $65 as the APY and $100 as the initial investment. The total gives $165

# <center>Advantages and Disadvantages of Yield Farming</center>

### <center>Lets quickly look at some advantages:</center>

* **Passive Income:** Instead of letting my funds sit idel in some centralized financial institution, I will better invest it in Defi through yield farming. It is a smart way to make my money work for me. I earn rewards while I sleep. Passive income is really possible through defi.

* **Financial Inclusion:** A great number of the worlds population is unbanked. Yield farming provides the avenue to financial inclusion. so long as they have access to the internet, everyone is free to access the finance products under yield farming. They will be able to save, move or even invest digital assets without leaving their house.

* **High Profit:** With little capital, one can grow their earnings through yield farming. The high profit rates in yield farming can provide a means of livelihood even for the teeming population of unemployed people in the world.

# <center>There are disadvantages we need to be aware of</center>

### <center>Here are some down sides of Yield Farming</center>

* **Smart Contract bugs:** Developers of smart contracts work hard to make them error-free. However, we cannot rule out the existence of bugs in the codes. These bugs can cause errors that will make your money disappear into thin air. So the general advice is that you invest what you can afford to loose. Do not invest your primary means of livelihood in yield farming.

* **Impermanent loss:** Cryptocurrencies rarely have stable rates. The shift in market price of liquidity can make you loose funds overnight. So be aware of this risk and take reasonable steps to protect your funds.

* **Low Liquidity:** Some trading pairs in Defi projects lack enough liquidity to finance transactions. When this happens, you find it difficult to complete some transactions. You funds can be stuck in the process.

* **Shit coins:** Some coins simply do not exist. Others will loose their value in no time because of lack of trades. So be aware of what coins you are investing in, so as not to loose your hard-earned funds.

# <center>Conclusion</center>
We have seen all the sides of Centralized and Decentralized finance. It is Obvious that Decentralized finance is the next big thing. Instead of allowing a single organization to make laws and control our hard-earned funds, we are better off on our own. We want to embrace Defi and make use of all the great tools available to effectively manage our funds and make profit from opportunities like yield farming. As we continue to take small steps in defi investment, we learn from our mistakes and grow. Decentralized finance is the future. The future is now. Embrace it and you will be happy you did.

Thanks professor @stream4u

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@stream4u ·
Hi @focusnow

Thank you for joining [The Steemit Crypto Academy Courses]( and participated in the Homework Task.  

|<center>Review Visit Level</center>|<center>Task Remark</center>|<center>Comment</center>|<center>Guidance, Feedback, Suggestions</center>|<center>Grade</center>|<center>Verification (Done, Hold)</center>|
|<center>First</center>|<center>Completed</center>|<center>The Presentation of Task is average. You provide information on all Questions and provided information is well. The Task has some Quality content.</center>|<center>You need to take some more Efforts/Initiative in your research and study as expected more details into the DeFi products, you provided details on JustSwap, Uniswap but these are some of the examples/companies who work on the product/project in DEX, so here the primary product/projects are DEX and you have to provide details first on the primary projects like their concept, use cases, type, background mechanism/technical, positive & negative side, both examples JustSwap, Uniswap is the part of one product which is DEX.</center>|<center>7</center>|<center>Done</center>|

Your Homework Task verification has been done by @Stream4u, hope you have enjoyed and learned something new.

Thank You.
[*Crypto Professors : Steemit Crypto Academy*](

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