Author: Journalist Benedict
An Automated Market Maker (AMM) is a special model used in decentralized finance (DeFi) that powers decentralized exchanges (DEXs). Unlike traditional exchanges that use order books to match buyers and sellers, AMMs use algorithms and smart contracts to allow users to trade directly from liquidity pools. These pools contain pairs of tokens, and the price of each token is calculated automatically based on how much of each token is available in the pool. Instead of matching buy and sell orders like in centralized exchanges, AMMs follow pre-set mathematical formulas to keep trading continuous. This system removes the need for middlemen…
Over the past year, more people have started paying attention to decentralized identity (DID) technology. These systems let users control their digital identities without needing third-party companies or platforms. In addition to putting individuals in charge of their personal data, decentralized identity can help create digital environments that are more open, trustworthy, and easy to use. DID could solve many problems not just in crypto, but also across decentralized finance (DeFi) and the broader web3 world. What Is Decentralized Identity (DID)? To understand how DID works, we first need to define what it actually is. A decentralized identity (DID) is…
Decentralized Finance (DeFi) is a revolutionary breakthrough in the world of finance. However, its open and unrestricted nature can be misused, which makes traditional financial institutions wary of getting involved due to compliance concerns. To address this challenge, a new model known as Permissioned DeFi (PDeFi) is emerging — a concept that blends the open principles of DeFi with the strict regulatory frameworks institutions require. From permissioned liquidity pools to regulated payment systems, PDeFi offers a way to make DeFi safer and more acceptable for institutional investors while still maintaining its decentralized core. What Is DeFi? DeFi refers to financial…
Yield Optimization Strategies for DeFi Lending and Borrowing In the world of decentralized finance (DeFi), strategies like yield farming and yield optimization have become essential tools for institutional investors and large liquidity providers (LPs). These methods help maximize earnings from lending and borrowing by making smart use of digital assets across DeFi protocols. Through careful planning and execution, institutions can increase the returns they get from participating in liquidity pools, while also positioning themselves to make the most out of market opportunities. How Institutions Use Yield Optimization in DeFi Yield optimization plays a crucial role in how institutions manage their…
The rapid progress in blockchain technology has paved the way for a wide variety of financial services through decentralized finance (DeFi). One major area where DeFi stands out is in lending and borrowing. Today, people who want to borrow using their cryptocurrency have two main options: DeFi loans and centralized finance (CeFi) loans. DeFi, short for Decentralized Finance, is designed to create an open, transparent, and accessible financial system that doesn’t depend on traditional middlemen like banks or brokers. Unlike traditional finance, DeFi has no central authority controlling its services. Instead, everything runs on blockchain networks and smart contracts. In…
What is Loan-to-Value (LTV)?LTV, short for Loan-to-Value, is a financial ratio that shows how much of an asset’s total value a lender is willing to fund through a loan. It’s expressed as a percentage and is commonly used in lending scenarios like mortgages, equipment financing, and commercial loans. Lenders assess the value of the asset a borrower wants to finance, and then decide how much of that value they’re comfortable lending. The remaining portion must be covered by the borrower, usually through a down payment or equity contribution. Why Some Assets Get Higher LTVs Than Others Assets that are more…
What is Loan-to-Value (LTV)?The Loan-to-Value ratio, commonly referred to as LTV, shows how much of an asset’s value a lender is willing to finance through a loan. It’s usually expressed as a percentage and helps lenders measure the level of risk in a loan deal. In general, the more “desirable” or stable an asset is, the higher the LTV a lender may offer. An asset’s desirability depends on factors like how steady its value is, how easy it is to sell in the secondary market, and how smoothly ownership can be transferred. Key Points to Know About LTV How Do…
The Loan-to-Value (LTV) ratio is a key metric used by banks and lenders to evaluate the level of risk involved before approving a home loan or mortgage. It compares the size of the loan you’re requesting to the current appraised value of the property you want to buy. Generally, loans with a higher LTV ratio are seen as riskier, and because of this, lenders may charge a higher interest rate to cover the added risk. If your LTV ratio is high, you might also be required to purchase private mortgage insurance (PMI), which protects the lender in case you fail…
The DeFi Interest Rate Model is a system used by decentralized finance (DeFi) platforms to set the interest rates for borrowing and lending digital assets. This model takes into account several important factors like the supply and demand of assets, the level of risk involved, and the liquidity available in the system. It works by automatically adjusting interest rates to keep everything in balance—especially the use of available funds. For example, if there’s a high demand for borrowing an asset, the model increases interest rates to encourage more people to lend, ensuring the platform stays liquid and stable. These interest…
Collateral liquidation is one of the most crucial processes in decentralized finance (DeFi) lending systems. It happens when a borrower’s collateral is automatically sold to repay their loan if the value of their collateral drops below a set limit. This process is vital because it helps protect the DeFi platform from losses, keeps lenders’ funds safe, and ensures the entire system remains stable and trustworthy. Liquidation helps maintain proper collateralization ratios, which are essential for the health of DeFi protocols. If these ratios are not met, the system becomes at risk of insolvency. By enforcing liquidation rules, DeFi platforms prevent…