Decentralized Finance Comprehensive Analysis: Core Concepts, Application Scenarios, and Detailed Explanation of AMM Mechanism

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Decentralized Finance Overview: Core Concepts, Application Scenarios, and Operating Mechanisms

The Essence of Decentralized Finance

Decentralized Finance ( DeFi ) utilizes blockchain and smart contracts to create financial products and services. Compared to traditional finance, DeFi has the following characteristics:

  • Transaction transparency and traceability: All contract logic and fund flows can be traced and verified on-chain.
  • Automated Profit Distribution: Automatically executed based on preset rules, without third-party intervention.
  • Low operating costs: removing intermediaries significantly lowers participation thresholds.
  • Open and Inclusive: Any digital wallet holder can freely participate.

The core of DeFi lies in its decentralized architecture, relying on blockchain and smart contracts to achieve automated execution without the intervention of traditional financial institutions.

Decentralized Finance全景图鉴:核心概念、应用场景与运作机制解析(入门指南)

Main Application Scenarios of Decentralized Finance

The DeFi ecosystem encompasses many subfields, with key application scenarios including:

  1. Staking for PoS consensus: Investors delegate tokens to validator nodes to earn network reward sharing.

  2. Provide loans: Deposit idle funds into the fund pool, borrowers pledge assets to borrow and pay interest.

  3. Provide liquidity: Deposit token pairs in DEX to provide depth for trading, earn fees and rewards.

  4. Use yield aggregators: One-stop management of various Decentralized Finance strategies to improve investment efficiency.

  5. Lock tokens to participate in governance: Hold project tokens for the long term to gain governance rights and additional benefits.

Decentralized Finance全景图鉴:核心概念、应用场景与运作机制解析(入门指南)

Overview of Stablecoins

Stablecoins are a special type of cryptocurrency designed to maintain a stable value, typically pegged to fiat currencies or assets like gold. The main types include:

  • Fiat-backed: such as USDT, USDC, supported by a 1:1 reserve of fiat currency.
  • Product endorsement: such as XAUT, backed by physical assets
  • Over-collateralization: Such as DAI, over-collateralized by crypto assets
  • Algorithmic: such as FRAX, maintains stability through supply and demand adjustment algorithms.

Stablecoins provide an important measure of value and medium of exchange for the Decentralized Finance ecosystem.

Decentralized Finance全景图鉴:核心概念、应用场景与运作机制解析(入门指南)

DEX Operating Mechanism - Analysis of AMM Model

DEX mainly adopts an automated market maker ( AMM ) mechanism, allowing trading without an order book. Taking Uniswap as an example:

  • Use the constant product formula: X*Y=K( constant )
  • Automatically adjust asset ratios during trading to keep the K value unchanged.
  • There is a risk of price slippage and impermanent loss.

Projects like Curve adopt a hybrid AMM model to achieve lower slippage and risk in stablecoin trading.

Decentralized Finance全景图鉴:核心概念、应用场景与运作机制解析(入门指南)

The Future of Decentralized Finance

With the continuous innovation of technology and applications, DeFi is developing towards a deep integration with traditional finance. The tokenization of real-world assets (RWA) has become a new hotspot, expected to introduce a massive influx of assets and users into DeFi. In the future, DeFi will further expand the boundaries of financial services and build a new financial ecosystem that integrates on-chain and off-chain.

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ruggedNotShruggedvip
· 08-02 18:09
The returns are high but the risks are also significant.
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SchroedingerGasvip
· 08-01 07:44
gas is too expensive to play with.
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DecentralizeMevip
· 08-01 07:42
A field with unlimited potential
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TokenEconomistvip
· 08-01 07:31
Let's be precise.
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GasOptimizervip
· 08-01 07:31
Low risk and high return is the most difficult.
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MevHuntervip
· 08-01 07:29
Mainly looking for opportunities to make money
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