A guide on decentralized finance - DeFi
Decentralized finance (commonly referred to as DeFi) is a blockchain-based form of finance that does not rely on centralized financial intermediaries such as brokerages, exchanges, or banks to offer legacy financial instruments.
Instead, DeFi protocols utilize smart contracts on blockchains, the most common being Ethereum’s ERC20 network. Smart contracts, that are completely transparent and immutable, allow individuals to access services otherwise custodied by financial intermediaries by allowing said individuals to interact directly with one another.
With the rise of De-Fi came the inception of staking – which is central to the existence of the De-Fi ecosystem.
Cryptocurrency staking refers to “locking up” a digital asset to act as a validator in a decentralized crypto network:
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- As a validator, you ensure the integrity, security, and continuity of the network
- Staking gives everyone invested in the network the opportunity to contribute to the security of said network
- The idea is to encourage ‘miners’ (or any crypto-investor for that matter) to stake their cryptocurrency as an entry ticket for adding blocks to the blockchain and in return getting rewarded in cryptos for doing so
The penalty for adding invalid transactions to the blockchain ledger would be loss of the coins staked – thus incentivizing people to play by the rules:
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- This PoS (Proof of Stake) blockchain is different from the more energy-intensive PoW (Proof of Work) blockchain - the same network upon which BTC is built
- The only pre-requisite is maintaining a minimum balance of a specific staking-coin in ones crypto wallet
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- Thus essentially ANYONE can help maintain the integrity of a blockchain-network
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- There are far fewer barriers to entry as a staking-‘miner’
- Because you do not need the energy-intensive processing power inherent in the BTC (Proof of Work) system
- This means more people are capable and in fact, incentivized to maintain the network
OVEX invests in staking protocols to generate yield for OVEX Interest Account holders. These are secure protocols with large network effects that ensure their safety and continuity.