The Spritz guide to Ethereum DeFi

As one of the most popular blockchain networks, Ethereum’s decentralized finance ecosystem is robust and widespread. Ethereum is a Proof-of-Stake network that is popular among NFT traders, metaverse gamers, yield farmers, and general Web3 services. The versatility of the blockchain makes it easily accessible through just about any service in the blockchain ecosystem, with a wide variety of wallets and other services that make it easy to use. 

DeFi is a general term for financial services that run on a distributed blockchain network like Ethereum. This includes products like  lending, investing, factoring, collateral management, and insurance. DeFi takes advantage of a blockchain ledger, so DeFi apps are completely trustless and transparent, meaning they are governed by computer code that relies solely on data inputs rather than human discretion. 

This also means they are governed by smart contracts that automate processes such as collateral management and repayments. In addition to providing greater efficiency and transparency than traditional financial services, DeFi also has the potential to unlock access to finance for traditionally underserved populations. This is because, in the DeFi model, the capitalization of assets or the quality of creditworthiness are not relevant. Instead, the focus is on the network itself.

Decentralized Finance (DeFi)

The term DeFi was coined by the team at Dharma Protocol, a protocol for building decentralized finance applications on top of Ethereum. Like the eCommerce and iCommerce (or “e-Commerce”) categories that emerged within the realm of online retail, DeFi is a more inclusive and general term that covers the increasingly diverse range of financial services built on Ethereum. 

DeFi generally refers to decentralized financial applications that use Ethereum or other blockchain platforms to create trustless, transparent and open access to financial services across various asset classes.

What is the difference between decentralized and centralized finance?

Decentralized finance refers to blockchain and cryptocurrency projects that allow users to make choices regarding their own financial lives, while a centralized financial system includes anything in the Traditional Finance (TradFi) space that may be heavily regulated or limited when it comes to retail investing and how much control you have over your own individual financial portfolio. There are benefits to both structures, and some people prefer not having to focus on keeping their funds safe in a non-custodial crypto wallet.

For those who want more freedom in their finances, DeFi is a solution to many problems in the centralized financial structure. Decentralized finance lets you own your money, and lets you make decisions on what you can do with it.

Benefits of Ethereum DeFi

• Increased efficiency - DeFi applications run on Ethereum’s decentralized network, eliminating the overhead involved in operating a centralized organization and enabling direct transactions.
• Transparency - All transactions and rules governing the system are publicly available and can be verified by anyone. ‍
• Liquidity - Because DeFi is decentralized, there are many different exchanges that allow investors to easily exchange tokens associated with a given product. Liquidity in decentralized assets is provided by users who provide liquidity to earn yield in return.

Popular wallets

A crypto wallet is a piece of software or hardware that can hold your cryptocurrency. A hot wallet is a software wallet that can be used on your phone or on your desktop, and can integrate with smart contracts to enable cryptocurrency payments. A cold wallet is a hardware wallet that can be used to store cryptocurrency long-term. Because they’re offline, they’re considered one of the most secure ways to store crypto—as long as you don’t misplace it.   

There are tons of wallets that can integrate easily with the Ethereum DeFi ecosystem. Here are several that can be used for both long and short term holding:

• MetaMask 
• Trust Wallet
• Coinbase Wallet
• Ledger

Major DeFi projects in the Ethereum ecosystem

• dYdX - dYdX is a protocol that enables margin trading and short selling on decentralized exchanges (DEXs). DEXs that integrate with dYdX enable users to take out loans against the value of their cryptocurrency holdings.
• Dharma - Dharma is a protocol for building decentralized financial applications on top of Ethereum. Users can generate stablecoins (cryptocurrency-backed tokens that maintain a stable price) and participate in tokenized debt products (e.g., tokenized loan funds).
• Dharma Ethx - Ethx is a protocol designed to help investors and borrowers make more informed decisions by providing data and insights on decentralized financial applications. This tool can help you become an expert in your own financial decisions.
• MakerDAO - Maker is a protocol for creating decentralized stablecoins. The system relies on a network of collateral to secure loans, and operates on a DAO governance structure to ensure a greater level of decentralization.
• Compound - Compound is a protocol for creating money market funds and other tokenized investment vehicles that allow for easy and transparent investing. This brings concepts from the centralized financial world into the decentralized ecosystem.
• Spritz Finance - Spritz lets you pay bills with crypto directly from your wallet without having to off-ramp it to a centralized exchange. You can also off-ramp crypto to your bank account straight from your wallet, and enjoy streamlined transactions that make things like crypto taxes easier to navigate.‍
• Uniswap - Uniswap is one of the most popular decentralized exchanges today. The platform offers thousands of trading options across several blockchain networks. Its governance is operated through a DAO, adding to its decentralization by preventing one entity from controlling it entirely.

Ethereum DeFi is a new and evolving landscape with great potential to transform how we think about and access financial services. However, inherent risks are associated with investing in new financial products and services. 

The first step to ensure that you have a successful experience when interacting with the Ethereum DeFi ecosystem is to take some time to get a good understanding of its risks. The ecosystem can be a great opportunity to gain financial freedom, but it’s worth knowing what you’re getting into. Check out our guide to Web3 safety here. 

Spritz is a great way to use or off-ramp the crypto that you earn from participating in DeFi. You can off-ramp crypto to your bank account directly from your wallet in a single transaction with the Spritz Off-ramp, or you can use the Spritz Bill-pay tool to make a bill payment to thousands of billing providers. Get early access to the Spritz app by signing up here! 

Cheers!