What is DeFi (Decentralized Finance) Token (Altcoin)
Definition
- From my own research, there’s no solid definition of DeFi tokens. So I will simply give my own definition based on what I saw on the the internet.
- DeFi token is a set of multiple cryptocurrency that was build specifically for a decentralized and automated platforms that operate using smart contract. Most DeFi token act like bank money.
- To put it simply, DeFi token is a crypto that was only build for the usage of it’s own platform that wasn’t control by anyone (blockchain) and any activity on that platform was done automatically using some computer language.
- Two examples of crypto that is categories as a DeFi tokens is Chainlink (LINK) and Uniswap (UNI).
Usage
- The main usage of DeFi token is providing any service similar to traditional bank such as taking out a loans, insurance and more. (This is why I say it act like bank money).
- You might be asking what’s the point if it act similarly like bank. Well, the difference between DeFi tokens and bank money is you don’t need to pay for any of there service including any transactions that was made on the blockchain.
Problems surrounding DeFi Token
- There are a lot of problems that is still unsolved in the DeFi token ecosystem. Some of them is DeFi rug pull and flash loan attack.
- DeFi rug pull happen when a scam DeFi token was hyped by it’s developers to attract more investor to get involved and buy that DeFi token. So they will first release the token in a control manner and keep hyping it up until most of the token was brought by the investor and when that happen, the developer will shut down the project. This is what we call rug pull. After that, the developer will disappear with the investor money and the investor will be left wondering what happened to their money.
- For flash loan attack, we need to know the type of loan that exist in the blockchain. There are two type of loan in crypto, secure loan (where you need collateralise to get a loan) and unsecured loan/flash loan (no collateralise needed to get a loan). Flash loan attack happen when a person take a lot of flash loan from the DeFi until there are capable to control the price of crypto that they have taken a flash loan.
- As I used to say this in my previous article, REGULATION IS THE ONLY SOLUTION TO THIS PROBLEM and this is just the case for DeFi token problem. With regulation, no more rug pull, no more people losing money on a Sh*tty crypto and no more stupid developers that just like to scam people. As simple as that.
Thanks for reading and as always keep learning about crypto everyday.
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