Decentralized finance (DeFi) is a rapidly growing field in fintech, having grown from $700 million to $100 billion over the past three years alone. But the lack of reliable information makes this area both risky and murky. In this practical book, experienced securities attorney Alexandra Damsker explains DeFi's role in both blockchain and finance.
Ideal for developers looking to build decentralized applications (DApps), this book compares DeFi to traditional bank-led fintech and explains why DeFi is exploding in interest and popularity. You'll explore the growing array of DApps and platforms in various categories, including their benefits and drawbacks, and learn how DeFi tools work together from the perspective of both users and developers.
With this book, you will:
• Learn how DeFi fits into the blockchain and fintech worlds
• Understand why it's important to move beyond the banking system
• Explore the tools for building a useful, functional DeFi application
• Learn the risks, benefits, regulatory concerns, and unresolved issues in this nascent and fast-growing industry
• See which technologies are well-positioned to be incorporated into DeFi blockchains in the near future
• Assess your own risk level to determine which strategies are most appropriate
Author(s): Alexandra Damsker
Edition: 1
Publisher: O'Reilly Media
Year: 2024
Language: English
Commentary: Publisher's PDF
Pages: 221
City: Sebastopol, CA
Tags: Blockchain; Smart Contracts; Web3; DeFi
Cover
Copyright
Table of Contents
Preface
How Is This Book Organized?
Who Is This Book for, and What Will You Learn?
Conventions Used in This Book
O’Reilly Online Learning
How to Contact Us
Acknowledgments
Chapter 1. Introduction to DeFi
What Is Blockchain, Anyway?
A Brief History of Accounting
Single-Entry Bookkeeping
Double-Entry Bookkeeping
Massive Fraud, or the Status Quo Officially Doesn’t Work Any Longer
Triple-Entry Bookkeeping
Triple-Entry Accounting
The Bitcoin Revolution: The First Blockchain Use Case
Ethereum and the Smart Contract Revelation
Smart Contracts
Ethereum’s Innovation: Self-Executing Programming → Smart Contracts
Tenets of Blockchain (According to Me)
Open
Shared
Distributed
Consensus
Permanence (or Immutability)
Anonymity
Trustless
What Does Any of This Have to Do with Finance?
What Is Finance?
How Money Flows in Banks and Economies
Banks Are Using Your Cash—and Not Paying for It
What Is Decentralized Finance, and Why Is It Important?
Conclusion
Chapter 2. The Building Blocks of DeFi
Protocols
Platforms
A Trilemma Solution
Deployment Network
Decentralized Applications
Incentivized
Decentralized
Blockchain-Based Protocol
Open Source (Maybe)
A Word on Wallets
Custodial Versus Noncustodial
Are There Any Problems?
Stablecoins
Asset Versus Currency
Enter Stablecoins
Types of Stablecoins
Governance Tokens
Lending
Derivatives and Synthetics
Insurance
Prediction and Betting
Conclusion
Chapter 3. The Tools of DeFi
Smart Contracts
Wallets (Again!) and Oracles
The Oracle Problem
Stablecoins Versus CBDCs
Incentivized Governance Tokens
Wallets Part III: Hosted Versus Unhosted and the Purpose of Knowing Customer Identity
True or False?
Anti-Money Laundering and Know Your Customer
AML
KYC Versus AML
What Is Required?
What Is the Impact?
US Regulation
Custodians and Intermediaries
Conclusion
Chapter 4. How to Build a DeFi Application or Protocol
Basic Principles of Financial Tools
Developing Your Application
Rule 1: Which Market?
Rule 2: Did You Apply Basic Business Principles and Process?
Rule 3: Where Do You Build?
Rule 4: What’s Your Token, and Did You Apply Proper Tokenomics?
Applying Tokenomics
Rule 5: Did You Audit Your Tech?
Rule 6: How Do You Launch?
Conclusion
Chapter 5. Making Money with DeFi
Investing with a DeFi Protocol on Blockchain
Is It Really “Investing”?
DeFi Protocol Types
Protocol 1: Staking a Token
Protocol 2: Lending Protocols
Subprotocol 2A: Liquidity Provider on a Swap or Decentralized Exchange
Subprotocol 2B: Borrower-Lender Platforms
Subprotocol 2C: Borrowing Platforms
Subprotocol 2D: Yield Farming
Protocol 3: Memecoins
Things to Consider
Harvesting Profits and Losses
Taxes
Conclusion
Chapter 6. The Future of DeFi
The Rise of Asset-Backed Tokens
Real-World Assets
Does DeFi Even Need Regulation?
A Better Regulatory Structure for Crypto and DeFi
Who Is Issuing Tokens and Coins, Anyway?
What About Tokens That Do Many Things?
Tokens As Securities
Commodities
Derivatives
How Does Crypto Come into This?
Smarter Regulation
Securitization and Collateral
Collateral
Securitization
Better Regulation
Currency
We Need Fiat Alternatives
Future Regulation
Promoters
Community Projects
How Should They Be Regulated?
Customers Versus Traders
Centralized Marketplaces
Decentralized Marketplaces
Dark Pools
Intellectual Property
Problems and Solutions
Identity
A Viable Solution
The Need for Accountability
Accredited Investor Rules
Taxes
Conclusion
Index
About the Author
Colophon
