Decentralized finance or DeFi is an ecosystem of public, public, trustless financial applications and services based on public blockchains. It covers the entire possible range of financial services, including lending, leveraged trading and investment. On the one hand, they can interact with each other, especially if they are based on the Ethererum blockchain. But on the other hand, they are incredibly disconnected and practically unrelated to each other. This kills competition and inhibits the development of decentralized finance in general. Therefore, it was necessary to find a way that would allow to combine disparate projects into a single, albeit uneven, whole. DeFi aggregators became this solution.
What are DeFi aggregators?
According to Ben Thompson's "aggregation theory", there are two main approaches to consolidating disparate services and applications - unifying platforms and, in fact, aggregators.
Platforms are committed to providing technical tools or applications to enable communication between users and service providers. An example is a Shopify company that connects sellers and buyers, and then collects a monthly subscription from sellers for using additional services, such as lending, remote bookkeeping, and more. However, the seller himself must look for and attract buyers - through advertising, promotions, social engineering and other means.
Aggregators are not only intermediaries, but also regulators of relations between users and service providers. As a rule, they collect information about some and pass it on to others for a fee or commission. Google and Facebook are good examples. They have comprehensive user information that is extremely important to suppliers. For example, travel companies. Therefore, these same companies pay a lot of money for promotion in a search engine or for ordering contextual advertising. As a result, everything is in the black. Users can choose from different offerings, companies get easier access to consumers of their products, and aggregators get new information and commissions.
Why is this needed?
As discussed earlier, aggregators provide and govern interactions between users and service providers. In our situation - exchanges, decentralized applications, services providing cryptocurrency wallets, investment platforms, etc. Therefore, the benefits must be considered separately for each group.
Why users need it:
- More possibilities. People need something that allows them to buy and sell crypto in the most profitable way. This includes the course, and the speed of work, and additional bonuses, and passive income. But to independently monitor the situation on numerous services is difficult, time consuming and inconvenient. Plus, it's hard to track the emergence of new projects. Aggregators do it all for you.
- More choice. You can independently choose what is more important - the course, speed of work, security of transactions, etc.
- More information. Aggregators, as mentioned above, collect information about those with whom they work. Therefore, fraudulent projects are quickly identified and removed. Plus the ability to learn from other users' experiences based on their feedback.
- More protection. To some extent, aggregators may be responsible for resolving disputes between users and supplier companies. In the world of cryptocurrencies, in which there is relatively little regulation, this is extremely important from a consumer protection point of view.
Why do companies need it:
- Promotion. The easiest way to make yourself known is to pay for advertising and promotion. This helps to find clients even in the early stages of development.
- Competition. Either you can offer something that your competitors don't have, or you shouldn't try to create a "second Bitcoin" at all. Aggregators maintain sound competition - they themselves benefit.
- Liquidity. Even the best and most competitive projects in the early stages will suffer from a lack of liquidity. The assistance of intermediaries helps to avoid this and quickly raise the capital necessary for effective work. In addition, there is a feeling of one large pool of funds, rather than many small markets, but which are rather difficult to operate.
- Access to loans. ICOs and other options are not always effective. But if you prove the prospects of the project to aggregators, then you can get a loan on certain conditions. Almost like in traditional finance.
As for the disadvantages, the main one is complexity and confusion. For example, using the Instadapp aggregator, you yourself, without knowing it, go through 3 transaction levels and several smart contracts, on each of which something can go wrong. Alas, hacks are not uncommon in the world of cryptocurrencies. And the more intermediate stages there are, the greater the chance that at some of them the security system will bend. A case in point is the BZX hack, which resulted in several related DeFi applications being hacked.
Examples of using
Technically, the decentralized finance market can be compared to the Internet of the dot-com era, that is, at an early stage of its development. Many projects appear, some of them are very promising, while others will not stand even a year of work. The same is with DeFi aggregators - so far there is no service that would definitely crush the market, such as Google and Facebook. However, a number of interesting and promising projects still exist.
- Idle. The project, whose reliability is guaranteed by Quantstamp, is an aggregator that allows you to automatically deposit funds into the DeFi pools with the highest profitability. Including automatically reconfigure the balance of user funds, taking into account dynamically changing interest rates.
- RAY. A platform that allows you to select the most profitable landing services in order to maximize the profitability of blocked cryptoassets.
- 1inch and DEX.ag. Aggregators that allow you to exchange crypt at the most favorable rate with minimal slippage.
- InstaDApp. A platform that allows users to receive loans in DAI - dollar-pegged stablecoin, without verification of identity, age or credit history. Approximately 7 percent of all Ethereum locked in DeFi goes through it.
According to an analysis by Messari researchers, roughly 20 percent of total trading on non-custodial Ethereum exchanges takes place through DeFi aggregators. And this figure will only increase since the benefits of such projects for all stakeholders are significant.
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