What Are DeFi Crypto Coins? An Explanation Of The Important Concepts

Crypto has taken a turn for the better and now DeFi crypto coins are all the rage. But, what are they? In this article, we attempt to explain the fundamental properties of DeFi crypto coins or DeFi tokens and present a brief explanation of their important concepts.

Definitive Guide on What Are Synthetic Assets

DeFi crypto coins are crypto-assets, which are a part of or originate from Decentralized Finance (DeFi) protocols. They play a central part in the DeFi ecosystem. They also derive their value from the usage and adoption of such protocols. The protocol users might use them for staking, governance power, profit sharing claims, as collateral, debt position, etc.

The DeFi protocol has eight main categories. DeFi crypto coins have the same classifications based on their roles and nature. Let’s list those categories:

Stablecoins: multi assets are collateralized to issue a pegged token
Borrowing and Lending: crypto-assets borrowed or lent against a token
Position Exchanges: tokens representing a share in decentralized exchange swap profits and/or governance power
Derivatives: price tracking tokens representing an asset
Fund Management: tokens used for availing active or passive fund management protocol services
Lottery: tokens representing claims to a time-dependent draw
Payments: those used for merchant trading and payment services
Insurance: tokens representing claims for insurance

About Decentralized Finance (DeFi) And DeFi Crypto Coins

An alternative to the traditional finance, Decentralized Finance is an emerging blockchain based field, based on the central idea of providing financial services without the presence of third party or intermediaries. Instead, the self-executing complex logic smart contracts are used, which operate without any intervention.

It’s an attempt to go “bankless” – meaning developing the ability and means to override the current financial institutions and banks for a more free inclusive and less restricted system. DeFi Crypto Coins are tokens related to DeFi protocols, deriving their value from them.

The characteristics of DeFi protocols are trustlessness, resistance to censorship, decentralization, ability to verify on-chain, low barriers of entry, decentralization, unhindered transaction execution and interconnectivity- the so called lego-like composability. Unlike traditional finance, DeFi is accessible to anyone with an internet connection and a basic computer or smartphone.