If you’re familiar with the crypto space, you’ve probably heard of decentralized finance and its role in the crypto world. The principles of decentralized economies are becoming increasingly important in the evolution of crypto and blockchain projects. Today, many blockchain projects and crypto tokens are built and designed specifically to generate social impact, benefit, and incentivize coin holders. Here are the basics of decentralized finance and how blockchain and cryptocurrency can be used to create social impact.
When you invest in cryptocurrency, you will need to select a crypto exchange that is most beneficial for you. Crypto exchanges allow you to buy, sell, and trade crypto and the exchange is where your liquidity comes from when you cash out your crypto investment. There are centralized exchanges that act as third-party intermediaries which verify all transactions between users. Centralized exchanges are more common and typically have extensive resource pages, offer access to various crypto for traders, and charge a fee for trading, buying, and selling. Though centralized exchanges usually have strong security, they are at a high risk of attacks from hackers because of their centralized nature.
Decentralized exchanges (DEX), on the other hand, are structured in such a way that it would not be beneficial for a hacker to go after the exchange, significantly reducing the risk of an attack and the blowback from any successful hack. Further, DEXs use automated smart contracts to verify trades between users on the blockchain; this ensures no third-party intermediaries charge fees or prolongs the exchange process. DEXs will become highly important in the crypto world as more and more users join worldwide; DEXs will allow anyone to send cryptocurrency abroad without any government or intermediary regulation instantly.
Decentralized Economics and Crypto
Though centralized exchanges are typically more user-friendly, new and improved DEXs are being launched to bring more users into the Defi crypto space. The new FTT DAO by FTX seeks to make a user-friendly decentralized exchange backed by the FTT Token and designed to benefit the coin holders and be the backbone of the FTX exchange. You can learn about the unique benefits of FTT through its whitepaper. One of the great benefits of holding FTT is airdrops of SRM, the token used in the Serum DEX, a new decentralized exchange built by FTX and Alameda Research. The FTX Defi projects are just one example of decentralized blockchain projects in the world.
The whitepaper of a cryptocurrency will lay out the reasons for the design of the coin and the goals of the blockchain and crypto. Some blockchain projects focus on bringing economic access to those without reliable traditional economies. Other blockchain projects are exploring the possibilities of creating digital IDs and NFTs to hold medical and other social ownership records reliably and securely without involving governments or banks. Decentralized blockchains could help many people who live in areas with unstable governments and no reliable way of maintaining their education, health, or other public records. Further, these blockchains will allow people to quickly and effortlessly send money to their families abroad without waiting for government approval, making many lives much more manageable.
As you research various crypto projects, keep in mind the beneficial features of decentralized economics so you can better understand the intentions behind each new exchange and token design. The goals and objectives of these projects can also offer you insight into the long-term success of the blockchain and cryptocurrency.