Chapter 10: Decentralized Finance (DeFi)
Difficulty Level: 🟡 Intermediate
Estimated Learning Time: 6-8 hours
Chapter Objectives:
- Understand DeFi fundamental principles
- Master DEX mechanisms
- Learn lending protocols
- Explore stablecoins and derivatives
10.1 DeFi Fundamental Principles
Decentralized Finance recreates traditional financial services without intermediaries.
Core Principles
- Permissionless access
- Transparency
- Composability
- Non-custodial
10.2 Decentralized Exchanges (DEX)
Automated Market Makers (AMM)
- Constant Product Formula: x * y = k
- Popular AMMs: Uniswap, SushiSwap, PancakeSwap
Order Book DEX
- Traditional matching engine
- Examples: dYdX, Serum
10.3 Lending Protocols
Over-Collateralized Lending
- Aave - Flash loans and variable rates
- Compound - Algorithmic interest rates
Under-Collateralized Lending
- Requires credit scoring or social reputation
10.4 Stablecoins
Types
- Fiat-Collateralized - USDC, USDT
- Crypto-Collateralized - DAI, sUSD
- Algorithmic - Frax, AMPL
Mechanisms and Risks
- Collateralization ratios
- Liquidation mechanisms
- De-pegging risks
10.5 Liquidity Mining and Yield Farming
Earn rewards by providing liquidity to DeFi protocols.
10.6 Derivatives and Options
- Perpetual futures
- Options protocols (Opyn, Hegic)
- Synthetic assets
10.7 DeFi Composability and Flash Loans
Flash Loans - Borrow without collateral within a single transaction.
10.8 DeFi Risks and Security
- Smart contract risks
- Impermanent loss
- Oracle manipulation
- Rug pulls