Decentralised finance (DeFi) is one of the largest sectors in the crypto industry.

In the previous two episodes, and throughout the series, we’ve engaged with DeFi and used many of its platforms, Jupiter and Drift to name just a few.

Today, we’re going to look at the sector as a whole, revisiting a couple of key ideas as we go.

Decentralised Exchanges (DEX’s)

We’ve met DEX’s a few times already, but a quick recap wouldn’t hurt given their importance.

A DEX is a peer-to-peer exchange, there isn’t a middleman to connect trades, it’s done by code.

• Fees are much lower, meaning you’ll save money swapping tokens on a DEX.
• It is non-custodial, meaning you remain in control of your funds. (Look up FTX!)
• It integrates with your wallet, making it an easier place to swap tokens once you withdraw crypto from the exchange into your wallet.

Examples include Jupiter, which is known for its spot DEX aggregator, and Drift for its perpetual futures exchange.

Liquidity Pools and Provision

If you’ve seen / read episode 9 & 10, then you’ll be very familiar with liquidity pools and how they operate.

Liquidity pools are essential to the decentralised nature of DeFi; they enable:

• Instant trading, no matter the time or price (even the weekend!)
• Anybody to earn fees as liquidity providers (only possible with a lot of capital in tradFi).
• Tight spreads and fair, transparent prices for users.

For more on liquidity pools and how they work, click here.

Yield Bearing Assets (YBAs)

As their name suggests, these assets generate their own yield.

We’ve already encountered the following YBAs: