Collect! DeFi Ecological details


Disclaimer: This article is intended to convey more market information and does not constitute any investment advice. The opinions expressed are those of the author and do not represent the official position of Mars Finance.

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There is a tendency for almost every crypto start-up backer to tout their business fundamentals by leveraging the decentralized value of blockchain technology.

In this article, we will explain how decentralized financial protocol business differs from traditional business:

We will focus on two areas:

1) What does DeFi really mean?

2) What are the types and main differences of DeFi platforms?

DeFi Guide

Users of the traditional financial system often want a system that is easier to access, more transparent, with lower transaction fees and less reliance on intermediaries. To create such a fairer financial system, banks, lending and derivatives must undergo fundamental changes. In addition, decentralized ecosystems such as DeFi need to be adopted. It promotes peer-to-peer lending, eliminates centralized controls and provides users with financial freedom.

Recently, there has been a lot of talk about DeFi in the crypto world. It provides financial services around the world: loans, derivatives and other products. Moreover, the role of traditional financial intermediaries has been reduced to non-functioning. Proponents of a decentralised financial system argue that DeFi is a good alternative to traditional lending. Some are already calling it the future of lending.

DeFi is built on top of public blockchains such as the Bitcoin network and Ethereum. It has become one of the “core drivers” on the Ethereum network. By leveraging an unlicensed distributed network, the DeFi platform converts financial products into de-trusted protocols that can be accessed by anyone, anywhere in the world. People who do not have an account in a bank can also use the DeFi solution to make loans and borrow assets, as well as trade using financial instruments.

Open source platforms offer huge benefits to users, including transparency, cheap cross-border transactions, no credit checks and reduced censorship. Anyone can do financial activities because there are no geographical constraints.

The degree of decentralization of DeFi

The introduction of DeFi solutions has surged in recent months. They have different models with varying degrees of diversification. Some DeFi models are less dispersed than others. This is because only a few of their components are decentralized, while the rest remain centrally controlled by the company.

The formulation of the agreement, the non-escrow, the supply of prices, the determination of interest rates, the provision of margin call liquidity and the initiation of margin calls are key components of the DeFi agreement. They determine the degree of decentralization.

If the number of decentralized components is large, the DeFi protocol is more decentralized than other models. Such a deal would give users full control of their digital assets, freeing them from centralized control. So far, no DeFi protocol has decentralized all the components.

Each DeFi protocol assigns a category based on the number of decentralized components:

Centralized Finance (CeFi)

DeFi solutions are generally unmanaged, meaning that users have control over their money and are responsible for their security. Instead, CeFi is managed. The central system takes custody of the user’s assets and is responsible for ensuring the safety of the user’s funds.

When it comes to lending or borrowing money, the user has no control over any aspect of the funds. Interest rates are determined by the central authorities, and liquidity for margin calls is provided by the central system or the authorities. CeFi products use centralized pricing, and margin calls are permitted.

Degree 1

This type of DeFi product is unmanaged, which is the only attribute it offers in terms of decentralization. Its other components are very centralized, just like the CeFi solution. Users cannot determine interest rates, manage platform development or updates, or provide liquidity for margin calls. The product adopts distributed price supply and centralized margin call. Dharma is one of the best examples. It’s a peer-to-peer marketplace on Ethereum.

Degree 2

DeFi products of this type are unmanaged and offer little financial freedom to the user since only one component is decentralized. The decentralized components could be platform development or updating, price provision, initiation of margin calls, provision of margin call liquidity, or determination of interest rates. With the exception of unmanaged and one other component, the remaining components of the DeFi protocol are still centrally controlled. The Nuo network is an example of this extent.

Degree 3

This DeFi product has two discrete components, as well as an unmanaged factor. Compound and MakerDao are examples of this extent. They can initiate margin calls without permission and provide liquidity for margin calls without permission, users have no control over interest rates or platform development, and pricing provision is centrally managed.

Degree 4

Within this DeFi category of products, interest rates, platform development and updates are centrally controlled. However, unlike the 3-stage DeFi solution, the price supply of such DeFi products is not centrally controlled. Agreements such as Fulcrum and dYdX use a decentralized price supply. In addition, they are non-custodial, unlicensed margin calls and margin call liquidity.

Degree 5

Level 5 DeFi products provide users with almost complete control over their digital assets. Only the platform development components are centrally managed. An example of a Level 5 DeFi protocol is bZx, the first decentralized margin lending protocol on the Ethernet. Such products are unmanaged, with decentralized price supply and participant-determined interest rates. In addition, it is not permitted to initiate margin calls and provide margin call liquidity.

Advantages of DeFi platform over central platform and central banking system

Users of centralized platforms cannot transfer borrowed funds to other trading venues and platforms. The DeFi platform provides this benefit to users. They are free to borrow money and move it to multiple venues.

Unlike centralized platforms, DeFi platforms provide users with full hosting of digital assets. If they want to go into margin trading, which is buying and selling in a single trading day, they can do so. Users can keep tokens and short-term assets on a decentralized network.

Not if they’re using a centralized platform. On centralized platforms, money is centrally managed and not everyone can participate in margin trading due to restrictions and jurisdictions.

The DeFi platform eliminates the need for KYC.

Unlike the central banking system, interest rates on DeFi’s P2P lending platforms are determined by market forces rather than regulators.

Participants can easily obtain information about the loan, and there is no cost or nominal cost.

DeFi platforms are more transparent and efficient than traditional banking platforms.

Users can easily borrow money at market rates, and the transaction process is very fast because there are no intermediaries involved in facilitating the lending process.

Not everyone has access to the banking system, but everyone with an Internet connection can access the DeFi platform.


DeFi is still in its infancy, but advocates of a decentralised financial system are already declaring it to have great potential. It is currently the most active part of the crypto landscape, and its growing popularity cannot be dismissed as just a fad. A recent market report noted the “phenomenal” growth of DeFi agreements in less than a year. The value locked up by the DeFi increased from $181 million to more than $500 million in a year.

The report also predicts that the total value of DeFi lock-in could exceed US $1.5 billion by the end of 2020. If the DeFi agreements are widely accepted, they have the potential to reshape financial instruments.

Collect! DeFi Ecological details

Collect! DeFi Ecological details


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