Aspects of Ethereum allowing DeFi to flourish
- ERC-20 — the standard for DeFi
- Stablecoins — offering practicality, fungibility, and stability to DeFi
What is ERC-20?
Because of the versatility of the Ethereum blockchain, there have evolved standards for operating certain types of applications. The technical standard for all smart contract applications is known as "ERC-20"—a set of rules for such applications and (if applicable) their own specific crypto asset to follow.
This universality allows different tokens to interact as well as developers to freely create on any number of projects. Today, there are over 200,000 different ERC-20 tokens. DeFiner operates within this universe. This includes the crypto asset Ether, the medium for collateral in our peer-to-peer lending. For the loan themselves, we denominate them in a kind of token known as "stablecoins".
To learn more about ERC-20, here's a great explainer from Coinsutra.com.
What are Stablecoins?
People want to be involved and active in this new financial frontier, but they're reasonably cautious because of the price swings. These make it difficult to operate trades, purchases, and other activity with digital assets. Here enters "stablecoins"—coins pegged to the U.S. dollar. There are a variety of such coins today, and each are priced roughly one-to-one with the dollar. This stability is useful for those wanting to park their digital assets for safe keeping, and it's useful as a medium for lending on the blockchain. Here enters DeFiner.
Peer-to-peer loans on our platform are distributed in stablecoins. So, if you want a loan worth $500, you'll receive approximately 500 Gemini dollars or DAI (two examples of popular stablecoins). Using such tokens allows the benefit of stability as well as conceptualizing the value of the loan. (We all know how much $500 is.) All the while, we retain the convenience and efficiency and security of transacting on the blockchain. It's the best of both worlds!
Read more about stablecoins, including which ones there are and how they're pegged to the U.S. dollar, in this article from Hackernoon.