Introduction to DeFi: Understanding Key Categories and Terms
Key Takeaways
- DeFi removes intermediaries, allowing users to access staking, trading, and lending in a decentralized financial system.
- Key DeFi terms like native tokens, stablecoins, and liquid staking help users navigate and maximize opportunities in the ecosystem.
- Liquid staking enables passive income, letting users stake while maintaining liquidity, with platforms like Tonstakers making it accessible.
Decentralized Finance (DeFi) is a blockchain-based financial system that operates without banks or centralized institutions. DeFi protocols offer services like crypto lending, decentralized trading, and liquid staking, enabling users to participate in an open, global financial network.
If you're new to Web3 and DeFi, understanding key DeFi categories and terms will help you navigate this evolving ecosystem effectively, benefiting from all possibilities offered by Tonstakers liquid staking.
Key DeFi Categories and Terms
Native Token
A native token is the primary cryptocurrency of a blockchain network. It is used to pay transaction fees, secure the blockchain, and participate in staking or governance. For example, Ether (ETH) is the native token of Ethereum, while Toncoin (TON) is the native token of The Open Network (TON). Holding a blockchain’s native token allows users to interact with dApps (decentralized applications) and participate in DeFi services on that network.
Stablecoin
A stablecoin is a cryptocurrency designed to maintain a stable value, often pegged to a fiat currency like the US dollar. Stablecoins serve as a store of value and are widely used in DeFi for payments, trading, and earning passive income. Examples include USDT (Tether) and USDC (USD Coin), both of which are 1:1 pegged to the US dollar, ensuring stability in the volatile crypto market.
Governance Token
A governance token allows holders to vote on key protocol decisions, such as fee structures, upgrades, and platform development. Governance tokens are crucial for decentralized decision-making, giving users a voice in the future of DeFi platforms. For instance, UNI (Uniswap) lets users vote on changes to the Uniswap decentralized exchange (DEX).
Utility Token
A utility token provides access to specific DeFi platform features. Unlike governance tokens, which focus on decision-making, utility tokens are used for paying fees, accessing services, or earning staking rewards. For example, BNB (Binance Coin) is used to pay transaction fees on Binance and participate in token sales.
DeFi Services and How They Work
Staking
Staking involves locking up cryptocurrencies to support a blockchain network and earn staking rewards. It helps secure the network while providing passive income for users. Staking is one of the safest ways to earn in DeFi. For example, staking TON on Tonstakers allows users to contribute to network security while earning rewards over time.
Liquid Staking
Traditional staking requires locking tokens, making them unusable for other DeFi activities. Liquid staking solves this by issuing a liquid staking token that represents staked assets. This liquid token can be used in other DeFi applications while still earning staking rewards.
For example, Lido offers Ethereum liquid staking, allowing users to stake ETH and receive stETH, which can be used in DeFi lending, trading, and liquidity pools. Similarly, Tonstakers, the largest liquid staking platform on TON, provides tsTON, enabling users to earn staking rewards while maintaining liquidity for additional DeFi opportunities.
Decentralized Exchange (DEX)
A decentralized exchange (DEX) is a platform where users can trade cryptocurrencies directly without relying on intermediaries. DEXs use smart contracts to automate trades, providing greater privacy, transparency, and full custody of funds.
Examples of leading DEXs include Uniswap on Ethereum and STON.fi on TON, where users can swap tokens instantly while keeping full control of their assets.
DeFi Lending Services
DeFi lending platforms allow users to borrow and lend cryptocurrencies without the need for a bank or centralized authority. Lenders earn interest on their assets, while borrowers can access liquidity without selling their tokens. Smart contracts ensure transparency and security in DeFi lending transactions.
For example, Aave on Ethereum enables users to lend and borrow multiple cryptocurrencies with variable or fixed interest rates. On TON, EVAA Finance offers similar services, allowing users to lend TON or stablecoins and earn competitive interest rates.
Conclusion
DeFi provides a decentralized alternative to traditional finance, offering staking, trading, and lending without intermediaries. Understanding key terms—such as native tokens, stablecoins, governance tokens, and liquid staking—is essential for navigating the DeFi ecosystem.
For beginners, liquid staking is an ideal entry point into DeFi, allowing users to earn passive income while maintaining asset liquidity. Platforms like Tonstakers provide an easy way to stake TON, earn staking rewards, and explore the expanding world of Web3 finance.
As DeFi adoption continues to grow, learning about these core concepts will empower users to take advantage of decentralized financial opportunities safely and effectively.
Further Reading
- L2s on TON: How Will They Work
- Why Liquid Staking is the Safest DeFi Solution
- Tonstakers Earn: How to Increase Staking Rewards on TON
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