Wk8-Wk10a BA491 Final - QuizGecko

• A decentralized application (dApp) is a web application built on open, decentralized, peer-to-peer infrastructure services
• DApps combine a smart contract with a frontend user interface
• DApps are like apps, but in a decentralized network

Key DApp Features

• Accessible and transparent, similar to open APIs
• Can include a smart contract someone else has written

Ethereum and dApps

• Ethereum serves as the foundation for over 250 decentralized applications and over 50% of the cryptocurrency market
• It provides customized software networks for major companies, with 78% of dApps operating on Ethereum
• Apps are centralized whereas dApps are decentralized

DApp Characteristics

• Decentralized: Operate on Ethereum, an open public decentralized platform
• Deterministic: Perform the same function irrespective of the environment in which they are executed
• Turing Complete: Capable of performing any action given the required resources
• Isolated: Executed in a virtual environment known as Ethereum Virtual Machine (IEVM), ensuring that a bug doesn't disrupt the normal functioning of the blockchain network

DApp Advantages

• No Owners: Once deployed to Ethereum, dApp code cannot be taken down
• Anyone can use the dApp's features, and it stays on Ethereum, even if the development team disbands
• Free from censorship, incorporates built-in payments, enables plug-and-play functionality, offers one anonymous login, is backed by cryptography, and provides no downtime

DApp Development Benefits

• Zero downtime, privacy, resistance to censorship, complete data integrity, and trustless computation

Oracles and DApps

• Blockchain oracles bridge the gap between blockchain networks and external data sources
• Oracles connect blockchains to external systems, by enabling smart contracts to execute based upon inputs and outputs from the real world

Critical Functions of Oracles

• Data Connectivity: Connect smart contracts within dApps to off-chain data sources
• Data Reliability: Maintain the security and reliability of the dApp's operations and handle financial transactions or other sensitive operations
• Advanced Functionality: Create hybrid smart contracts that combine on-chain and off-chain infrastructure and react to real-world events/interact with traditional systems
• Access External Data: Provide access to external data without compromising the blockchain's security and decentralization

Oracle example

• Alice bets $20 on team A and Bob bets $20 on team B, with the $40 held in escrow
• An oracle mechanism captures accurate game results off-chain, delivering them to the blockchain in a secure and reliable manner to release the funds to Alice or Bob

Decentralized Autonomous Organizations (DAOs)

• DAOs are community-led digital organizations without central authorities like CEOs, CFOs, or Boards of Directors
• Any member can propose ideas for other members to vote to accept or reject the proposals
• DAOs are run autonomously using smart contracts with stakeholders for governance and are similar to investment clubs

DAO Advantages for Entrepreneurs

• Minimal start-up and operations costs
• No HR, brick-and-mortar, administrators, or middle managers are needed
• Smart contracts are used, but people are involved in governance, determining and creating smart contracts
• Global reach is expanded
• Tokens can be sold to investors
• Capital can be raised through traditional means like venture capitalists, investment banks, or angel investors
• Wyoming is the first state to recognize DAOs as real businesses, giving them the same legal protection as Limited Liability Corporations
• All Blockchain features, such as being immutable, transparent, and verifiable are included

DAOs as Cooperatives

• Focus is on bringing every type of value to its members
• DAOs are not owned by shareholders and operate without profit-at-all-costs maxims
• Puget Sound Consumer Co-op is an example

DAO Risks

• Hacking risks exist, including the "TheDao" hack, where $60 million was stolen, with $8 million recovered
• Corporate intellectual property and trade secrets are difficult to protect
• Some degree of centralization remains in practice

DAO Hacking Incident and Solutions

• Hacking - "TheDao” -- $60 million stolen
  • Solution: Hard fork
    • Rolled back the blockchain before the attack with Ethereum Classic
  • Reduced loss to $8.6 million
  • Six years later in 2016, cybersecurity was specializing in protecting DAOs

Examples of DAOs

• Noise. Music: A music DAO is an alternative to Spotify
• BANK: an earn coin DAO earns coins for writing articles for podcasts
• RedDAO: For fashion
• Dream: For philanthropy
• Friends with Benefits (FWB): Exclusive online social club that requires paid entry
• MetaCartel Venture DAO: For investing in early-stage decentralized applications

Steps to using a dApp

• Set up a Web3 wallet, such as Metamask
• Connect a wallet to the dApp
• Initiate the transaction through the dApp’s UI once ready to act
• Approve the transaction
• Wait for the blockchain approval and process the transaction
• Monitor activity on chain

DeFi Protocols

• DeFi protocols are specialized autonomous programs to address traditional finance issues using blockchain technology
• These protocols enable financial services like trading, lending, borrowing, and yield farming, without intermediaries

Essential DeFi components

• Blockchain Technology: Heavy reliance on blockchain networks like Ethereum and Solana; provides a decentralized and immutable ledger
• Smart Contracts: Self-executing programs automating financial processes through predefined rules and eliminating intermediaries
• Decentralized Applications (dApps): Interact with blockchains to provide financial services accessible through web or mobile apps without centralized intermediaries
• Decentralized Governance: Many DeFi protocols are governed by communities using governance tokens, allowing for democratic decision-making and protocol updates

DeFi Protocol Examples

• Uniswap: A decentralized exchange (DEX) that facilitates token swaps, using automated market-making algorithms
• Aave: A lending protocol allowing users to borrow cryptocurrencies with variable interest rates
• Maker: Issues the stablecoin DAI, collateralized by other cryptocurrencies like Ethereum
• Curve Finance: A liquidity aggregator for stablecoins and other pegged assets, consolidating liquidity from multiple sources to provide users with the best possible trading conditions, with use across financial markets (Forex), cryptocurrencies, and decentralized finance (DeFi)

DeFi Lending

• DeFi lending platforms offer crypto loans in a trustless manner without intermediaries, P2P Lending, allowing lenders to earn interest on coins
• Defi applications has the highest lending growth rate

Traditional Loan Timelines

• Traditional loans take 2-5 business days to process and 7-14 days to disperse into the individual's account

Aspects of Traditional Loans

• APR of between 5-20%
• Origination fees sometimes required

DeFi Lending benefits

• Collateral is provided by lenders with digital assets
• DeFi lending enable users to earn interest on loans by lending crypto to someone else
• Borrowers can receive liquid funds without selling their cryptocurrency with a crypto loan
• Anyone can become a lender with DeFi through lending pools

Traditional Loan Balances

• Opportunity: Outstanding balance of all consumer loans in the US is over $17.5 trillion with total crypto market cap @$3 trillion

Lending Pools

• Lending pools act as smart contracts
• Users can deposit and borrow money with these pools
• Businesses can build applications such as lending protocols, savings accounts, etc with these pools
• Allows acts as a central account for use to deposit funds as acts as different methods to invest interests

Lending Pool Mechanics

• A depositor gets a particular token that can appreciate or depreciate depending on the interest generated
• Tokenization is unique to the DeFi lending space
• A token holds the interest generated on a particular deposit
• By sending that token to a third party, a depositor can share their interest with whoever they choose
• The token holder is allowed to hold it for a long or short as the holder please

Traditional Collateral

• Traditional loans need traditional collateral
• Car loans use the car
• When the user stops paying the loan, the bank will seize the said vehicle

Traditional Loan Types

• Secured
• Unsecured
• Lines of credit

DeFi Lending: Benefits

• Permissionless
• Transparency
• Programmability
• Self-custody
• Interoperability
• Immutability

Securing Loans

• Lender holds collateral
• Smart Contract
• Transparency
• Reputation (Airbnb)
• Risk vs. Interest Rate

DeFi Borrowing

• Loan terms vary from 7 days to a year or more
• Collateral is deposited via smart contracts
• Collateral doesn't involve physical property

DeFi Benefits

• Without selling coins users can achieve liquidity
• Coin holders that need USD for short term purposes can cover expenses
• Hodler wants to buy more coins
• Lower interest rates
• Broader view of credit worthiness
• Build digital credit worthiness with reputation

DeFi Borrowing vs Traditional Borrowing

• Access to loans are outside the US
• Proceeds are protected from the loans
• Pseudonymous
• More precise with risk calculation
• Funding is faster with protection

DeFi Collateral

• Borrower up to 50% of crypto's value with a lender Binance, %90 with Youholder.com
• Collaterals are available in wide varieties
• [DAI is a stable coin] if a user needs to borrow one bitcoin, needs to deposit the price of one bitcoin in DAI
• Examples of Collateral, User wants to borrow 100 DAI
• MakerDAO requires borrowers to collateralize their loans at a minimum of 150% of the loan value
• the borrower needs to collateralize the loan with $150 in ETH If the value of collateral reduces below $150 ETH, it becomes subject to a liquidation penalty

DeFi Risks

• How your collateral is stored impacts how vulnerable you crypto is being stolen
• you giveup control of the asset by depositimg your funds to a provider with given them the responsibility of protecting
• Missing margin call, crypto can be liquidated

DeFi Staking

• Staking is a way to earn financial rewards
• The act of depositing 32 ETH to activate validation software
• Store Data
• Process transaction and add new blocks
• Keep ethereum secure for everyone and earn eth in the process, known as proof-of-stake "POS"
• Cryptocurrencies are staked by simply leaving holdings intoa crypto wallet, blocks are forged, validated as the network rewards the stacker

Reward of ETH Miners

• The reward of 2eth paid to mine a block
• form gas fees

Staking vs "Mining a Claim"

• There is staking your crypto and mining
• Staking is a form where you lock up a certain amount of crypto for reward

ETH miners make money

• Reward of 2 ETH paid
• Value extracted from the insertion or lack or insertion during transactions

Staking benefits

• Less risk than defi
• Since the merge to ethereum, a major opportunity for investors
• Current rewards are between 4 and 5 percent

Ways to Stake Eth

• Become a validator 32ETH, locked and running
• Staking a Service requires 32eth or pay for services

Steps on how to stake Crypto

• Choose, a coin or crypto
• Learn staking required
• Download a wallet software
• What hardware
• Start stacking

Crypto Staking Coins

• Ethereum ETH
• EOS tokens are specific to eos blockchain
• Open source blockchain with cosmos network "ATOM"
• Cardono Ada much like ethereum and multi players system
• Polkadot which is newer

Yield Farming

• A strategy used to decentralize finace to maximize holds crypto that liquidity on all products
• known as liquidity mining

Yield Farm Key Points

• Cryptocurrency
• Liquidity Pools
• LP tokens

Yield Farm process

• Select
• Choose a Defi
• provide and deposite liquidity

Farming: key facts

• Assets used. Liquicryptos of ehterum
• Smart contract of hold fund

Process after

• select a firm like Curve
• provide and liquodity an equal amount
• get token stake and use to get rewards claim by reward by with draw or

Yield farms

• Yield farms offer passive income with potentially high yields include imperement loss smart contacts with volatility include imperement loss smart contacts with volatility

Hacks and scams

• Cross chain bridge
• exchange hacks
• staking pools
• Types are scams such as phishing

Facts on Scammers

• Hackers in industry lows stealling records
• Difi are permitsable
• cifi more traditional Ce fihave bankruptcy some say defi is the way cifo sam bank was acussed defi also Last year the 1B from defi was linked to north korea

Difi risks : Borrowing

Impacts collateral stolen Depositing gives them the roll Missing margin call

Cybercrimes and Defi

• blockchain form storgae
• malicious attacks

Examples of cybercrimes

• Rug Pull schemes usually start with a new project or token
• New service or asset is marketed as useful, innovative, or the next big thing
• the token's price will begin to increase in price as demand increases
• the scheme will sell off all the tokens they hold-usually a vast chunk of the circulating A honeypot scheme requires scammers will use a smart contract that appears to be able to make investors a sizable profit
• the victim into thinking they can drain crypto from it with a small initial investment
• scammers getting in touch with others to invest will hand monety over to cybercriminal Phony NFTs
• well known nfts are used to scam customers

Types of phishing

SMS scams access cryptocurrency exchange accounts and steal asset holdings actor pretends tot be exchange Victim urged to take resolve an action as unusual activity

Things for securing yourself

Verify the team cred Read through white paper Audit the code Alert reds flag

Securung security

• Two factor authentiacation
• hardware wallet
• investiage a community

Principles of Core Finance

• Decentralization; eliminates
• Transparency : and stability Accessbility : with a contact to internet Efficiency : contact smart contracts

Strategies include

Risk -Avese stategs

• Integration in traditional

TVL and Marketcaps

• TVL are the value locked and used to in decide the decision like : stability

TVL Vs Marketing Cap

• is more tvl a good choice
• how they compare