Decentralized financial services have exploded into the forefront of the crypto community, including staking, borrowing, AMMs, custody, and more. These are powerful tools to help you get the most out of your coins.
The problem is, how do you know which DeFi product to choose? How do you know which is the best solution for your specific case? What if the best solution doesn't support the coins you hold? This obstacle has become more pressing as more and more currencies and apps emerge.
Magic Square's Solution
Magic Square provides a solution by integrating DeFi into the apps featured on the Magic Store that support native app currencies, apps such as Aqua Protocol, Alpaca Finance This gives you the ease and direction you need to maximize your digital assets.
Furthermore, you don't need to worry about bad products or scams on Magic Square. All Magic Store apps and DeFi are community vetted for quality assurance.
So, why use DeFi in the first place?
Here we will explore Automated Market Makers (AMMs) and DeFi loans to understand their use cases and benefits.
DeFi Loans
DeFi loans have become increasingly popular for a number of reasons:
- Un-biased - Anyone can borrow funds; there is no denying anyone a loan based on income, financial situation, or any other information. All the borrower must do is designate collateral funds to be held until he/she returns the loan + interest.
- Cheap - DeFi loans are much more cost-effective because no banks or middlemen are involved: smart contracts dictate and carry out the terms of the loan and ensure that each side carries out their side of the deal.
- Fast - Because there are no middlemen in the DeFi lending process, the process is altogether much faster and more cost-effective for both parties involved.
The benefits of DeFi lending are far-reaching for both the lender and borrower and blockchain technology ensures complete transparency of each transaction. Popular lending platforms include Aave and Compound.
AMMs
Automated Market Makers create liquidity pools and trade currencies instantly based on a supply/demand ratio of coins in the pool. Some popular services include Uniswap, SushiSwap, Pancake Swap, Curve, and Bancor. This model replaces the traditional “order book” exchange model where buyers and sellers set their prices and then wait for a price match from another buyer/seller.
Instead, AMMs deploy smart contracts to mediate currency exchange between the buyer and seller. This creates a more streamlined trade.
Uniswap uses a simple model to determine the rate of exchange between two currencies: x*y=k (x and y are two different cryptocurrencies, k is a constant).
Liquidity providers
To create liquidity, AMMs rely on liquidity providers to stake equal values of two currencies into a liquidity pool. Liquidity providers thereafter receive a percentage of transaction fees for each trade involving their staked currencies.
Using liquidity pools
Instead of using centralized exchanges, users transfer coins from one currency to another via decentralized AMM liquidity pools. Because you don’t need to wait for a price match, trading is fast. Also, since everything is done via smart contracts on the blockchain, this method is more secure than centralized exchanges.
How do you know which app to use when?
The difference between apps is nuanced. Why should you use SushiSwap in one instance and Bancor in another? The distinctions are sometimes difficult to discern and require extended research.
Most people don't have time for this.
Let Magic Square guide you
Magic Square's integrated, community-vetted DeFi is changing the crypto investment game as we know it. Everyone benefits: users save time, energy and make the most of their investments; app developers gain access to the liquidity they need to run their apps better. The results will no doubt be influential on the crypto space as a whole.
Final Thoughts
DeFi solutions have the potential to help tons of people reach the services they need quickly, efficiently, and cost-effectively. AMMs and DeFi loans are just two examples of how useful DeFi can be. Magic Square is helping more people reach the best possible solutions by creating a situation in which users don't need to spend time choosing which DeFi services to use and setting up the service. Instead, everything is integrated, simplified, and at your fingertips on Magic Square. Follow our blog to discover more innovative feats that Magic Square is accomplishing in the crypto space, and be sure to join our social community to stay up to date on project developments and opportunities.
