DeFi and Smart Contracts

First and foremost, let’s talk about DeFi. DeFi or decentralized finance is one of the newest and most interesting aspects of cryptocurrency. it stems from a capability that not all cryptocurrencies have, which is the ability to build contracts, known as “smart contracts,” right on the blockchain itself. A smart contract is essentially the same as a regular contract; the only difference is that smart contracts are governed by a program, rather than a person. This ensures that the contract is unbiased and transparent for everyone who is participating in it.

Minting Tokens

One of the most common uses for smart contracts is minting entirely new tokens on the blockchains of existing cryptocurrencies. This makes it possible for network users to build all kinds of different programs and utility tokens that can serve an endless number of applications. As an example, this is the technology which allows NFTs to be minted, traded and sold on a blockchain.

Wrapped Tokens

As we mentioned above, not all cryptocurrencies have the capability to interact with smart contracts. Some of these cryptocurrencies are widely used and hold – in many cases – more value and a greater trading volume than their counterparts that do have smart contract functionality. Bitcoin is a one of these cryptocurrencies, because it holds more value than any other crypto, but was invented before smart contract functionality had ever been thought of. This is where wrapped tokens come into play

A wrapped token is a token that exists on a smart contract enabled platform, which is pegged to the value of a cryptocurrency that exists outside of the platform. This capability allows for cross-chain use cases. The original crypto stays on its own issuing blockchain, where is locked in a digital vault. Once the crypto is “locked up,” a tokenized “wrapped” version of the crypto is minted on a blockchain that supports DeFi protocols. To unlock the crypto which is being held in the digital vault for collateral, its wrapped and tokenized counterpart must be exchanged and pulled out of circulation.

Wrapped Bitcoin (WBTC) is a great example of this, as it is pegged at a 1:1 ratio to Bitcoin, yet operates on the Ethereum network.

Uses for Wrapped Tokens

• Lending Wrapped tokens are mainly used to add fuel to DeFi; therefore, the first and most common application of wrapped tokens falls under the category of DeFi lending. Tokenized Bitcoin for instance can be used in lending protocols such as Aave and MakerDAO, among several other lending protocols on the Ethereum network. Lenders can even mint the DAI token on the MakerDAO platform, then lend the DAI that they minted at an interest.

• Decentralized trading Although this practice should only be reserved for experienced traders, it is possible to use wrapped tokens like wrapped Bitcoin to trade on margin within decentralized exchanges or decentralized derivatives exchanges.

• Providing Liquidity to DeFi Wrapped tokens can be used to provide liquidity to the ecosystems of development platforms, such as Ethereum. When tokenized versions of assets such as Bitcoin make their way to networks like the Ethereum network, the whole DeFi ecosystem benefits form the additional liquidity.

• Collateralized Crypto Loans DeFi loaning protocols by in large require the borrower to secure their loans with collateral, which is held in reserve until the loan is repaid. In the beginning of DeFi loaning, the most common asset used to collateralize a loan was ETH. With the advent of wrapped tokens, users were then able to collateralize their loans with wrapped Bitcoin, which is generally considered to be a more stable asset.

  Maker DAO, Compound and Aave all allow you to collateralize loans with wrapped Bitcoin.

Conclusion

There are Killer Whale Products for every level of trader. As you become more familiar with cryptocurrency, rest assured you will have plenty of room for growth within the Killer Whale Pod! If you continue making smart investment decisions, such as using Killer Whale Signals and Strategies , you can graduate from using the Killer Whale Free Strategy to services such as Killer Whale Elite Signals sooner than you know it!

Killer Whale Crypto

CHANGE THE WAY YOU TRADE