1. What is DeFi?

Introduction to DeFi (Decentralized Finance) Tokens

What is DeFi?

DeFi refers to financial services built on public blockchains and smart contracts, aimed at creating a financial system without centralized institutions, allowing anyone in the world to engage in financial activities anytime and anywhere.

Main Advantages of DeFi

1. Trustlessness and Permissionless: DeFi makes financial services trustless and permissionless, eliminating the main drawbacks of interacting with centralized services, such as lack of transparency and accountability, as well as custodial risks.
2. Open Source and Transparency: One of the core principles of DeFi is that everything should be open source, which includes auditing code, allowing anyone to explain how the system works, and encouraging the community to recreate (or "fork") protocols.

Major Applications of DeFi

1. Stablecoins: Stablecoins are digital assets pegged to fiat currencies, maintaining price stability. Major types include fiat-collateralized stablecoins (such as USDT, USDC), token-collateralized stablecoins (such as Dai), and algorithmic stablecoins (such as AMPL).
2. Lending: DeFi protocols provide platforms for users to borrow assets; Maker, Aave, and Compound are prime examples of lending platforms.
3. Synthetic Assets: DeFi platforms allow users to issue and trade synthetic assets in a trustless manner, such as the Synthetix platform.

Legal Substance and Regulation of DeFi

1. Legal Substance of Stablecoins: Fiat-collateralized stablecoins and traditional tokens may not be considered securities, but the legal issues concerning token-collateralized stablecoins and algorithmic stablecoins are more complex.
2. Algorithmic Stablecoins: Algorithmic stablecoins maintain price stability by automatically adjusting the money supply through smart contracts, examples include AMPL, ESD, and Basis.

Conclusion

DeFi provides financial services in a decentralized manner, characterized by being trustless, permissionless, open source, and transparent. Its major applications include stablecoins, lending, and synthetic assets. However, challenges remain regarding the legal substance and regulatory issues of DeFi.

2. Who Founded DeFi?

Decentralized Finance (DeFi) does not have a specific founder, as it has gradually emerged with the development of blockchain technology and tokens. Here are a few key events and figures that have made significant contributions to the development of DeFi:

1. Satoshi Nakamoto: Invented Bitcoin in 2009; although Bitcoin itself may not be classified as DeFi, its creation was a key driving force for the entire token industry, of which decentralized finance is a part.

2. Vitalik Buterin: Launched Ethereum in 2015, which is the default blockchain for most top DeFi protocols. Ethereum’s Turing-complete programming language and ERC20 standard make it a platform suitable for building smart contracts.

3. Rune Christensen: Created MakerDAO in 2014, a protocol allowing the creation of the decentralized stablecoin DAI. MakerDAO is one of the pioneers in the DeFi space.

4. Hayden Adams: Launched Uniswap in 2018, a decentralized exchange (DEX) built on Ethereum that utilizes liquidity pools and automated market makers (AMM) to facilitate trading.

These individuals and events have contributed significantly to the development of DeFi, but DeFi itself does not have a single founder.

3. What Venture Capitals Invested in DeFi?

According to the provided information, here are the venture capital firms that have invested in DeFi tokens:

1. Dragonfly Capital: Invested in DeFi projects like dYdX, Maker, and Compound.
2. Paradigm: Invested in DeFi projects like Uniswap, dYdX, and Yield.
3. Polychain Capital: Invested in DeFi projects like Chainlink, AAVE, YFI, and Synthetix.
4. Pantera Capital: Invested in DeFi projects like 0x and Augur.
5. Electric Capital: Invested in DeFi projects like dYdX and Maker.
6. Framework Ventures: Invested in DeFi projects like Synthetix, Uniswap, and Chainlink.
7. ParaFi Capital: Invested in DeFi projects like Uniswap, Maker, and Kyber Network.
8. Blockchain Capital: Invested in DeFi projects like 0x and UMA.
9. IOSG Ventures: Invested in DeFi projects like Synthetix, MakerDAO, KAVA, and 1inch.
10. Hashed: Although specific investments were not listed, it mentioned focusing on DeFi and Web3.0 sectors.

These firms play an important role in the DeFi market, investing in several well-known DeFi projects.

4. How Does DeFi Work?

DeFi (Decentralized Finance) tokens operate primarily based on blockchain technology and smart contracts. Here are their main operational mechanisms:

1. Blockchain Foundation: DeFi applications mainly run on blockchain platforms, such as Ethereum. The blockchain is an immutable distributed ledger that uses cryptographic techniques to ensure the security of transaction records.

2. Smart Contracts: Smart contracts are applications that utilize the blockchain's distributed ledger and cryptographic techniques to operate. These contracts contain explicit execution terms and conditions, automatically executing the financial transactions specified in the contract based on the program code.

3. Decentralized Trading: DeFi allows users to engage in various financial activities, including trading, lending, and insurance, directly peer-to-peer, eliminating traditional third-party institutions such as banks and brokers.

4. Transparency and Security: The blockchain acts as a public and transparent ledger for DeFi, allowing anyone to audit or verify transactions, enhancing fairness and trust. The automatic execution of smart contracts ensures strict conditions for financial activities, minimizing risks such as bad debts and human errors.

5. Diverse Investment Channels: DeFi has revolutionized investing through tokenization; real-world assets ranging from real estate to art appear as tradable blockchain tokens, democratizing investment and improving liquidity in traditionally stagnant markets.

In summary, DeFi tokens achieve decentralized, transparent, and secure financial services through blockchain technology and smart contracts, providing fast transactions and diverse investment channels.