So just leave a comment in the comment section below and you might be chosen for this giveaway anyway that's it. I hope you guys enjoyed the video now, as many of you probably know defy, has become the hottest trend here in crypto land. This is actually the continuation of a trend that's been going on for the better part of about two years, but this whole dphi thing has recently surged to an entirely new level everywhere. I turn crypto influencers blockchain content creators. Anyone who's really in the space, is weighing in on defy and publishing their own strategies for how best to take advantage of this explosive new trend season defy experts have been publishing threads on how essentially people can earn up to a hundred percent APR lending on these New defy platforms, it may boggle the mind how this is possible, that you could double your money simply lending out assets specifically assets that don't even have volatility like USD pegged stable coins, we're gon na get into all that, and more and what's so exciting and attractive. Also what's so risky about these new defy trends and hopefully, if you're, uninitiated or you're looking to learn more about defy this video we'll bring you a ton of good information. If you're excited for this video, do me a favor and hit that, like button and let's begin, some of these gains that people are experiencing are shocking and sort of remind me of crypto in 2017, in the altcoin space stuff, just didn't necessarily add up, and at Least, in the case of 2017, it ended up being a bubble now I'm, not saying that D 5 right now is a bubble, but right now, I'm saying it's an exciting time in segments of the crypto industry, and for that reason you need to know all about It in following on the theory that this is like the altcoin season of 2017 in the dphi space.
This means two very specific things. Firstly, pumps are coming that's right. Pumps are definitely coming to this space and there's going to be a lot of outsized profits that are being made within this sector of crypto over the next few weeks months years and, of course, with those exacerbated pumps, comes an increased risk of crashes. Other types of nefarious activity like scams and bugs and exploits all those things we're going to cover and please bear in mind throughout this episode – I'm, not a financial advisor, and this is not financial advice. This is just me synthesizing. A lot of complex information about what's, going on in the dphi space and serving it up to you in a way that's easy to comprehend and internalize. Today, we're gon na be focusing on one of the most important players in this new explosive trend and defy and that's of course, compound now, if you're deeply engaged in the defy space you'll know all about compound, but for those who are not so initiated or maybe Have heard about it, but still have questions we're gon na go through how compound works and some of the more gamified strategies that people have been using to maximize their ROI they're, yielding and they're mining of these new governance. Tokens there's a lot to take in here. So we're gon na go one step at a time compound dot. Finance also known as compound, is a brand new platform and protocol built on etherium, which allows for money markets to happen.
This is an awesome article that I'm gon na walk you through. That explains compound. In simplistic terms, and then we can talk about some really advanced behaviors, that people are doing built on top of this system. First and foremost, compound finance is an algorithmic open source protocol that allows for the creation of money markets on the ethereum blockchain like we've, been saying a money market is where people can lend or borrow, and there are different types of interest rates associated with each behavior Money markets are pools of tokens with algorithmically determined interest rates that are based on the supply and demand of that token. In a given money market, participants of the protocol can largely be placed into two groups: suppliers and borrowers, meaning either you're supplying new liquidity to the network or you're borrowing. Existing liquidity from the network now it's important to realize you're, not actually, borrowing and lending from a specific person, you're borrowing and lending from the platform itself. There is a central body here, creating pools of money. Now that comes with some added bonuses with the compound Finance protocol, a user's token is not matched and lent to another user. Instead, those wishing to lend will lend the protocol itself. This lending mechanism also means that users that do decide to supply funds to the protocol are able to withdraw their tokens at any time. You can open and close these flash loans at any moment. They do not have to wait for a specific loan to mature.
In order to recover and funds, so while you can open and close at any time, the market moves in real time and everybody gets the same rates that are algorithmically determined now, as far as borrowing tokens is concerned, with compound finance protocol users are able to borrow An asset directly from the protocol by simply specifying the asset they wish to borrow each money market will also have a floating interest rate that determines the cost of borrowing that asset. The compound finance protocol also enforces a rule that stipulates a user's account must have a balance that more than covers the amount of borrowed funds, so you have to be fully collateralized here. Essentially, you can only borrow a certain amount based on the amount of assets you already have in your account. You can't borrow more than you actually have and that's why you don't need to trust the counterparty, because the counterparty at any time has the collateral already committed in the network that they actually cannot default on their loan. Instead, if their account falls out of balance with the liquidation limit, their account might just be liquidated and those funds return to borrowers. This rule is known as the collateral ratio and a user cannot initiate action, for example, borrowing or withdrawing assets. That would bring a user's account value below that collateral ratio. This is the way the code and math prevents people from defaulting on their loans. It'S. Not about evaluating how trustworthy you are as a person but it's, a simple evaluation of whether or not you have the assets to cover the loan.
The compound finance protocol also uses a price Oracle which keeps track of the current exchange rate of each supported digital asset. On the platform – and, of course, we know all about price, Oracle's and they're so critical here in the decentralized finance world, bringing a lot of excitement and hype to projects like chain link and other decentralized Oracle's, as they are critical to this entire process. Now the interest rate is one that is determined algorithmically, which is based on the supply and demand of the asset in a given money market. When there is a shortage of liquidity, low supply, high borrowing demand, then the interest rates will likely be high because there's a lot of people who want to borrow that asset, so more and more, will accept a higher interest rate. Obviously, the opposite is true. If there's not a lot of demand, then people probably won't, be paying too much interest to borrow that asset. The interest rate mechanism differs to alternative peer to peer lending platforms, where individual suppliers or borrow usually have to negotiate terms over the interest rates of loans. Now, it's also possible that if your account falls out of balance, meaning that the collateral you supplied goes down in value, meaning the asset you borrowed goes way up in value and your collateral can no longer match that value to the right collateral ratio. This is a big reason why there's a lot of risk here and your account can be liquidated.
That is one of the critical differences here between lending some money into a bank or borrowing some money from a bank and doing this in the defy ecosystem. Is that code is very much so unemotional and if you fall outside the lines of the rules, your account can be liquidated to prevent losses from being incurred. On the other side, this is unfortunately the way it has to be. It can lead to some seriously negative results if you're not very sure of the risk of the loans you're taking on. For this reason, we see a ton of borrowing and lending action happening around stable coins, because the volatility on the underlying assets is usually within a couple of percent. You really don't see tether fall much below 99 98 percent of its normal value on any given day. In the end, these underlying assets are not supposed to be as volatile, and that will allow for people to have more security in the loans. But, as you can see, there's a lot of layers to this, if you're lending out aetherium and you're right about at your collateral ratio and then your aetherium just drops tremendously in value, then the monetary value of your collateral could have dropped tremendously. Putting you in danger of being liquidated, these are just some of the reasons why the risk is significantly higher in the dphi space and why significantly higher yields on interest rates are possible because there is existential risk here.
So now that you understand what compound is let's? Take a look at their markets, so you can start to see this in real time here you can see they have a bat market in ether market, a USD coin market, which is the coin of coin base. Tether of course die. The algorithmically pegged stable coin of the maker, Dow ecosystem, 0ax auger, wrapped BTC and legacy die now. Each one of these has a certain gross supply of the amount of money, that's actually locked up in this market. As you can see, bat has about 261 million dollars. Locked up in it and there's a good reason, because people are making a 24 point: nine 3 interest rate as an annualized percentage rate here on this market. That means people really want to borrow this. However, if you borrow it, you're gon na owe a thirty two point: six percent interest rate as an annualized percentage yield now compound finance just changed the whole dynamic of this borrowing and lending mechanism by introducing their own governance token comp now this comp token started off Really, as not holding an inherent price they're, not selling this token they're simply awarding it to people who are borrowing and lending creating liquidity on their network and in exchange for creating that liquidity on the network. People are receiving this comp governance token. Now. The reason why this comp governance token is so important is that there's, a variety of proposals that are now being taken over by the community to implement true decentralization here, they're, allowing the community itself to vote on different adjustments to the way that this platform operates.
For example, here are the recent proposals that have been proposed on the comp Network: adjusting comp distribution, speed to match aetherium Network block time and increasing higher risk assets, Reserve factor so they're, saying hey. We want the distribution speed to match the etherium block time. Why? Because the intima block time is how these actual rewards are being distributed, it's built on aetherium, so they need aetherium blocks to make this whole thing move and then also they're, saying hey. We want to increase the higher risk asset reserve factor, meaning they want these higher risk assets to have a higher collateralization ratio, meaning less risk for the actual lender and a higher burden for the borrower to be able to borrow those assets. And you can see that this is cued, however, has not been voted on. You can see here that the set reserve factor for CUSD T to 20 was executed on June 25th that's literally today. So you can see that these proposals are actually very important and significant. As to how the platform operates and handles various different aspects of its money markets, so having a voice here is significant now putting a price on that voice is a little trickier to do. But you know a free market is a free market and it will find its price. We saw, as the comp token hit the market that it rose dramatically from sixty four dollars all the way up to three hundred and sixty dollars pretty much before dipping that back down to 214 and now up again to 220.
This is moving like a rocket ship and the reason is because there's so much excitement around this platform and now adding in this layer of mining. This governance token completely changes what's going on in these money markets. Now you might be asking: how do I take advantage of it? So here you can see I'm on insta dab, essentially to get where I am. You have to create an account, and then you have to load it up with some funds. Bear in mind that you're gon na need eath for all the transaction fees, and so you want to keep a little ether on the side. So you can power all these fees and I suggest you guys start with dye that's. Definitely the most strategic way to start and what you want to do is you want to deposit that dye into your compound account, and so it goes first into your dashboard and then here's my dashboard and then it'll go into your you click on compound up here And you can get it into your compound account, and here you see, I donated yeah whatever like 180 bucks, and you want to click on this tool right here, which is the maximize comp mining tool. Now this is where you can really start to try to game. Five system and if you think the comp token is gon na go up, you can mine some more comp this way. Obviously, this is something that a lot of people are now focusing on.
So you're, not gon na be the first ones to the party, but this is potentially a viable strategy. If you think comp could go onward and upward much higher and you really want to get your hands on some comp, this is an interesting way to do it by lending and borrowing. This tool essentially combines three different actions into one. It takes my collateral here of the die and it uses the collateral to borrow we're gon na borrow tether because it's more beneficial, so we're gon na borrow us DT as debt. Then we're gon na swap that us DT back in to die and we're going to deposit the die as collateral, and so what it's doing here is, even though I only have 184 die and the actual collateral ratio. The collateral factor here is 0.75, which means I should only be able to borrow 75 of what I have here and, if you're good at math. That would mean you know less than 150 bucks here when you click on this maximize comp mining. What you'll notice is the amount of USD C or the amount of tether? I can oh here, so I can actually get it up to about 550 and that's, something I can borrow off of one hundred and eighty four dollars and your one must be wondering. How is that possible and that's because I'm lending something that I've borrowed, which is sort of in its nature, a leveraged transaction? And so this tool really allows you to? As you can see, it says: folding your possession about Forex, you can take your 180 bucks and then I can, you know, borrow, say five hundred and fifty so now my total position here is seven hundred and thirty, and I have this this five hundred and fifty That I've borrowed so really I end up with five fifty plus seven thirty three collateral, so you can see that this is a pretty powerful tool here, where I end up with a whole lot on the books with a whole lot less than that in collateral.
Now there are a ton of risks here you can see here. The status is extremely risky here. You definitely don't want to beat this close to your max 74 0.7 out of seventy five, because there are potentially different ways that these stable coins can fluctuate in value. On any given day, and that would mean that you would end up owing more or the collateral factor could change. This is not a passive position. You want to take this isn't, something you just set it and forget it, especially if you're running this high of collateral factor or this high of a debt ratio. This is way too risky. I would not recommend it but say you wanted to do like 300 that's. Still pretty risky, maybe 250 noops, 250 and here you'd end up with something you know around fifty seven personal. I do 250 here I'm at 57 percent. I get 433 die and 250 tether and that's actually quite a bit right of liquidity, I've created anyway guys. As you can see, this is not a toy. This is not something you should just play around with. This is a very powerful tool. It does a lot here and you should really take some time to understand what's happening and the different ways that this can turn bad on. You now to offset the risk of this comp token going down in value. The real galaxy brains among us are going to FTX, which is a futures trading exchange, and they have now a market where you can short comp if you're constantly earning comp and you're actually putting it all on FTX with a 1x leverage, short you're, essentially always locking In your gains, you won't make money if comp goes up, but essentially what you're doing is you're forever locking in your current net value of comp.
So if I lock 300 of comp into this with a 1x short, even if the price of comp goes down, my actual account value will remain the same. This works the same. If you do this with a 1x short leverage of Bitcoin, if you're doing futures for Bitcoin, you can lock in a 1x short and that will essentially shield you from volatility, you could even do that with your whole account and you would be completely shielded from volatility. You won't make money going up, but you won't lose money going down. So this is a really interesting way if you're really worried about this sort of comp token crashing that you could shield yourself from it. Yield farming through compound with the insted app method. Trying to make sure you don't over expose yourself on risk definitely make sure to evaluate the risks again. This is not financial advice, guys I'm, just explaining to you some of the crazy behavior that's been happening here in crypto land and then taking that comp and immediately putting it on FTX and shorting. That would be one way for you to sort of hedge. Your bets here, if comp does have a big price crash as it's still in a very early early stage and volatility is extremely high. So this is sort of the galaxy brain approach that I've seen being taken here in defy land, and I think it's just so fascinating to see a new technology, a new protocol, a new platform like compound allowing for these flash loans allowing for stacking flash loans.
Seeing data driven algorithmically, balanced interest rates and then now a governance token, which is creating its own surge of value and sort of offsetting. The risks of these actual loan programs it's it's a lot to take in but it's something that you need to start learning about, because this is, in my opinion, the beginning of the future of Finance. And although, if you really pace out and calculate out your gains that could come from this, you might find that those gains aren't worth the risk of participating. While you can get up to you know a 60 or above APR on any given day. Is that really worth losing all your funds, because we do know there is an existential risk here on the converse side, you have this amazing suite of intersecting tools, governance, tokens and values; algorithmically determine interest rates, it's, something that's, so exciting and new that I believe it's. Something that we should all start learning about, if not participating in at a very small level, just to start understanding how the whole thing works. Also, I wanted to touch base on this whole crypto dot, com situation, if you guys have been following crypto comm, recently, had a big scandal where their wire card AG, which is their card processing company filed for insolvency. They had a big accounting scandal and you know they just wanted to assure everyone that you know the Fiat funds are safe and, of course, the crypto funds are also safe, and you know they're going to be essentially doing everything they can to ensure the safety of Funds and they're gon na be transitioning to a new credit card processor, a new vendor.
Actually, so this morning they shut down wire card. In the UK, the EU UK cards are going to stop working, but all customers will receive 100 credit back to their crypto wallis. Within 48 hours and they're moving to a new vendor, so yeah we're gon na keep you updated on the situation. All in all, you know you can't always control what your business partners do. So I don't think this is necessarily the fault in any way of crypto. Calm but I'm curious what you guys think do you guys still trust crypto comm? Are you guys still using it? I personally have always been very impressed with their project, but this is some really unfortunate news. So we'll see how they navigate this situation, but yeah, like I said, I'll, be doing a full video sort of covering this whole situation and talking about its implications, as always, I'll do my best to get to the bottom of the situation and bring you some good Information, so is defy a bubble. This is a question that I think goes hand in hand with this. All of these different new tools and the excitement around the defy space I've heard reports that at conferences, blockchain conferences, pretty much all anyone wants to talk about is defy. So is this new rush of excitement kind of like the 2017 altcoin bubble? Is this a bubble right now, I think it's pretty hard to say one way or the other.
Whether defy is a bubble right now, it's so brand new. All of these concepts that it would be pretty hard for it to be in a bubble phase, yet that's, not to say that it couldn't become a bubble in the future or that there aren't plenty of projects that will fail in the space. Obviously, we know that it could easily become a bubble future and there are probably tons of projects that will fail in the space. But that said, this is a really really fascinating moment. Perhaps a golden era of cryptocurrency that is really the birth of this new decentralized finance phase and, as we know, finance is one of the biggest global industries, and certainly all of global finance is not here on the blockchain yet. So I still see a huge huge room for growth here, so to answer it. In short, no, I don't think D Phi is in a bubble yet, but I think it could mature into something like that in the future. But I'll turn the question back over to you. Do you think D Phi is a bubble? Do you think what's happening right now is sustainable? Do you think that it's too risky, or are you curious enough to want to try out some of these borrowing and lending schemes these yield farming schemes that the true Chad's are doing? What do you guys think and are you gon na play ball in this brave new world? Let me know in the comments section below, as always, I hope this video was both informative and enjoyable and, as usual, my name's Elio trades.
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