Once you pay off your loan on Aave, the smart contract will automatically release your collateral back into your wallet. The smart contract will automatically charge interest payments and monitor the value of your margin balance.
If you want to use a DeFi dApp, all you need is to connect your crypto wallet to take advantage of various services.įor example, if you’re a DeFi user and want to take out a loan from the Aave borrowing and lending protocol, you’d first deposit crypto collateral into a smart contract and receive borrowed funds in your wallet. Instead, these protocols recognize users by their unique crypto wallet addresses. First introduced on Ethereum (ETH), smart contracts are blockchain-based programs that can automatically fulfill commands when specific criteria are met.ĭeFi also doesn’t ask users for KYC (know-your-customer) information. Instead of relying on bankers or brokers to verify transactions, dApps (decentralized applications) in DeFi use smart contracts. This includes allowing users to deposit funds for interest, borrowing and lending, and more. DeFi is short for “decentralized finance,” which refers to a new financial industry within Web3.ĭeFi protocols offer users all the financial services you’d expect from a bank or brokerage house, except there are no centralized authorities.
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