DeFi Series – Webinar 3 – The DeFi Use Cases (DEX, Lending)

1. DeFi Use Cases DEX & Lending DeFi Series: Episode 3 RAVI CHAMRIA

2. Topics To Be Covered Today We will cover two of DeFi's significant use cases: DEX & Lending in this session What is a DEX? How it works? Types of Decentralized Exchanges The benefits of DEX Vs. CEX Risks associated with DEX uses DEX trading volumes & a few top names Introduction to DeFi lending and borrowing How a DeFi Lending platform work? How lending platforms help in financial services? Popular DeFi lending & borrowing platforms

3. A quick recap of what we covered previously Episode 1: Basics of DeFi • Evolution of Finance • The idea of Defi • CeFi Vs DeFi • Core construct of DeFi Ecosystem • Uses/Benefits of DeFi • The concept of Smart Contracts, Oracles and dApp Episode 2: DeFi Primitives   • Concept of transactions • Equity, Utility, and Governance Tokens • NFTs and It's token Standards • Custody & Escrow Services • Burning, Minting, and the Bonding Curve • Staking Reward & Staking Penalties • Asset swapping • Collateralized and uncollateralized loans

4. Moving into today's first topic: a DEX

5. What is Decentralized Exchange (DEX) A DEX is a P2P marketplace where users can trade cryptos in a non-custodial manner without the need for an intermediary to facilitate the transfer and custody of funds. DEX substitutes centralized intermediaries with blockchain-based smart contracts that facilitate the exchange of assets on meeting certain pre-agreed conditions. DEXs offer complete transparency into the movement of funds and the mechanisms it follows. Sophisticated financial products can be built as a result of permissionless composability offered by a DEX.

6. How Does DEX Work? • DEXs use “smart contracts” and on-chain transactions to execute orders on a blockchain. Taker Smart Contract Maker • Order books record every transaction that happens on this blockchain. If the taker is ready to accept the order respective HASH is sent to Smart Contract Funds are transferred once it is verified, and fee will be deducted • DEX users typically pay two types of fees - network fees and trading fees. • The network fee is paid to cover the gas costs. Wallet Server • The trading fee is collected by the token holders, liquidity providers, and others on the underlying protocol. Order Book • DAOs govern the protocol of administrative rights, and they’re made up of stakeholders who vote on vital protocol decisions. Transaction Que

7. Types of Decentralized Exchanges Decentralized Exchanges Automated market makers Order book DEXs DEX aggregators On-chain order books Off-chain order books • AMM DEX: Uniswap, Pancake swap • Order Book DEX: – Off-chain order books: dYdX – On-chain order books: Gridex, Clober • DEX aggregators: 1inch, Matcha, Paraswap **Loopring is a hybrid DEX with both AMM and order book facility

8. Benefits of a DEX vs. CEX DEX CEX Trading Peer-to-peer basis Centralized intermediary KYC Often not needed Indispensable Security Backed by blockchain More fragile to attacks Convenience Problematic for newcomers User-friendly Private keys Kept by users Owned by exchange Tokens Far more options Limited selection

9. What Are the Risks & Considerations of DEX? • Smart contract codes must be robust or else vulnerabilities may exploit transactions. • Poor liquidity conditions of some DEXs can result in slippage and subpar user experience. • Low-quality token bridging is another risk that can be mitigated by DEX marketplace builders. • DEX matching engines hosted on centralized servers may pose centralization threats. • Arbitrageurs and MEV bots can infiltrate the blockchain by paying higher gas and network fees and exploiting inefficiencies. • Using DEX may become expensive and sometimes impossible when there is network downtime. • Compared to CEX, early buyers of tokens on DEX may face quality or malicious token issues. No support is available too. • DEXs may encounter scaling issues, especially the ones hosted on Ethereum L1.

10. DEX Total Trading Volume Ranked by DEX by Volume Rank Project 7 Days Volume 1 Uniswap $4,968,874,593 DEX 7 days volume 2 Pancakeswap $1,327,822.482 3 Dodo $761,038,776 $9B Volume last 7 days 4 Maverick $519,369,309 5 Curve $357,169,501 6 Balancer $170,334,247 7 Quickswap $153,214,869 8 Sushiswap $90,364,087 9 0xAPI $58,282,389 10 thena $32,826,255 Source: Dune Analytics

11. DeFi lending is a process that enables crypto loans in a trustless manner. Users are allowed to enlist their crypto assets available for lending purposes without the involvement of intermediaries. What is DeFi Lending (And Borrowing) On the other hand, borrowers can utilize this by taking loans on the decentralized platform, paying interests. This direct transaction between the lender and the borrower is known as P2P (peer-to-peer) lending and borrowing. These lending pools are universally accessible, without depending on personal information like credit scores or socioeconomic background.

12. The Principle of Lending Platforms Is Simple First, the protocol collects users' funds into "money markets," and then uses them to issue loans to other users via smart contracts. The lending platform doesn't buy or sell crypto assets, they just provide loans of money.

13. For The Lender & The Borrower, The Process Is Like This For the creditor, the process is as follows:  For the borrower, the process is as follows: The customer chooses the credit DeFi-platform. The user then locks their assets into a smart contract on that platform to make it available for borrowing. When someone takes out lending denominated in these assets, the smart contract issues "percentage tokens" to the lender, for example, in Aave these tokens are called aTokens, while in Maker they are called Dai. Percentage tokens the user can exchange for bitcoins, ether, or another crypto at any time and withdraw or reinvest them. Funds locked in a smart contract (money market) can usually also be withdrawn at any time. The user chooses a credit DeFi-platform. The user then needs to pay a pledge, which is usually larger than the loan itself, for example, on the Compound platform, the minimum pledge is 133%. Excess collateral is needed to protect against the ultra-high volatility of the cryptos, that is, to have time to sell the collateral before its value falls below the actual value of the lending itself. When a pledge is locked in a smart contract, the borrower receives funds denominated in the cryptocurrency or fiat money they want. If the value of the pledge falls (concerning the value of the loan) before repayment, the borrower must increase it. If it does not happen, the pledge is usually put up for public auction. At the end of the lending term, the borrower must repay it. If this does not happen, and in this case, the pledge is put up for auction. • • • • • • • • • • •

14. Here's A Clean Diagram Of This Process Deposit crypto assets as collateral Deposits fiat currency Obtain crypto loans Borrower Lender DeFi Lending Platform Repay the loan with interest Received collateral back after repayment Receives funds back with interest (Passive money)

15. How Do DeFi Lending Platforms Help In Financial Services? They democratize public access to finance and allow simple loan acquisition even for those who would not get a loan from a usual bank. The process is simple and faster. DEFI LENDING PLATFORMS IN FINANCIAL SERVICES SECTOR Consumer Lending Process in Bank Client request to bank Bank Credit Scoring Credit Score Calculation Credit Approval Bank of receiver/seller Receiver /Seller Cash Loan Process on DeFi Lending Platform Borrowers make a request for crypto or fiat currency DeFi lending platform Borrower locking a crypto 2 Credit scoring by DeFi platform KYC or history Reply for borrower

16. Popular DeFi Lending & Borrowing Platforms (I/II) 88mph 88mph lets you lend your crypto assets at a fixed interest rate. It's non-custodial and fully on-chain. By using 88mph, users get MPH tokens linearly vested over the deposit duration..   Aave Let you earn interest on deposits & borrow assets on multiple chains. The loan-to-value (LTV) of Aave ranges from 50% to 90%, depending on the duration of your loan. So, you will need to provide 50-90% collateral for the borrowed sum.   Maker DAO It's a lending platform that enables borrowing and lending among users through the use of stablecoin. Maker DAO’s Collateralized Debt Position (CDP) ratio is 150%, meaning that you need to provide $30,000 collateral for a loan of $20,000. Abracadabra A lending platform that uses interest-bearing tokens (ibTKNs) as collateral to borrow a USD pegged stablecoin (Magic Internet Money - MIM), that can be used as any other traditional stablecoin.

17. Popular DeFi Lending & Borrowing Platforms (II/II) Alchemix Alchemix is a future-yield-backed synthetic asset platform with flexible instant loans that repay themselves over time and community DAO. The platform advances your yield farming via a synthetic token representing a fungible claim on any underlying collateral in the Alchemix protocol Compund Enable algorithmic, efficient money markets on the Ethereum. On Compound, the user then needs to pay a pledge, which is atleast 133% larger than the loan amount. BENQI BENQI is a decentralized finance protocol built on Avalanche. It consists of the BENQI Liquidity Market (BLM) and BENQI Liquid Staking (BLS). Liquity Liquity is a decentralized borrowing protocol that allows you to draw interest-free loans against Ether used as collateral.

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