DeFi & DEX: The Mechanism and Potential of the New Finance System

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1. What is DeFi?

If we translate the word “DeFi” literally, it means “Decentralized Finance.”

What’s the Difference between traditional finance and DeFi?

In today’s financial transactions, financial companies, such as banks and virtual currency exchanges intervene in our transactions, so that we can ensure credibility and security of our money. To do so, we have to pay extra cash to those companies for intermediate fees.

2. Axie Infinity Case Study

Axie before the appearance of DEX

Take Axie Infinity as an example. It recently announced its own DEX “katana”.

Appearance of DEX “katana”

  1. Convert SLP to WETH there
  2. Buy Axie right away

What you can do with katana

Katana can also convert to $-USDC (1 US dollar = 1USDC), which always stays at the same price as US dollars. (It’s called stablecoin.)

3. What is yield farming?

  1. And plant the seeds in the katana network
  2. You can harvest fruits called “RON”

From PoW to PoS

Virtual currencies have been PoW (Proof of Work). , The more work(=mining) we do, the more we can get paid. This has led to a sharp rise in gas prices.

4. “Smart contract” that supports DeFi

It’s been a long story, but it is smart contracts (automatic transactions) that support these DeFi.

5. DEX vs CEX

Now some people may feel that the centralized exchange (CEX as opposed to DEX) is evil, but DEX also has its weak points. Both of them have advantages and disadvantages.

6. Summary

DeFi has a strong speculative side at the moment.



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