DeFi Activities

What are AMMs?
AMMs are decentralized exchanges that use smart contracts and mathematical algorithms to enable permissionless, automatic trading of digital assets—without traditional order books or centralized intermediaries.

How do they work?

• AMMs use liquidity pools: users (liquidity providers) deposit equal values of two tokens into a pool.

• The AMM algorithm (like Uniswap’s x*y=k constant product formula) sets token prices based on the ratio of assets in the pool.

• Traders swap tokens directly with the pool, and prices adjust automatically after each trade.

• Liquidity providers earn a share of trading fees as an incentive.

Key benefits:

• 24/7, global, permissionless trading

• No need for centralized market makers

• Anyone can create new token pairs and provide liquidity

• Transparent and efficient price discovery

Examples: Uniswap, Curve, Balancer, SushiSwap

What is it?
DeFi lending and borrowing platforms allow users to lend or borrow crypto assets directly through smart contracts, without banks or intermediaries.

How does it work?

• Lenders deposit assets into a lending pool to earn interest.

• Borrowers provide crypto collateral to borrow other assets from the pool.

• Smart contracts automate the process, setting interest rates based on supply and demand and enforcing collateral requirements.

• Most loans are over-collateralized: borrowers must lock up more value than they borrow, protecting lenders from default.

Key benefits:

• No credit checks or approval needed

• Global access, 24/7

• Earn passive income as a lender

• Transparent, open-source protocols

Risks:

• Liquidation if collateral value falls

• Smart contract vulnerabilities

Examples: Aave, Compound, MakerDAO

What are they?
Synthetic assets are blockchain-based tokens that mimic the value and behavior of real-world assets (stocks, commodities, fiat currencies) or other cryptocurrencies.

How do they work?

• Users lock up collateral (usually crypto) in a smart contract to mint synthetic tokens.

• The value of these tokens is pegged to the price of the underlying asset, tracked via decentralized oracles.

• Synthetic assets can be traded, used for hedging, or to gain exposure to assets not natively available on-chain.

Key benefits:

• Access to a wide range of assets without owning them directly

• 24/7 trading, fractional ownership, and global accessibility

• Enables complex financial products (like leveraged or inverse tokens)

Examples:

• Synthetix (SNX): Mint and trade “Synths” representing fiat, crypto, stocks, and commodities.

• dYdX: Decentralized derivatives and perpetual contracts trading.