DeFi, NFTs & Web3
DeFi, NFTs and Web3 are uses of blockchains that go beyond sending payments. These guides explain decentralized exchanges, lending apps, NFTs and airdrops. Decentralized finance, or DeFi, runs trading and lending on smart contracts instead of through a bank or broker. NFTs are unique tokens that record who owns a digital item. Learn how Aave, Compound, Bored Ape Yacht Club and The Sandbox work. Many of these projects are experimental: they can be hacked, abandoned or copied by scammers, and often no one can reverse a mistake.
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How do trading and lending work without a bank?
Smart contracts hold the funds and apply the rules, so no bank or broker is involved. Aave and Compound are lending apps that were first built on Ethereum.
What are NFT collections and virtual worlds?
NFT collections are sets of unique tokens, and some online worlds use tokens for land and in-game items. These guides also explain why some NFTs sold for high prices.
How do you use DeFi and NFTs safely?
Use a wallet you control, keep your seed phrase private and check every approval you sign. These guides cover wallet basics and what happens if you lose your keys.
Key terms
- Gas Gas is the fee paid to process a transaction or run a smart contract on Ethereum, priced in gwei and paid in ETH.
- LPs Short for Liquidity Providers, LPs provide their tokens as liquidity on DeFi exchanges apps in exchange for receiving a percentage of the fees generated by…
- ICO An ICO or Initial Coin Offering is a cross between an IPO (Initial Public Offering) and a crowdfunding campaign for a blockchain-based project, offering the…
- IBC An acronym for inter-blockchain communication, IBC is the set of technologies that allow blockchains to communicate with one another.
- Cryptokitties The first viral use-case of non-fungible tokens (NFTs), Cryptokitties is a game where users collect and breed digital cats.
- ERC-20 (Ethereum Request for Comments 20) ERC-20 is the technical standard most tokens on Ethereum follow, setting the functions every token must offer so wallets and apps can handle them alike.
- Rug Pull A rug pull is a crypto scam where a project's creators collect investors' money, then abandon the project and keep the funds.
- Phishing Phishing is a scam where criminals pose as a trusted company or person to trick you into giving away passwords, card details or wallet keys.
Frequently asked questions
What is DeFi?
DeFi, short for decentralized finance, means financial services such as trading, lending and borrowing that run on smart contracts on a public blockchain instead of through a bank or broker. Many DeFi apps run on Ethereum, and you use them from your own crypto wallet.
What is an NFT?
An NFT, or non-fungible token, is a unique token on a blockchain that records who owns a specific item, such as a piece of digital art or an in-game object. Unlike bitcoin or ether, one NFT cannot be swapped like for like with another. Many NFTs are hard to sell, and their prices can fall sharply.
What is Web3?
Web3 is a name for an internet built on blockchains, where people hold tokens and digital items in their own wallets instead of relying on one company to keep them. It covers DeFi, NFTs and decentralized apps. Many Web3 services still depend on ordinary companies and websites, and many projects are experimental.
What is a crypto airdrop?
An airdrop is a free distribution of tokens to wallet addresses, usually to promote a new project or reward early users. A real airdrop never needs your seed phrase. Unexpected tokens that send you to a website to claim them are a common scam, so do not connect your wallet to sites you do not trust.
What are the main risks of DeFi and NFTs?
Smart contracts can have bugs that attackers exploit, projects can be abandoned or turn out to be scams such as rug pulls, and prices can fall sharply. There is usually no customer support that can reverse a mistake. Never share your seed phrase, and check every transaction your wallet asks you to approve.
