Understanding DeFi: The Roles, Tools, Risks, and Rewards of Decentralized Finance

Cover
Copyright
Table of Contents
Preface
	How Is This Book Organized?
	Who Is This Book for, and What Will You Learn?
	Conventions Used in This Book
	O’Reilly Online Learning
	How to Contact Us
	Acknowledgments
Chapter 1. Introduction to DeFi
	What Is Blockchain, Anyway?
	A Brief History of Accounting
		Single-Entry Bookkeeping
		Double-Entry Bookkeeping
	Massive Fraud, or the Status Quo Officially Doesn’t Work Any Longer
		Triple-Entry Bookkeeping
		Triple-Entry Accounting
	The Bitcoin Revolution: The First Blockchain Use Case
	Ethereum and the Smart Contract Revelation
		Smart Contracts
		Ethereum’s Innovation: Self-Executing Programming → Smart Contracts
	Tenets of Blockchain (According to Me)
		Open
		Shared
		Distributed
		Consensus
		Permanence (or Immutability)
		Anonymity
		Trustless
	What Does Any of This Have to Do with Finance?
		What Is Finance?
		How Money Flows in Banks and Economies
		Banks Are Using Your Cash—and Not Paying for It
	What Is Decentralized Finance, and Why Is It Important?
	Conclusion
Chapter 2. The Building Blocks of DeFi
	Protocols
	Platforms
		A Trilemma Solution
		Deployment Network
	Decentralized Applications
		Incentivized
		Decentralized
		Blockchain-Based Protocol
		Open Source (Maybe)
	A Word on Wallets
		Custodial Versus Noncustodial
		Are There Any Problems?
	Stablecoins
		Asset Versus Currency
		Enter Stablecoins
		Types of Stablecoins
	Governance Tokens
		Lending
		Derivatives and Synthetics
		Insurance
		Prediction and Betting
	Conclusion
Chapter 3. The Tools of DeFi
	Smart Contracts
		Wallets (Again!) and Oracles
		The Oracle Problem
	Stablecoins Versus CBDCs
		Incentivized Governance Tokens
		Wallets Part III: Hosted Versus Unhosted and the Purpose of Knowing Customer Identity
		True or False?
	Anti-Money Laundering and Know Your Customer
		AML
		KYC Versus AML
		What Is Required?
		What Is the Impact?
		US Regulation
	Custodians and Intermediaries
	Conclusion
Chapter 4. How to Build a DeFi Application or Protocol
	Basic Principles of Financial Tools
	Developing Your Application
		Rule 1: Which Market?
		Rule 2: Did You Apply Basic Business Principles and Process?
		Rule 3: Where Do You Build?
		Rule 4: What’s Your Token, and Did You Apply Proper Tokenomics?
		Applying Tokenomics
		Rule 5: Did You Audit Your Tech?
		Rule 6: How Do You Launch?
	Conclusion
Chapter 5. Making Money with DeFi
	Investing with a DeFi Protocol on Blockchain
	Is It Really “Investing”?
	DeFi Protocol Types
		Protocol 1: Staking a Token
		Protocol 2: Lending Protocols
		Subprotocol 2A: Liquidity Provider on a Swap or Decentralized Exchange
		Subprotocol 2B: Borrower-Lender Platforms
		Subprotocol 2C: Borrowing Platforms
		Subprotocol 2D: Yield Farming
		Protocol 3: Memecoins
		Things to Consider
	Harvesting Profits and Losses
	Taxes
	Conclusion
Chapter 6. The Future of DeFi
	The Rise of Asset-Backed Tokens
		Real-World Assets
		Does DeFi Even Need Regulation?
	A Better Regulatory Structure for Crypto and DeFi
		Who Is Issuing Tokens and Coins, Anyway?
		What About Tokens That Do Many Things?
		Tokens As Securities
		Commodities
		Derivatives
		How Does Crypto Come into This?
		Smarter Regulation
	Securitization and Collateral
		Collateral
		Securitization
		Better Regulation
	Currency
		We Need Fiat Alternatives
		Future Regulation
	Promoters
	Community Projects
		How Should They Be Regulated?
		Customers Versus Traders
	Centralized Marketplaces
	Decentralized Marketplaces
	Dark Pools
	Intellectual Property
		Problems and Solutions
	Identity
		A Viable Solution
		The Need for Accountability
	Accredited Investor Rules
	Taxes
	Conclusion
Index
About the Author
Colophon