Understanding DeFi

What are NFTs?

The easiest way to think of Non Fungible Tokens (NFTs) is as digital assets on a blockchain that are provably unique. This includes things like digital art, sports cards, games, music, videos, and more (it's likely the best NFTs have yet to be invented!) No two NFTs are the same, and their ownership is immutable and publicly visible.

How do they work?

NFTs are cryptographic tokens that derive their value from being created and transferred on the blockchain. The key difference between NFTs and other tokens (Bitcoin, Ethereum, Sushi, etc.) are that they are non-fungible, which means unlike a one dollar bill or one Bitcoin, no two NFTs are the same or interchangeable. Each NFT has identifying information that makes it unique and easily verifiable.

Why are they valuable?

For centuries, humans have collected items that bring value to them, from art to autographs, beanie babies to trading cards, sneakers to stickers, the list is endless.

With NFTs, this natural process of collecting has become digitized, creating an opportunity to prove ownership of tangible and intangible items in ways that were impossible before. On the creator side, artists now have the ability to verify the origin of their work and connect directly with their audience, without the middle man.

What are some examples of NFTs?

The earliest NFTs originated from CryptoKitties, a blockchain game on Ethereum that allows players to purchase, collect, breed and sell virtual cats. Recently, more and more artists are creating NFTs in unprecedented forms: digital artwork sold at Christies, NBA highlights, music albums, you name it. The only convention is that there's no convention.

Where can I buy them?

There are a variety of marketplaces where you can buy NFTs. The crypto-savvy who already have their own Ethereum wallet will want to check out platforms like OpenSea, Zora, or SuperRare. Those who would prefer to pay with credit card can purchase from platforms like Makerspace, NiftyGateway, or NBA Top Shot.

How hard is it to make an NFT?

Coding your own NFT is easy when you follow our beginner friendly NFT tutorial series. In less than 30 minutes, you'll learn how to write an NFT smart contract, mint your NFT, and view it in your mobile wallet!

Non-coders will want check out our NFT minter, where you can mint your own in seconds. If you're an influencer, brand, or company and want to get involved the ecosystem, let's get in touch.

What is decentralized finance (DeFi)?

Decentralized finance (DeFi) is the financial system built on the blockchain. Specifically, DeFi includes activities such as borrowing, lending, staking, yield farming, token swapping, flash loans, and more. Popular DeFi services include Aave, Sushi, 0x, Yearn Finance, Zerion, dYdX, Maker, Deversifi, Oasis, Kyber, and Bamboo Relay.

How does DeFi work?

It depends on what part of DeFi you are using. For example, if you’re interested in swapping different tokens or participating in liquidity pools, you can use a service like Uniswap or Sushi to swap tokens and contribute liquidity to the protocol to enable others to swap tokens and be compensated often in yield and additional governance tokens from the protocol. If you’re interested in lending funds, you can keep your funds like USDC or native governance tokens (e.g. COMP or AAVE) staked in a service like Compound or Aave. If you’re interested in visibility and utility across all of these services, we recommend checking out a service like Zapper for managing all of your DeFi activities in one place. To use any DeFi service on Ethereum, you will need an Ethereum wallet such as Metamask, Bitski, Fortmatic, or WalletConnect.

Why is DeFi so important?

Many DeFi advocates claim three primary benefits: 1) Decentralization: DeFi is run by protocols, not banks. As a result, participants may have greater trust in the objectivity and immutability of the system. 2) Automation: Because the system runs on protocols, it is more efficient than human-operated financial systems. 3) Returns: Many participants claim higher returns through DeFi yields because of the protocol tokenomics and lack of a bank with overhead in the middle.

What type of applications can one build in DeFi?

Using Alchemy, it’s possible to build virtually anything in DeFi. Specifically, one could build a liquidity protocol, aggregated market maker, decentralized exchange, or anything else you can imagine with the primitives and composability of DeFi. Check out our Hello World Smart Contract tutorial to get started with smart contracts as you move onto more advanced applications.