What is DeFi

Decentralized Finance (DeFi)  has been cropping up a lot lately in Crypto news and rightly so! It’s an ambitious and interesting proposition. If it achieves more mainstream adoption it could represent a major threat to traditional financial systems.

What is DeFi

DeFi or decentralized finance is a structure of financial applications running on top of blockchain systems. The idea is to create financial services and products using decentralized networks and open source software.

Whats Wrong with our Financial Systems

Our traditional banking systems are completely centralized and hold absolute power over accounts. This means that:

  • Banks can delete or freeze accounts
  • They can refuse to let you open an account
  • Some banks won’t let you use your account to buy and sell crypto
  • You need documents such as a passport to open an account

Banks also rely on slow outdated systems. If you have ever tried to send money overseas you’ll soon realise that it can take days for your money to arrive.

To open a bank account you need to have documentation. Lack of documentation is  a major limiting factor for many migrant workers. Not having a bank account means they can only transfer money home using organizations like Moneygram and Western Union. These organizations typically charge large fees. Charges can average 7%  and even up to 10%.

Then there is the story of high fees and charges. According to reports large American banks took in over $30 billion in overdraft fees in 2019. In a society where most families are living from one pay check to the next these fees are pushing them further into debt.

The Benefits of DeFi

DeFi is permissionless. You only need Internet and a Smartphone to access it. Smartphone ownership has increased significantly over the years particularly in developing countries. It is in these developing countries that most of the worlds 1.7 billion unbanked people live.

DeFi gives them access to financial services such as loans. With loans they can set up businesses, pay for education and improve their quality of life.

DeFi is decentralised. Records are kept simultaneously across thousands of computers instead of a central server. This means that all the transactions are publicly auditable unlike traditional bank records.

Censorship resistance is also another key feature of DeFi. In the traditional financial system it is possible for central parties to invalidate and stop transactions. With DeFi this is not possible,

DeFI can also let your money earn interest. Dapps such as Compound use smart contracts which enable you to lend out your cryptocurrency and earn interest. This is in stark contrast to many banks where if you leave your money in a savings account you earn little or no interest, even negative interest rates can be applied.

In fact most times you are paying the bank fees to mind your own money!

The Downside of DeFi

The majority of problems and risks associated with a DeFi project are generally associated with the technologies they are related to. The challenges with blockchain are generally responsible for fueling the downside of DeFi.

Inaccurate pricing oracle information can also be a downside of DeFi. Pricing oracles send information back to blockchains. They act like messengers sending real time price info. There are different types of oracles – centralised oracles such as Coinbase and decentralised oracles, used by DeFi platforms and decentralised exchanges.

If there is huge demand transactions on DeFi protocols could become highly expensive during the period of congestion.

Also DeFi is reliant on a blockchain. If there are any technical problems with the blockchain the DeFi project could become extremely unstable.

Key management is a real vulnerability for DeFi protocols. If key holders lose control of their keys, they lose access and effectively ownership, of their tokens.‍

Multi-signature key approaches have been developed placing user deposits in custody of consortiums. However, placing admin keys in multi-sig key
arrangements can be exploited.

Liquidity is also another concern with DeFi. At the moment the DeFi market is not as big as the traditional financial systems. Users could find it difficult to put their trust in a sector that does not have much liquidity as the usual financial sector.

DeFi projects are undoubtedly a method to provide financial inclusion for a broader population, especially the unbanked and people in developing countries. I for one will be watching DeFi carefully to see how it evolves.

If anyone would like to learn more about DeFi the University of Nicosia is running a free online course. Check it out. I’ve signed up already.


Pancake Swap.

You may have noticed that there are blockchain projects springing up with crazy food based names. Projects such as SushiSwap and Bakery Token have been in the news quite a bit recently. Today I’m talking about PancakeSwap and taking a deep-dive in to what it is and what it does.  Sweet!

PancakeSwap is a Decentralized Exchange (DEX) that makes use of the Automated Market Maker (AMM) model to enable users to swap any BEP20 token for another using a liquidity pool.

Users can provide liquidity into these liquidity pools for a chance to earn a share of the platform’s trading fees (known as liquidity mining) and take advantage of its various DeFi products such as staking, farming, lottery and others.

CAKE is the cryptoasset for the platform and serves as a governance token. It also acts as a means of staking so users can earn more CAKE and the tokens of other projects. Users can also take part in the PancakeSwap lottery game.


In September 2020, a team of anonymous developers forked and ported the SushiSwap code to BSC (Binance Smart Chain). PancakeSwap and the CAKE token launched via a fair distribution to initial liquidity providers and early farmers on the platform.

The team chose to build on BSC because the chain is faster and has lower fees compared with Ethereum, which at that time was experiencing high network congestion. As a result, the platform saw rapid growth in both its user base, trading volume, and total value locked (TVL) as priced-out users from Ethereum flocked to BSC for their trading and yield farming operations.

Between February and June 2021, it beat Uniswap as the largest AMM in terms of total value locked, number of transactions, and users.

What Does PancakeSwap Do

PancakeSwap aims to provide a community-governed DeFi application that offers users fast and cheap token swaps and yield-farming services with many opportunities to earn rewards.

The project aspires to be a total solution for DeFi users with its suite of present and planned products including token swaps, liquidity mining and yield farming, Initial Farm Offerings (IFOs), NFTs, prediction markets, lending and borrowing, margin trading and more.


Binnance Smart Chains  architecture enables ultra-fast transactions and low fees with cross-chain compatibility. This is why Ethereum-based SushiSwap’s code could be easily forked and ported to BSC to create PancakeSwap. BSC uses a customized version of the Proof-of-Stake (PoS) algorithm called Proof-of-Staked Authority (PoSA) where participants stake BNB to become validators and earn the transaction fees from every valid block that they propose.

With a block confirmation time of 3 seconds, BSC facilitates the development of powerful decentralized applications that serve millions of users on platforms like PancakeSwap, providing them with fast transactions at a fraction of the cost.

As an AMM, PancakeSwap facilitates instant token swaps using liquidity pools that users can deposit tokens into to earn a share of the trading fees (this is commonly known as liquidity mining). Users who provide liquidity into these pools receive a liquidity provider (LP) token which acts as a ‘receipt’ for their deposits. This receipt allows users to reclaim their original funds deposited in the liquidity pool. In addition to the trading fees liquidity providers earn, they can stake their LP tokens in any of the supported farms on PancakeSwap to earn CAKE.

Furthermore, users can participate in the PancakeSwap Syrup Pool by staking their CAKE tokens to earn more CAKE or the tokens of other BSC projects that take part in the PancakeSwap Syrup Pool program. Users stake their CAKE to get SYRUP tokens as well as earn a share of 25% of each block reward. Users then stake the SYRUP to start earning tokens of other BSC projects that have a Syrup pool on PancakeSwap. Thus users earn from multiple sources with the same funds. Syrup Pool is a PancakeSwap initiative to help new BSC projects gain market attention and adoption by putting their tokens in front of the largest community on BSC via free distribution of a portion of their token supply.


CAKE is the native cryptocurrency of the PancakeSwap platform that functions primarily as a governance token. It also functions to incentivize users to provide liquidity to the PancakeSwap liquidity pools.

By staking CAKE, earning more CAKE or the native tokens of other projects in the PancakeSwap Syrup Pool is possible.

Other applications include using it to purchase lottery tickets in the PancakeSwap lottery game.


In less than one year, PancakeSwap has overtaken Uniswap as the largest AMM. Did you know you can also win NFTs on the Binance Smart Chain? If you win you can trade your NFT for more CAKE or keep it in your wallet. All you have to do is register on the Binance Smart Chain.