DeFi Tokens

What is a DeFi Token?

DeFi stands for Decentralised Finance, or in other words a way to use conventional financial tools - except on a blockchain instead, namely Ethereum. This means issuing assets, otherwise known as token, in an open-source environment, on modular frameworks, that are censorship-resistant.

How do DeFi Tokens work?

DeFi tokens reside on a blockchain and are a special type of asset or utility that are for example in some cases backed up by US Dollars. DeFi Tokens can be used for example to receive a US Dollar loan.

DeFi tokens have the same seamless transferability and transparency of a cryptocurrency. However, while cryptocurrency is a type of asset, DeFi tokens can be considered financial tools. These special tokens are embedded with some kind of financial logic by their host platform.

For example, cDAI by Compound represents the interest you have earned on your loaned DAI. These tokens show how much you have loaned plus your accruing interest.These DeFi tokens are trying to make traditional finance concepts more trustless, decentralized and automated.

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