This book addresses the main concepts of Decentralized Finance (DeFi) and the well-known economic problem of inflation within traditional financial systems (TradFi). The authors discuss how both systems are connected and describe how they influence each other. Furthermore, new technological developments in the finance sector are considered and explained. The book provides not only a theoretical background to understand how money has evolved over time but also many practical cases and advise to navigate the digital money era. While digitalization and innovation are evolving rapidly, this book aims to be time-independent in its content and in its focus on concepts. The book appeals not only to an academic audience but also to professionals working in the field.
Author(s): Thomas K. Birrer, Dennis Amstutz, Patrick Wenger
Series: Financial Innovation and Technology
Publisher: Springer
Year: 2023
Language: English
Pages: 197
City: Wiesbaden
Preface
Acknowledgements
Overview
Contents
1 Introduction
2 Economical and Historical Context
2.1 A Concise Explanation of Money
2.2 Credit
2.2.1 Credit is Good for an Economy
2.2.2 From Private Ownership Rights to Debt
2.2.3 Understanding the Role of Credit
2.2.4 How Inflation is Linked to Credit and Why Inflation Will be Used to Devalue Excessive Debt
2.3 Inflation Versus Deflation
2.4 Inflation Processes Induced by Central and Fractional-Reserve Banking
2.4.1 The Functioning of Banking in a Nutshell
2.4.2 Understanding Reserve Banking
2.4.3 Understanding Central Banking
3 New Technological Developments and Opportunities
3.1 Web 3.0
3.2 Blockchain
3.3 DeFi
3.4 Price Oracles
3.5 Crypto Asset Types
3.5.1 Security Tokens
3.5.2 Utility Tokens
3.5.3 Non-Fungible Tokens, NFTs
3.5.4 Stablecoins
4 Toolkit for Getting Started
4.1 My Wallet is My Account
4.2 Blockchain Explorer
4.3 Ether Gas
4.4 Analytics Platforms and Data Sources
4.5 Communication
4.6 News
4.7 Miscellanious
4.7.1 Ethereum Name Service (ENS)
4.7.2 Prediction Markets
4.7.3 The Metaverse
4.7.4 GameFi or Play2Earn
4.7.5 Bridges
5 Make use of Decentralized Finance
5.1 Payments
5.1.1 Layer-1 Capabilities
5.1.2 Layer-2 Solutions
5.1.3 Real-Time Payments
5.1.4 Privacy Coins
5.1.5 Central Bank Digital Currency (CBDC)
5.2 Exchanges and Trading
5.2.1 Creation of Markets
5.2.2 Financial Markets
5.2.3 Order Books
5.2.4 Development of Decentralized Trading Instruments
5.2.5 The Idea of Automated Market Makers
5.2.6 The Mechanisms of Automated Market Makers
5.2.7 Impermanent Loss
5.2.8 Concentrated Liquidity on Uniswap v3
5.2.9 DEX Statistics
5.2.10 DEX Aggregators
5.2.11 Advanced Topic: Further Design Mechanisms for Automated Market Makers
5.2.12 Advanced Topic: Miner Extractable Value (MEV)
5.3 Saving
5.3.1 How Saving is Paramount to Wealth Creation
5.3.2 Understanding the Role of Money
5.3.3 Inflation Impedes Savings, While DeFi Seems more Encouraging
5.3.4 Where do I Save in DeFi?
5.4 Lending and Borrowing
5.4.1 Where do I Access Credit in the DeFi Space?
5.4.2 Maker
5.4.3 Aave
5.4.4 Compound
5.4.5 Advanced Topic: Re-Borrowing
5.4.6 Advanced Topic: Flash Loans
5.5 Investing—Assets
5.5.1 Step I. Understanding Investment Fundamentals
5.5.2 Step II. Clarification of the Risk Tolerance
5.5.3 Step III. Implementing the Portfolio, Respectively, Asset Allocation
5.5.4 Investment Criteria
5.5.5 Asset Management in DeFi
6 Concluding Remarks
A Blockchain Applications
B Token Classification Example—Bitcoin
References
Index
Index
