Getting Started with Decentralized Finance

Financial services today can mean everything from banking and lending to trading, stocks, assets, derivatives, and any number of money-based products. In fact, the financial services sector makes up 25% of the global economy. Most of us rely on financial services every day.

Decentralized Finance — also referred to as DeFi — is financial services on web3. It takes the types of financial products you’re familiar with, but makes them faster, more affordable, and much more inclusive by incorporating crypto, smart contracts, and decentralized applications. 

DeFi allows anyone, anywhere to access financial services and markets without intermediaries like banks and brokers. DeFi platforms also offer an ever-evolving range of innovative services that traditional finance doesn’t offer. Many platforms offer opportunities to earn passive income through products like lending, liquidity provision, and yield farming, which often provide higher returns than traditional savings accounts or investments — all while being automated and transparent. That’s why there’s over $90 billion USD in assets currently being used in DeFi markets online today. 

Solana has a thriving DeFi ecosystem that ranges from simple and easy-to-use apps to some of the most advanced financial markets in the world today. There are many components to DeFi on Solana, including wallets, dashboards, exchanges, stablecoins, staking, yield farming. We’ll show you around…

Onramps

For most people, the first point of contact with crypto is purchasing assets with fiat currency. You can purchase crypto through your bank or debit card from a number of platforms like Moonpay and Decaf. Additionally, many centralized exchanges provide easy ways to purchase crypto via banking, but tend to offer access limited to specific countries. Wallets like Solflare have also introduced services for you to buy crypto with your local fiat currency directly from your self-custodial wallet quickly and easily.

Wallets 

To engage with DeFi, you’ll need a wallet. A wallet is an app where you can store crypto and digital assets. Many allow you to trade and access web3 directly from your wallet. Non-custodial wallets like Solflare and Phantom keep your assets in your control at all times.  Additionally, wallets like Solflare make it easy for you to purchase crypto via your debit card via Moonpay directly in your wallet 

• Solflare — The safest way to explore Solana. Buy, store, swap tokens and NFTs, and access Solana DeFi from web or mobile.
• Phantom — A wallet for exploring web3 across Solana, Ethereum, and Polygon.
• Coinbase Wallet — A wallet provided by the Coinbase exchange.
• Exodus — Web3 wallet that provides access to multiple chains.

Need to brush up on crypto wallets? Consult How to Set Up a Crypto Wallet.

Dashboards/Browsers

A crypto dashboard connects your wallet to an interface of web3 products, and provides you with real-time data, analysis, and tools to monitor and manage your investments. They’re a great way to explore web3. 

• Step Finance — The front page of the Solana network. A dashboard for Solana, and an essential tool for navigating the Solana ecosystem.

Stablecoins 

Stablecoins are cryptocurrencies that maintain a stable value, usually pegged to fiat currency like the US Dollar or the Euro. Stablecoins are essential to DeFi because they keep a predictable price, which means they are a predictable, reliable medium of exchange and store of value within the DeFi ecosystem. 

• USDC — A stablecoin pegged at 1 US Dollar, Offered by Circle.
• USDT — Offered by Tether, USDT is pegged at 1 US Dollar.

Want to know more? Stablecoins Explained has all the info you need.

Decentralized Exchanges (DEXs)

DEXs enable users to trade cryptocurrencies directly with one another without relying on centralized exchanges. They’re usually more affordable than CEXs, and offer more advanced products and tools. Each DEX offers a unique set of features and advantages for different types of users. For many beginners, it’s easier to trade assets from wallets like Solflare than engage directly with DEXs. 

• Jupiter Exchange — The most popular app for swapping tokens with advanced trading tools. 
• Orca — A decentralized exchange built to be as easy to use as possible.
• Raydium —An automated market maker (AMM) platform for swapping tokens and supplying liquidity. 
• Saber — An AMM for trading stablecoins.
• Zeta — A decentralized futures trading platform for advanced traders.

Keep in mind, most crypto wallets allow you to connect directly to a DEX, so you can execute trades without your crypto ever leaving your custody.

Lending and Borrowing

These apps allow users to lend or borrow digital assets, earning interest or borrowing funds without the need for traditional financial institutions — with the terms executing automatically. 

• MarginFi — Decentralized lending and borrowing on Solana.
• Kamino — Lending, borrowing, liquidity, and leverage trading.
• Mango Markets —  lending, borrowing, swapping, and leverage-trading crypto assets.

Staking

Staking is an essential element of the Solana infrastructure. Anyone can stake SOL by locking it up in the network, where it plays a key role in maintaining network stability and security. In return, they’re rewarded in SOL. There are many ways to access staking. Some apps offer advanced innovations like liquid staking, which offers more complex staking products. 

• Marinade Finance — Automated staking for SOL and Solana applications.
• Jito — Liquid staking for SOL.
• Stakewiz — An index website with a scoring system for ranking Solana validators.

Eager to get staking? Read our explainer on Staking SOL.

DeFi is considered a revolution in financial services for a number of reasons. Firstly, DeFi is accessible and inclusive, because it opens up financial services to anyone to participate, regardless of their location, financial status, or the banking services available to them. DeFi is also transparent and secure. Smart contracts ensure that every transaction is automated, and all records are permanently recorded on a public blockchain. This reduces the risk of fraud and ensures the security of transactions. Lastly, DeFi is a hotbed of innovation. Many of the world’s biggest companies, banks, and even governments are integrating web3 today, and more use cases and new DeFi products emerge every week on Solana.

While DeFi offers lucrative opportunities for users, there are also risks that you should be aware of. Firstly, cryptocurrency markets can be volatile. This introduces the risk of lower returns and unexpected losses in each DeFi category that you should be aware of before engaging. Although rare, there have also been incidents of security breaches of DeFi platforms, with bugs and hacks exploited by malicious actors to drain platforms of user funds. Lastly, because DeFi is so new, the regulatory landscape surrounding DeFi remains uncertain and varies significantly across jurisdictions, posing compliance challenges for participants.

Once you understand the basics of DeFi on Solana, you’re ready to understand more advanced DeFi products like yield farming, leveraged trading, and derivatives. If you’re a beginner, it’s better to get familiar with the platforms listed above before engaging with more intermediate financial services.

A great place to start with intermediate DeFi is airdrops, which is when a cryptocurrency or web3 project sends tokens directly to user wallets as a reward or incentive. 

Ready to learn more? Read our explainer on How Airdrops Work.