Decentralized finance (DeFi) protocols and development of flashloans

Abstract

Traditional finance started out with different problem statements to solve trust issues among human over the centuries. Barter trade and Cattle was the first form of unit of exchange in the form of livestock followed by Cowrie Shells, Metal Money (Coins) , Leather Money , Paper Currency, Potlach , Wampum , The Gold Standard, Fiat Currency. Over the past Centuries, the currency use by different generation transformed throughout different civilizations. But the method of record keeping remains the same – record keeping with a book ledger . A ledger is used to record transactions when account receive or giveaway a unit of possession. Things evolved in the digital age, remarkable computer scientists and engineers leverage on open-source innovations combined different protocols to create a trustless decentralized ledger known as a Blockchain. With a trustless decentralized ledger, we can create a new form of digital currency. In 2008, Satoshi Nakamoto proposed Bitcoin to the world as a store of value. He / She / They created a new game theory with CPU power that incentivize honest node to participate and punish malicious nodes for bad behavior. Ever since the invention of Bitcoin , different types of blockchain has emerged , enable different financial products and services to flourish. Created waves of innovations and trail blazers in the new digital economy. During the early 2013, Vitalik Buterin pioneered the development of Smart contract on the Ethereum Blockchain. Decentralize finance ( DeFi ) are financial applications built on top of smart contracts living on the Blockchain. Decentralize finance aims to build the traditional finance products such as insurance , lending and borrowing , investments etc. Among the other few innovations, Flashloans standout on decentralize finance due to the high-profile hacking incidents using Flashloans. Due to the atomic natural of blockchain , Flashloans enables user to borrow huge sum of tokens and return at the end of a transaction.