In 2017, Bitcoin was the buzzword. STOs replaced interest in 2018, and then in 2019 it was DeFi. Crypto experts are speculating if DeFi has lived up to the hype surrounding it. If you’re not familiar with it, DeFi is short for Decentralized Finance and a lot of developers are spending time and resources to build this field out. DeFi works towards the goal of changing traditional financial instruments and introducing decentralization to build an independent financial system that doesn’t rely on the traditional banking system at all. That’s where DefiZap comes in.
DeFiZap is like several other interesting DeFi projects and it combines different protocols under one platform thus reducing the number of steps needed to visit the applications individually. This helps users to execute complex financial strategies in a few clicks. In DeFiZap, there is a popular concept of the Leveraged Liquidity Pool (LLP) Zap.
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I tried out DeFiZap before writing this article and the transfer of ETH to the Uniswap liquidity pool and placing a margin trade on Fulcrum took a total of 3.5 minutes and cost $0.80 in gas fees. The process was easy, however, it was quick, no warning and no disclaimer whatsoever.
Before DeFiZap if a user wanted to enter a trade on two different platforms like Fulcrum and Uniswap, they would have to initiate it separately. First they would login to the decentralized exchange – Uniswap and then enable the automated swapping of tokens by holding pools of liquidity of those tokens in smart contracts. These pools get their liquidity from market makers in exchange for fees paid by traders.
Anyone with a valid Ethereum wallet address can be a market maker, unlike the requirements on platforms like Coinbase and Binance, where market makers need to invest huge capital. With DeFiZap anyone can do it. Earlier market makers were forced to part ways with most of their Ethereum holdings to contribute to a pool, and now they don’t. Sometimes the extent of the contribution would be 50% or more. After contributing the Ethereum/ Bitcoin, users would get the coin they are contributing for like DAI in case of ETH/DAI.
If the user went through DeFiZap instead, they could contribute to the ETH/DAI pool and not lose any of their ETH/USD exposure, while still earning fees from the Uniswap liquidity pool. DeFiZap claims to save each user five wallet interactions DeFiZap uses both Uniswap and Fulcrum, and according to DeFiZap114 ETH have been deployed to this Zap since its launch on Jan 4, 2019.
Challenges of DeFiZap
- DeFi works with new technologies and there are inherent risks of working with untested platforms and technologies.
- There are several potential failures of platforms involved in DeFiZap’s operation.
- The one-tap system that has replaced five or more clicks while convenient, may also dissuade users from researching the pros and cons involved in each specific project they’re using.
- Traders contributing to liquidity pool as market makers get twice the upside if Ethereum goes up, but they’ll get liquidated, meaning their position will be wiped out, if the price goes down.
DeFiZap is changing the way market makers contribute to pools and traditional finance all together. We are waiting to see what comes next after DeFiZap.
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