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DeFi stands for Decentrilized Finance, which is finance that does not rely on central financial intermediaries such as brokerages, exchanges, or banks, and instead utilizes smart contracts on blockchains…
So if you’d like to make a transaction, your purchase doesn’t need approval from a bank, it’s verified by the blockchain, or the public ledger of transactions that is verified by computers and individual contributors on the network.
That’s Defi. Next, what is an Asset Pair. An asset pair is wha you see when you buy bitcoin on a DEX or a decentrilized exchange. You’ll typically see it listed as BTC/USD or BTC/USDC or ETH/USDC. An asset pair are the two assets your can trade against each other. Now we’ve all seen these listed somewhere but I bet you’ve also had the thought of, where is the BTC/ETH or the BTC/SOL? That’s because each Asset pair has it’s own Liquidity Pool. Or huge amount of each asset, like a pool for traders to trade from. So if you see an exchange without ETH/BTC, it’s because there isn’t a liquidity pool with enough of each asset.
So that brings us AMM, or Automated Market Making or Makers. In a Centralized exchange, these exchanges will rely on Market Makers like professional traders to provide liquidity for these asset pairs so that there is always enough to keep the price stable for the buyers.
In a DEX, or a decentralized exchange however, we got rid of the middlemen, remember? So now we have an AMM, or an automated market maker that handles the liquidity pool. This, in short, means that traders don’t have to go through a financial institution to make trades.
These automated protocols use self-executing computer programs called smart contracts to define the price of digital assets and provide liquidity. Here, the protocol pools liquidity into smart contracts. In essence, users are not technically trading against counterparties – instead, they are trading against the liquidity locked inside smart contracts. And these smart contracts are often called liquidity pools.
Okay, so now that we understand what Defi, asset pair, liquidity, and AMMs are, let’s move on to how they are utilized in Star Atlas.
So now we have this question, what kind of financial activities can we partake in if there is no bank? Well, just because you don’t go through a bank, doesn’t mean you can’t participate in and provide financial opportunities of your own. For example, through a direct integration to the Serum DEX (or a decentralized exchange) , players will be enabled to participate in decentralized finance activities through the in-game interface.
That being said, to take part in these (don’t worry I’ll go over them), players will need to go to a Financial Center in the game where they can establish their own fees for trading in their own facilities or participate in others. These can be things like Lending, or loaning out your assets for a percentage of yield in return, Automated Market Making (or AMM) or contributing certain asset pairs (like ATLAS and USDC) to liquidity pools to gain a percentage of the trading fees, and Yield farming, which is essentially, borrowing at a low yield, trading at a high yield and keeping the difference.