Decentralized Finance (DeFi)

DEX, lending protocols, yield farming, liquidity pools, and DeFi risks.

Overview

DeFi recreates financial services on the blockchain.

DeFi Ecosystem

┌─────────────────────────────────────┐
│           DeFi Protocols            │
├─────────────────────────────────────┤
│ DEX     │ Lending  │ Derivatives   │
│ Uniswap │ Aave     │ dYdX          │
│ Sushi   │ Compound │ GMX           │
├─────────────────────────────────────┤
│           Stablecoins               │
│  USDC, DAI, USDT                    │
└─────────────────────────────────────┘

Automated Market Maker (AMM)

// Constant product formula: x * y = k
contract UniswapV2Pair {
    uint112 private reserve0;
    uint112 private reserve1;
    
    function swap(uint amount0In, uint amount1Out) public {
        require(amount0In > 0 || amount1Out > 0);
        
        uint balance0Before = reserve0;
        uint balance1Before = reserve1;
        
        // Update reserves
        if (amount0In > 0) reserve0 += amount0In;
        if (amount1Out > 0) reserve1 -= amount1Out;
        
        // Verify constant product
        require(reserve0 * reserve1 >= balance0Before * balance1Before);
    }
}

Liquidity Pools

# Liquidity calculation
def add_liquidity(token0_amount, token1_amount, reserve0, reserve1):
    # Calculate optimal amounts
    token1_optimal = token0_amount * reserve1 / reserve0
    
    if token1_optimal <= token1_amount:
        token1_desired = token1_optimal
    else:
        token0_optimal = token1_amount * reserve0 / reserve1
        token0_desired = token0_optimal
    
    # Calculate LP tokens
    lp_tokens = min(
        token0_desired * total_lp / reserve0,
        token1_desired * total_lp / reserve1
    )
    
    return lp_tokens

Yield Farming

# APY calculation
def calculate_apy(reward_rate, price_token, tvl):
    daily_rewards = reward_rate * price_token
    annual_rewards = daily_rewards * 365
    apy = annual_rewards / tvl * 100
    return apy

DeFi Risks

Practice

Build a simple DEX with liquidity pools.