Comprehending the four key components of DeFi is the most important step in understanding its features and advantages.
A DeFi platform’s components are key elements of DeFi. Each component serves a unique purpose in developing the entire ecosystem.
The four key layers are:
1. Settlement Layer
The settlement is the most noteworthy DeFi component because it is the foundation for the remaining 3 components.
This layer features a public blockchain together with the native digital currency. The native currency is used in most dApps activities which may or may not be exchanged in other marketplaces.
2. Protocols Layer
Network protocols are a set of rules that are designed to regulate certain actions such as sending, receiving, and formatting data.
The protocol layer contains regulations that every user must follow in a certain industry.
DeFi protocols provide interoperability which allows many entities to collaborate and network with each other to create better services for the end-users.
In a DeFi ecosystem, the protocol layer is essential for achieving the necessary liquidity levels.
3. Application Layer
The application layer is the key layer of DeFi where user-facing programs are stored.
As basic user-oriented services, the dApps abstractly reflect the underlying protocols.
4. Aggregation Layer
The aggregation is the final layer and the most crucial layer in the DeFi technology stack.
Aggregators integrate diverse apps from the previous layers to provide service to users in the aggregate layer.
Aggregators can smoothen the transfer of funds between different financial instruments, thereby increasing returns for the users.
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