Useful Notes on Web3

Following is a summary of the series of articles shared/written by Linda Xie on the concepts of decentralized finance, NFTs & DAOs . I found these articles very insightful as a beginner as it is rich with use cases.

Decentralized finance

Decentralized finance, also referred to as “DeFi” or open finance, aims to recreate traditional financial systems (such as lending, borrowing, derivatives, and exchange) with automation in place of middlemen.

  • Stablecoins. A building block of decentralized finance. Unlike cryptocurrencies like Bitcoin or Ethereum that are known for their price volatility, a stablecoin is engineered to remain “stable” at exactly 1.00 units of fiat. Most stablecoins are pegged to the USD, but some are in other fiat currencies like the Chinese RMB.
  • Decentralized lending. Programmatically take out a loan on the blockchain. No bank account required.
  • Decentralized exchanges. Buy and sell cryptocurrencies through a blockchain, rather than a
    centralized exchange like Coinbase. In principle, a machine can trade on these!
  • Collateralization. Provide digital assets to collateralize your decentralized loans, providing the lender some recourse in the event of default.
  • Decentralized Identity. Identities are used in the context of smart contracts for things like
    assessing your creditworthiness for a decentralized loan.
  • Composability. Snapping together DeFi functions that do different things, much like software libraries. For example, if one contract takes in crypto and generates interest, the second contract could automatically reinvest that interest.
  • Risk management. High returns in DeFi are often accompanied by even higher risks. Fortunately, new tools are arising to help hedge these risks.


Non-fungible token (NFT) is a term used to describe a unique digital asset whose ownership is tracked on a blockchain, such as Ethereum.

  • NFTs are powerful because, when combined with other financial building blocks on Ethereum, they allow anyone to issue, own, and trade them
  • NFT activity can go well past trading and include actions like being able to borrow and lend, support fractional ownership (e.g. NIFTEX), or use it as collateral in taking out a loan (e.g. NFTfi).
  • NFTs can have wide impact on Art, Gaming. Social tokens also seem to have huge potential.
  • The interesting part about social tokens is that it can represent anything from a person’s time to specialized access to collective ownership of a community. There is a lot of potential for social tokens and I expect many more creators to issue them in the future.


A decentralized autonomous organization (DAO) is a group organized around a mission that coordinates through a shared set of rules enforced on a blockchain.

  • One of the main benefits of a DAO is that they are more transparent than traditional companies since all actions and funding in the DAO are viewable by anyone. This significantly reduces the risk of corruption and censorship.
  • DAOs are powerful ways to organize but there may be potential issues with them and they aren’t the ideal system for everything. While DAOs can replace aspects of legal contracts with code and save a tremendous amount of operational overhead, in some cases there are no legal protections outside of the rules outlined by the smart contracts facilitating the DAO.
  • Depending on how the DAO is set up, it might be more difficult to coordinate and move quickly compared to centralized leadership like a CEO making quick decisions when necessary.
  • Concept of Protocol politicians seems interesting to me.

Social tokens

Social tokens are tokens issued by individual creators or communities that enable community members to collaborate and share ownership in the value created together. Social tokens can be earned as rewards for contributing to the group and can be used for purposes such as granting access to a chat group or voting on community decisions. “Social token” is a broad term that encompasses personal tokens (formed around an individual), community tokens (formed around a community), and creator tokens (formed around a creator).

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