MoonDeFi Automated Decentralized Exchange Protocol — A New Part of Decentralized Finance

3 min readNov 29, 2020

Bitcoin was introduced as a decentralized form of money, i.e., it can be sent to anyone from anyone without any central authority. When it comes to financial services, these are not limited to just money; instead, it includes services like loans, insurance, and saving plans e.t.c.

The traditional financial system is entirely centralized, where a bank, an institution, or a third party controls the financial procedures. Thus there could be issues of fraud, scams, or theft with the money.

Now the question is, what if there was a complete decentralized system that will offer traditional financial services but decentralized? This led to the development of DeFi, i.e., Decentralized Finance.

What is DeFi?

Decentralized Finance is an ecosystem that allows the development of decentralized application on it using the Ethereum Blockchain. DeFi allows the users to have full control over their assets without any interference from a central authority. It is an open-source, transparent, and permissionless system built using Ethereum.

Components of DeFi

The significant components of DeFi include smart contracts, protocols, DApps, and more.

Smart Contracts: Ethereum introduced Smart Contracts. They are widely used in the development of decentralized applications. A smart contract is a self-executing contract that is executed when the defined conditions are met. They are immutable and cannot be altered. This helps in building the trust of the user.

MakerDao: DeFi needed a stablecoin, MakerDao came up with a solution in the form of Dai; a stable coin backed up real-world assets such as US Dollars. Dai is used on various protocols when it comes to DeFi.

Decentralized Exchanges (DEX): With the surge in Decentralized Finance activity, we started to see more decentralized exchanges. These exchanges are not under any influence and operate in a decentralized way. They also inherit Blockchain properties, i.e., being immutable, highly secure and lesser fees.

MoonDeFi is a recent project that is now a part of the DeFi movement. It has a decentralized exchange feature and has a very low fee compared to centralized exchanges.

What is MoonDeFi?

It is a protocol on Ethereum that facilitates swapping of ERC20 tokens. In the traditional model of exchange, the buyers and sellers need to create liquidity. MoonDeFi protocol, on the other hand, creates a market automatically without the influence of a central authority.

Traders can exchange Ethereum tokens without the need to trust anyone with their investments. The protocol has predetermined equations that determine and balance the value based on actual demand.

How does the Protocol Works?

MoonDeFi protocol contains a “liquidity pool” that is created by liquidity providers. Users with Ethereum addresses could participate in the pool and make money from it.

Staking/Farming

As mentioned earlier, when users participate in the pool with their coins, they will get an LP token in return. Users can use these tokens to get passive income by taking part in the Staking program offered by MoonDeFi.

With $1.6 billion deposited and over $30 million fees earned by more than 32,000 unique liquidity providers and $12 billion volume traded, MoonDeFi has proven to be a successful and highly decentralized financial platform for automated liquidity and now gearing for a community-led project with the introduction of MoonDeFi ERC-20 governance token.