Quotes from Campbell R. Harvey

Ethereum is in some sense a logical extension of the applications of Bitcoin because it allows for smart contracts – which are code that lives on a blockchain, can control assets and data, and define interactions between the assets, data, and network participants. The capacity for smart contracts defines Ethereum as a smart contract platform.

The mechanism by which the stablecoin maintains its peg varies by implementation. The three primary mechanisms are fiat-collateralized, crypto-collateralized, and non-collateralized stablecoins.

Ethereum and other smart contract platforms specifically gave rise to the decentralized application, or dApp. The backend components of these applications are built with interoperable, transparent smart contracts that continue to exist if the chain they live on exists. dApps allow peers to interact directly and remove the need for a company to act as a central clearing house for app interactions. It quickly became apparent that the first killer dApps would be financial ones.

The largest fiat-collateralized stablecoin is Tether5 (USDT) with a market capitalization of $62 billion, making it the third largest cryptocurrency behind Bitcoin and Ethereum at time of writing. Tether also has the highest trading volume of any cryptocurrency but is not audited.

minimized friction and maximized value to users. Because it costs no more at an organization level to provide services to a customer with $100 or $100 million in assets, DeFi proponents believe that all meaningful financial infrastructure will be replaced by smart contracts, which can provide more value to a larger group of users. Anyone can simply pay the flat fee to use the contract and benefit from the innovations of DeFi.

With a market capitalization of $5 billion as of writing, the most popular crypto-collateralized stablecoin is DAI, created by MakerDAO9 and and backed by ETH and other crypto assets. It is soft pegged with economic mechanisms that incentivize supply and demand to drive the price to $1.

The drawback to non-collateralized stablecoins is that they have a lack of inherent underlying value backing the exchange of their token. In contractions, this can lead to "bank runs," in which many holders are left with large sums of the token that are no longer worth the peg price. There

Fundamentally, blockchains are software protocols that allow multiple parties to operate under shared assumptions and data without trusting each other. These data can be anything, such as location and destination information of items in a supply chain or account balances of a token. Updates are packaged into "blocks" and are "chained" together cryptographically to allow an audit of the prior history – hence the name.

As long as no malicious party can acquire majority control of the network computational power, the transactions will be processed by the good faith actors and appended to the ledger when a block is "won.

The most popular application of blockchain technology is cryptocurrency, a token (usually scarce) that is cryptographically secured and transferred. The scarcity is what assures the possibility of value and is itself an innovation of blockchain.

DeFi is unique relative to the traditional financial system because it is permissionless, open access, global, composable, and transparent. No longer are centralized institutions needed for basic financial actions.

A smart contract is code that can create and transform arbitrary data or tokens on top of the blockchain to which it belongs. Powerfully, it allows the user to trustlessly encode rules for any type of transaction and even create scarce assets with specialized functionality. Many of the clauses of traditional business agreements could be shifted to a smart contract, which not only would enumerate but also algorithmically enforce those clauses.

In the context of smart contract platforms, an oracle is any data source for reporting information external to the blockchain. How can we create an oracle that can authoritatively speak about off-chain information in a trust-minimized way?

A crucial shortcoming of many cryptocurrencies is excessive volatility.

Intended to maintain price parity with some target asset, USD, or gold, for instance, stablecoins provide the necessary consistency that investors seek to participate in many DeFi applications and allow a cryptocurrency native solution to exit positions in more volatile cryptoassets.

They can even be used to provide on-chain exposure to the returns of an off-chain asset if the target asset is not native to the underlying blockchain (e.g., gold, stocks, exchange-traded funds [ETFs]).

The second largest class of stablecoins are crypto-collateralized, meaning they are backed by an overcollateralized amount of another cryptocurrency. Their value can be hard or soft pegged to the underlying asset depending on the mechanism.

Crypto-collateralized stablecoins have the advantages of decentralization and secured collateral. The drawback is that their scalability is limited. To mint more of the stablecoin, a user must necessarily back the issuance by an overcollateralized debt position.

The drawback to non-collateralized stablecoins is that they have a lack of inherent underlying value backing the exchange of their token. In contractions, this can lead to "bank runs," in which many holders are left with large sums of the token that are no longer worth the peg price.

In Ethereum, there are two types of addresses: the externally owned account (EOA) and an address of a contract account. Transactions sent to an EOA can only transfer ETH.1 In Bitcoin, all addresses are EOA. In Ethereum, when data is sent to a contract account, the data are used to execute code in that contract. The transaction may or may not have an accompanying ETH payment for use by the contract.

Clauses in a smart contract can cause a transaction to fail and thereby revert all previous steps of the transaction; as a result, transactions are atomic. Atomicity is a critical feature of transactions because funds can move between many contracts (i.e., exchange hands) with the knowledge and security that if one of the conditions is not met, the contract terms reset as if the money never left the starting point.

The gas price is determined by the market and effectively creates an auction for inclusion in the next Ethereum block.

Fungible tokens are a cornerstone of the value proposition of Ethereum and DeFi. Any Ethereum developer can create a token divisible to a certain decimal granularity and with units that are all identical and interchangeable.

With approval functionality, contracts (or trusted accounts) can be whitelisted to act as custodians for a user's tokens without directly holding the token balance. This widens the scope of possible applications because users retain full custody before an approved spender executes a transaction.