By Abhishek Bajaj, Co-Founder of DeFiVerse
Imagine a world where you can deposit, invest and transfer money instantly without ever going through a bank. Imagine a world where you didn’t have to rely on anyone’s approval before opening an account and using it for your financial needs. Imagine a world where the limitations of traditional finance would no longer apply – where you would have sole control of your finances. That is the promise of ‘DeFi’.
DeFi, short for Decentralized Finance, is an umbrella term for all types of financial services related to the blockchain. The most radical thing about this burgeoning space is its use of custom code or “smart contracts” to handle all interactions within its financial ecosystem.
This code-based infrastructure makes DeFi highly reliable and transparent, unlike traditional banking systems that are prone to misregulation and corruption. As this new age financial sector evolves and becomes more popular, learning the basics of this field is of immense value. In this article, we will look at how a beginner can enter the world of DeFi and make money through different strategies.
Crypto wallets and CEXs
To get started with DeFi, the first step is to set up your crypto wallet. A crypto wallet is like a bank account and digital passport rolled into one! When you access a DeFi service, you need to connect your wallet to the corresponding “dApp” (decentralized application).
The most popular way to set up your wallet is through Coinbase for Bitcoin
Blockchain and via Metamask for the Ethereum blockchain. For more serious users, “hardware wallets” like Nano Ledger offer a more secure option.
Once the wallet is ready, the next step is to acquire some crypto! Depending on the country you are in, you can convert your fiat currency via
“Central Exchanges” or “CEXs”. These exchanges act as doors that
Connecting crypto to the world of mainstream currencies. Popular CEXs like Binance and Kucoin allow you to easily buy and transfer cryptocurrencies to your wallet.
Once this is done, you can start your DeFi journey.
But before we proceed, a quick note to the reader: This article is meant
educational purposes only and is not sponsored by the mentioned service, product or institution.
Basic DeFi Strategies
While the best DeFi strategies may seem complex on the surface, they are
actually created by combining basic DeFi tools, also known as “Money Legos”.
Let’s look at some of these basic tools.
– Mark out
Staking is a simple process where users lock their cryptos in order to generate income
on their wealth. A particular use case of this strategy is “Liquid Staking”,
where users can stake their cryptos and get a different version of staked
the same while attracting interest. These assets can be used
elsewhere in the market or in other DeFi protocols.
Commonly used dApps: Lido Finance, Rocketpool
– Trading & Derivatives
Just like the regular stock market, DeFi also offers swaps, leverage
Trading, options and futures on all major cryptocurrencies. The only
The difference is that the transactions take place on decentralized exchanges
(DEXs) such as Uniswap, GMX and Lyra Finance.
– Provision of liquidity
Users can provide and earn “pairs” of crypto for decentralized exchanges
Fees from trades between these pairs. B. User provides ETH &
USDT and earns fees when a user switches between ETH and USDT.
Commonly used dApps: Uniswap, Curve Finance
– yield farming
Some DeFi protocols co-facilitate the provision of liquidity (discussed above).
Rewards in the protocol’s native tokens. Smart contracts make these
Premiums can be automatically reinvested to compound returns. That is
known as yield farming.
Commonly used dApps: Yearn Finance, Beefy Finance
– Loan/Loan
Users can park their idle cryptos in Lending Protocols to start earning risk-free
Interest. But the more exciting use of these tools is “over-collateralised”.
Loans” – Users can deposit crypto as collateral and borrow up to 50% of it
Value in stablecoins (coins that reflect the price of fiat currencies, e.g
USDT). These stablecoins can still be used in other DeFi strategies.
Commonly used dApps: Aave, makerDAO
– HODL (“Hold on tight for dear life”)
Perhaps the most well-known crypto term, HODL, is rarely understood that way
a serious investment strategy. However, HODLing or holding on to your
Crypto through market storms is a proven way to multiply yours
profits.
While the above strategies may seem exciting on their own, the real thrill of DeFi lies in weaving unique strategies out of these basic building blocks and
Maximizing profits in a creative way. Long-term success in DeFi is therefore only possible with sufficient knowledge and effort.
Disclaimer: The strategies mentioned involve risk and it is the reader’s responsibility to DYOR (Do Your Own Research). This article is not intended as financial advice.
Learn Crypto Trading, Yield Farms, Income strategies and more at CrytoAnswers
https://nov.link/cryptoanswers
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