In the recent time, the Blockchain has been adopted as the liable means for the finance market, blockchain brings trust, accountability, and transparency to digital transactions, systems built on the blockchain does not take much time for transaction processes.
Financial services like trading, lending, investment, wealth management, payment and insurance are being replicated on the blockchain through deFI applications.
What is DeFi
Defi is the acronym for Decentralized Finance, which is a system of finance that does not rely on or being controlled by any central, local, or financial authorities like banks, brokerages, or exchanges to offer traditional financial instruments rather it makes use of the Smart Contract on the Blockchain.
De-Fi represents an attempt by the blockchain space to replicate the current financial ecosystem, void of government or institutional control.
Instead of Central Banks in the current financial system, the core regulator is smart contracts: a set of self-executing rules that define terms of trade between two parties in a financial transaction.
5 different ways on How to profit or earn from the Decentralized Finance (Defi)ecosystem
- Liquidity Provider
What Is a Liquidity Provider?
A liquidity provider is a user who funds a liquidity pool with crypto assets she owns to facilitate trading on the platform and earn passive income on her deposit. How much liquidity providers are paid is based on the percentage of the liquidity pool that they provide.
Liquidity pools are nothing but a decentralized smart contract that locks up the crypto tokens or crypto assets. This lock-up of assets is done to facilitate the crypto trading by providing greater liquidity.
(dEX) decentralized exchanges like Uniswap charge about 0.3% on every transaction and pay a portion of that to liquidity providers.
You can lock your funds in a wallet so it can be borrowed by people who need loans. Think of staking like fixed deposit in current traditional finance.
Depending on the platform and coins, staking rewards may range from 2-350% annually.
Staking is also a way to benefit from long term increase in value of a coin by just holding it
You can find some of the best staking deals on your crypto exchange or https://www.stakingrewards.com
3. Invest in defi Infrastructure projects
Most of the current deFI applications are built and on existing blockchain platforms, this means that for the Decentralized applications (dApps) to flourish the infrastructure projects also flourish.
Major deFI Infrastructure platforms are Ethereum, polkadot, Matic, Link e.t.c.
These projects have delivered more than 150% yearly and will likely do more.
4. DeFI Index.
Don’t want to bother yourself about individual Defi projects and the risk they may portend? You can consider investing in a Defi index,
DeFi indexes are baskets of Defi tokens that allow investors to get exposure to the upside of the DeFi arena by simply buying a single token. Alas, these products let investors trade in and out of DeFi efficiently and affordably.
There are a couple of Decentralized Finance index funds in the market, just do your basic research on which suits you.
The Binance Defi Index is the one I’m familiar with … and since inception, sometime in the summer of 2020 it has done over 100% in returns (< 1 yr).
5. Investing in Early-stage Decentralized Finance projects.
If the possibility of astronomical returns doesn’t scare you, then you might be interested in Early-stage.
You can back Decentralized Finance projects at their early stage by buying their tokens, at lower prices and selling when the prices are much higher. The major trick is analyzing such projects when they are young through a couple of prediction metrics.
While returns may be astronomical, there’s no assurance that you’ll get such returns on every project.
Think of it as Venture Capital, but for Blockchain projects.
For example, ChainLink(LINK) since inception has soared 20802.48%
A $100 investment in chanlink as at then would yield today $2,080,248. (Yes you read that right)
There are a couple of ways to predict these movements but that’s not in the scope of this conversation, I might discuss it at a later time.
The above information is for educational purposes, not financial advice, please do your research if you want to consider investing in DeFI. And make your decision based on your risk tolerance, time horizon, and Financial Knowledge.
That’s it for today, I hope you found this helpful.
This Article is Written and submitted by David Ewele, he is passionate about building and Scaling Internet assets.
Also Edited By Chinweike Jude Obiejesi, Editorial Lead at Techibytes
Cover Image by rivex-foundation