Blockchain enthusiast developer and writer. My telegram: ksshilov
DeFi (decentralized finance) is now providing the same investment opportunities that ICOs (initial coin offerings) once offered in the not so distant past.
Currently, there are more than $10 billion locked up across DeFi protocols and that number only keeps getting higher. To be clear, that’s $10 billion worth of cryptocurrencies locked in smart contracts.
All the platforms which form the DeFi space, regardless of the decentralization of their software, rely on cryptocurrency. Free of the controls which bind fiat currencies to central institutions such as banks, decentralized finance has grown and flourished. Not everyone can easily transfer their fiat into cryptocurrency and back again, however, and this fact places a bottleneck on the industry.
This fiat-based bottleneck is what keeps most people away from the opportunities offered by DeFi. If you’re one of them, or if you’ve tried DeFi before but you’re still struggling with your fiat conversion, I’m going to talk you through the better ways to get on and off with DeFi later in this article.
Whether we want to or not we all handle money electronically. Whether that digital token is on the blockchain or a digit in the database of a traditional bank, both are digital money. The key difference is that blockchain offers full transparency in how the funds are stored and transacted.
You might not really need transparency when you are depositing or withdrawing funds. Depositing adds more money to your account, withdrawing takes money from it, and a transaction moves your funds to someone else’s account. It’s pretty straight forward!
But what about saving, lending, interest, liquidity and investment portfolios? These are all concepts from traditional finance, and ways to make money with money. But how do they really work? Customers don’t know what happens behind the scenes in financial companies or whether they are getting a fair share for their contribution. That’s when you need some much-needed transparency!
Let’s understand how DeFi platforms are making money and how, by participating, you can receive your share.
1) Yield farming: Earning cryptocurrency by lending cryptocurrency.
On your side, you will just make a deposit of cryptocurrency on one of the DeFi platforms and the smart contracts work for you behind the scenes. First, your cryptocurrency will be used as collateral to receive part of its value in a stablecoin. Then it will use the stablecoins to buy a cryptocurrency with a lower market cap to provide liquidity to a pool or a new platform in return for the platform’s native cryptocurrency. You will receive the cryptocurrency that can be immediately sold for interest.
2) Market maker: Earn from fees
DEXs (Decentralized exchanges) need liquidity for their in-app traders and they have two choices: pay a liquidity pool or ask for liquidity directly from users by sharing the trading fees with them. By lending your cryptocurrency to a DEX, you become a market marker and are paid for it.
Both approaches come with their own risks, however, and the earnings can be higher or lower depending on your risk tolerance. It’s important to be aware of these factors, but once you have a grasp on what DeFi really means, the opportunities will be plentiful.
In theory, you only need a cryptocurrency wallet as DeFi apps are non-custodial; they do not hold your cryptocurrency in the process. You need to connect your own cryptocurrency wallet to the decentralized platform. Most wallets are free to use, but you will end up with an empty wallet.
But there are a few tools to help you transform your fiat funds into cryptocurrency. Some of these tools don’t even require the wallet at all, acting as 360-degree solutions for all of your DeFi needs. You can choose whichever suits your personal needs the best:
PlasmaPay is a digital payment dApp that replaces the traditional cryptocurrency wallet altogether. The platform is a link between your fiat funds and DeFi. Currently, you can transform fiat currency into cryptocurrency directly with Visa or Mastercard and in the future, you will be able to purchase any DeFi token directly.
While your funds will be ready-to-invest in any DeFi protocol, you aren’t losing access, as they can be used for payments directly with the Plasma Card. The platform is more than a wallet as it provides a portfolio focused interface and DeFi Dashboard, where you can easily manage your borrowing and lending directly without accessing the protocol itself.
The team is already working on their large-scale infrastructure project, ultimately where developers will build new DeFi protocols that will be supported by the platform on day one. This could give you early-bird prices for upcoming products.
ADD.xyz is a DeFi aggregator where you can access multiple DeFi products from one single platform. Instead of manually joining each platform, you can use its tools to make your investments and manage your tokens in a private way.
The platform includes tools like mixers and on-chain privacy protocols that you can use to send your tokens from one wallet to another without being tracked. You can buy insurance from the supported providers for deposits on lending. They also have plans to release a debit card that can be attached to your account in the near future.
Using an aggregator helps you save on the transaction fees as well but the company’s focus is mostly on usability and privacy.
Swipe is a cryptocurrency service provider that offers you one easy-to-use interface where you can store, invest, and access your tokens with ease, just like a cryptocurrency wallet. The addition of other services is what makes their solution rather unique.
First, the Swipe debit card allows you to spend your tokens without having to transfer them back into fiat. Secondly, the Swipe Network acts as an ecosystem of DeFi protocols where you can make your DeFi investments without leaving the platform.
The DeFi products supported by their network will also be available on the Binance blockchain, as the company was acquired by Binance. This means that their decentralized lending protocol will allow you to lend and borrow tokens on both Ethereum and Binance chains.
Crypto.com was one of the first cryptocurrency payment platforms, and today it continues to deliver a complete cryptocurrency solution for DeFi. This platform is more than a wallet where you can store your tokens and spend your funds directly with a Visa card.
You can use the in-app exchange to switch between tokens and manage your investment in the app’s dashboard. The number of supported tokens is growing, with more and more DeFi tokens being added to the exchange. The platform’s lending services already include 72 cryptocurrency pairs. You can deposit fiat currencies directly from the app through bank transfers, PayPal, or credit and debit cards.
Coinbase is the leading cryptocurrency exchange in the United States, but not a lot of people know that the company offers cryptocurrency wallet services as well - the Coinbase Wallet.
The Coinbase Wallet is a standalone product that can be used regardless of using the exchange or not. It includes great security features and comes with an easy-to-use interface. The wallet supports the most popular cryptocurrencies, DeFi tokens, and even digital collectibles.
Initially, the wallet was designed to easily access airdrops and ICOs, but due to DeFi’s success, the company redesigned its product for DeFi token management.
Regardless of your choice, gaining access to DeFi means accessing financial applications that will define the future of money. Some benefits of DeFi can already be seen today.
Besides instant transfers with low or no transaction fees, users can enjoy higher interest rates on their money in a transparent way while retaining control of their funds. As long as smart contracts are error-free and are being audited by professionals, you don’t have to worry too much.
Banks will still be around of course; they won’t die so easily, but it’s a free world where everybody can choose whatever fits their preferences best. If your current bank is not offering you the high-interest rates that DeFi could offer you for your money, you can simply choose to transform funds into cryptocurrency and store them in one of the decentralized apps listed above.
For the first time ever, DeFi demasks traditional financial services, showing the real power of money, and allowing anyone from anywhere in the world to access that power.
If you have a savings account that has at least $100 in it, then DeFi is already a more profitable option for you than any traditional bank. Choose wisely!