DeFi, or decentralized finance, is an innovative crypto niche that has been growing for the last 2 years. We can safely say that it is an emerging financial technology that challenges the conventional centralized banking system by eliminating fees charged by banking services and promoting P2P (peer-to-peer) transactions.
We're done with the basics! Let's embellish the fundamentals with details and switch to another term you may come across. If you have been using DeFi tracking sites, chances are you have run into TVL (total value locked) as a reference point. You're probably about to google the abbreviation but hurry not: we've got your back.
TVL represents the number of assets that are currently being staked in a specific protocol. To put it simply, TVL is a metric that shows how much money users invested into the project. It can be valued either in USD or ETH (Ethereum).
Well, this may still seem a little unclear, but there's a reason for that: the decentralized structure has not yet been refined. Decentralized innovations imply inevitable setbacks; it is simply impossible to build a solid concept without them. But even so, DeFi protocols have a variety of options for the future generation. Let's see what's next.
CeDeFi Comin’ Right Up
CeDeFi is an amalgamation of centralized and decentralized finance, a perfect merger that brings the best functionalities of both systems.
Basically, DeCeFi consists of cryptocurrencies that are pegged to the US Dollar and thus considered stable. Such stable assets are fundamental for any economic system; the whole structure accumulates around it.
Along with decentralized financial solutions, CeDeFi platforms often support thousands of cryptocurrencies on several blockchain platforms. Stablecoins stimulate decentralized finances, thus preventing the high volatility of the cryptocurrency market.
DeFi protocols use stablecoins as an asset as stablecoins build trust and decrease volatility. This approach makes them perfect for decentralized financial products. Here's an example: MakerDAO project that created a stablecoin DAI and Oasis app.
DeFi Investments Explained
All DeFi investments are a risk. In addition, the DeFi investments you choose will determine the types of returns and whether you need to lock up your crypto tokens for a certain number of days.
If you are wondering how to invest in DeFi in order to maximize potential returns, then let's look at a few methods below.
All DeFi investments are a risk. Practically, all crypto-related investments are a risk, but this one hits different. In addition, the DeFi investments you choose will determine rates of returns and whether you need to lock up your tokens for a couple of days.
Are you intimidated yet? Hopefully, the potential obstacles don't scare you away, and you're ready to plunge into DeFi investments with us.
DeFi Coin Investment
This one's easy: you buy the best DeFi tokens, and that's it. The idea is that you will invest in a DeFi project, holding its own digital currency. Like all crypto tokens, the DeFi coins you buy will be listed on crypto exchanges. Still, this is not the only option: let's explore the tokens that offer a customized DeFi portfolio.
When you acquire DeFi cryptocurrency, you should always keep in mind that the value of your investment will rise and fall throughout the day depending on market supply and demand. Each token and project focuses on a specific area of the decentralized finance industry, so you'll have to analyze the market and the offer to choose the right coin.
For example, turn to the DeFi Coin (DEFC), a token launched by the decentralized exchange DeFi swap in 2021, which offers various dApps and tools. What's interesting, DEFC is supposed to eventually become the center of all decentralized finance. Well, we'll see to that.
What else does DeFi Swap do? For instance, it allows its clients to trade digital tokens without requiring centralized organization. Then, betting services. Looks promising to us.
Another method you may want to check out is a staking platform. That's how it works: you lock up your tokens for a certain period of time, but the interest for the coins you have locked up will nonetheless be generated. In short, your tokens are working while you're resting. It's like having a savings account where you place money in your account and receive interest.
That much is clear, but how do you make money on that? Two ways.
First. You stake your tokens on PoS (Proof-of-Stake) blockchains (Solana or Cardano, for example.) Then, the coins will be locked up within the blockchain and used to check the transactions.
Second (and more profitable). Find a well-reputed third-party staking platform that offers a high APY. You deposit your tokens into the provider's smart account used to fund liquidity pools and loans.
DeFi Savings Account
Crypto saving accounts are another DeFi investment option. You deposit tokens into a savings account, thus generating interest in return. If you suspect that it somehow reminds you of a commonplace idea of a traditional savings account, you are right: the concept is overall identical.
However, unlike traditional deposits in US dollars or euros, DeFi savings accounts bring a high yield. Profit depends on a variety of factors: what kind of DeFi platform it is, which tokens you plan to keep, how long the lock-up period is going to be, etc. For example, some DeFi accounts pay higher interest when you stake their own token.
DeFi resources are inexhaustible and progressive, give them a chance. Imagine: more AMM liquidity, stableswap, and lending can scale the decentralized finance structures where necessary. Innovative protocols are about to strike and help the world adopt various cryptocurrencies, thus creating a safe and transparent global financial concept for users.
What a promising future for the sphere! There's certainly more in store. We just have to wait and see what's next.
Market opinions may not coincide with the editorial viewpoint. Traffic Cardinal does not provide investment advice. The material is published for review purposes only.