To succeed in life, you must do things differently, take lonely and sometimes risky routes that the masses have avoided, and say things nobody else is saying.
If the things, routes, and messages from decentralized finance (DeFi) developers are any signal, then DeFi definitely is an excellent ecosystem to find investment opportunities. Probably you have heard of investors who made fortunes from early investments in BTC and ETH, earning +10% interest through DeFi lending platforms, or creating exclusive investment opportunities via different DeFi legos.
If you have ever been curious about terminologies, such as “staking” or “decentralized lending” or questioned what types of tokens the DeFi community finds profitable, we will discuss the basics of DeFi investment opportunities in Part I of this series. Part II will then address the Do’s of investing with DeFi while Part III will discuss the Don’ts of investing with DeFi.
Follow all the three parts to learn life-changing insights before investing in DeFi.
DeFi Investment Opportunities
Many people, and even you right there, often ask what it means to invest in DeFi. Well, this is a great question, and luckily, today, we will offer you the right answer.
Now, investment opportunities in DeFi often resemble those in the standard financial ecosystem but come with unique advancements. In regular finance, lending mostly entails giving money to a borrower willing to repay them with interest. The borrower receives the money to cater to their financial needs, and the lender earns interest from the cash loaned.
Decentralized lending takes a similar course; it simply leverages smart contracts to hold collateral from borrowers and automatically delivers interest to the lenders. In the standard financial system, banks and other lending institutions typically provide interest to persons and businesses who create saving accounts with them in return for letting the bank use their deposits to facilitate other financial services.
Staking simply implies depositing tokens into a particular account that incentivizes the depositor for allowing the platform to use those deposited tokens to confirm transactions, securing the network in the process.
In the same manner, individuals looking for traditional investment opportunities often utilize specialized information regarding assets, such a real estate, commodities, bonds, or businesses; DeFi investors apply their unique knowledge to establish profitable ventures.
Another trending DeFi investment opportunity is yield farming. It is a new way to generate rewards with crypto holdings using permissionless liquidity protocols. Yield farming allows DeFi users to earn passive income through the distributed ecosystem of “money legos” built on the Ethereum blockchain.
It works mostly with users known as liquidity providers (LP) that inject capital to liquidity pools, which are basically smart contracts loaded with funds. In exchange for introducing liquidity to the pool, LPs earn rewards. The rewards may come from fees produced by the underlying DeFi platform or some other sources.
Analysts strongly feel that it will affect how investors HODL in the future since investors can put their money to work instead of keeping them idle.
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