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Monday, November 28, 2022

Beginners guide on various ways for DeFi investment

DeFi aka Decentralized Finance stands out as the torchbearer of a more democratized finance. Blockchain infrastructure aims to transform the traditional financial world into a decentralized zone where every person will receive the opportunity to take part in the finance ecosystem.

The DeFi revolution focused on the establishment of P2P transactions that would be able to take place without the interference of any centralized authority or intermediary. The result would be a faster, more convenient, and more affordable transaction, be it about taking a loan or making a cross-border payment. The DeFi world has evolved and today you have around 550 DeFi tokens and coins. One of the most popular ways to invest in the DeFi world is through DeFi asset trading where you buy and sell defi coins.

However, there are multiple other ways to make an investment in the DeFi scene. The DeFi market is evolving and evolving fast. As per the market reports, the DeFi market (worldwide) size is predicted to touch over $500 billion by 2028, clocking around 43.8% CAGR. If these predictions are to be believed, DeFi investors are poised to experience high returns in the coming years.

Different ways for investment in the DeFi world

Investment in DeFi assets

This is the most common form of investment when you are looking to foray into the DeFi scene. As mentioned before, there are over 500 DeFi  coins and tokens as of November 2022 and you have a wide range of options to choose from. The DeFi tokens and coins serve as native currency of a DeFi platform that could range from a DEX to a lending platform, and so on. Mostly these are platform governance tokens and allow management power and voting rights to users. One of the best aspects of the DeFi coins is that the holders here hold the right to take decisions on future plans to be incorporated within the network.

You will be able to buy and sell defi coins on crypto exchanges. However, you will need cryptocurrencies to purchase DeFi coins. Do not just settle with the first ever DeFi coin you would come across online. Take a thorough research on the top 10 DeFi assets and choose 1-3 of them. UNI (Uniswap) is currently the #1 DeFi coin. If you want to start with just one DeFi coin initially, begin with UNI. Other popular DeFi assets are MAKER, SNX, and so on.

DeFi staking

A major reason why this method is loved by DeFi investors is that it doesn’t require you to make additional expenses to take part in the process. Rather, staking allows a form of handsome passive income through the idle DeFi asset holdings.

Before getting into further details, you should know that staking is a protocol for block verification for PoS blockchains. In this case, the blockchain requires a certain amount of cryptos or DeFi assets to execute the operation. PoS blockchains take the assets from the asset holders only. Your assets will be kept locked in for a certain period of time till the staking process gets completed. In return, you will receive staking rewards that will serve as a handy passive income from your otherwise idle DeFi asset holdings.

You can directly approach a PoS blockchain for staking. But, a more convenient route would be to participate in the process through 3rd-party staking platforms. Make sure to conduct an extensive research before choosing your staking platform. Look for a one that not only commands high reputation  but also assures high APY. Some of the staking platforms offer up to 75% APY for 1-year lock-in period. However, you can choose a shorter  term as well, say 3 months or 6 months. But the staking reward will be bigger with a longer lock-in period.

Yield farming

The process is somewhat similar to staking but there is a slight difference between the two.

The main agenda of staking is to help a PoS blockchain with new block verification. But, in yield farming, the goal is to help a DEX to attain steady flow of liquidity. Unlike centralized, decentralized ones often suffer from lack of liquidity. Thus, these platforms have to borrow liquidity from yield farming platforms to ensure a seamless decentralized trading experience for their traders.

Now the process for the DeFi asset holder would be the same. Just kike staking, in yield farming too, you will have to give away your DeFi assets to the farming platform for some time and you cannot withdraw these assets within that time period. In return, you will receive a part of trading fees earned from trading in the DEX.

Savings account

If you are new to the DeFi world  you might not be aware that the DeFi scene has its own savings account. So, one way to make investment in the DeFi arena is through a savings account for DeFi assets. However, just like the two options mentioned above, this is also another form of passive income route from your DeFi asset holdings.

You will just need to deposit the DeFi assets into a reliable savings account designed for DeFi users. In return, the user will be able to earn interest from the account. These savings accounts function in almost the same way as conventional fiat currency savings accounts and you will have a familiar process here. But, the DeFi ones generally offer way higher yields in comparison to the traditional fiat savings accounts.

DeFi stocks

Are you apprehensive of investing directly in the DeFi sector? You must have heard of extreme volatility of the DeFi market and you still need more inspiration to take part in this emerging asset. Otherwise, it could be that you just want to understand and experience the workings of the DeFi assets and the overall sector without directly participating in the DeFi scene.

Well, then, the easiest solution would be to opt for DeFi stocks. These are stocks of those businesses that are somehow involved in the operation as well as growth of the emerging DeFi zone. However, for that, you will have to sign up for a traditional stock exchange.

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