What is Defi?
What is it all about?
Is it the new finance era?
what is going to be it’s impact on the future stock market?
So many of us especially those new to the crypto space ask these questions ,I believe that by the end of this
article your questions will find answers.
Many people think that the only way to make money in crypto is by buying and selling. You buy low in
the dip, wait for a viral news and sell when it is high, but it’s not entirely true. I am here to open your eyes
to a new crypto space that can earn you money without necessarily having to wait around for coins to rise
DEFI stands for decentralized finance .
It is a term given to financial services with no central authority.
This means it is not run or controlled by any central authority. Here money can be transferred from one person to another without the aid of a central bank like we have for Cefi where central authorities are in charge of financial services like what we see in banks and insurance companies. Bitcoin and many crypto currencies are examples of Defi.
For us to have an efficient functioning Defi system we need Infrastructures for running writing and programming decentralized programs (Dapps). A very
good example of this is Ethereum (which is very volatile). Crypto currencies that are non volatile which are in tune with real word asserts to operate within the Defi system. An example of such crypto currencies are stable coins like DAI.
DAI is a stable coin pegged to the value of 1UD Dollar which means
1DAI = 1USD
It is backed by crypto collaterals which can be viewed on the blockchain like ETH which means you can lock up some Ethereum to get DAI and if you have no ETH to lock up, you can just buy DAI from an exchange. Because of this ,DAI’S over collateralization covers for ETH’s volatility.
Decentralized finances: Here we will be needing a decentralized exchange(DEX). DEX operates on the ETH platform meaning it runs without any central authority ,it has a set of smart contracts that allows users to send, receive and transfer crypto currencies anonymously.
In DEX there are no records signups and id verification .There is also Defi insurance which ensure your funds against risk and Defi money markets.
Defi money markets connects lenders anonymously to those who do not need their asserts at a time. It allows you to anonymously borrow crypto from someone who has so you can pay bills rent and buy groceries. And yes, all these are done under close management with terms and conditions but your
privacy is assured.
Defi wallet: A decentralized digital wallet where you can hold your Defi coins and crypro currencies.
Examples are Trust Wallet ,MetaMask, Algorand wallet etc.
Free for all to use
Flexibility of the system
RISKS INVOLVED IN DEFI
Some smart contracts can go wrong because the Defi systerm is still at a developing stage
Don’t invest more that you can afford to loss. Invest wisely
Be sure to do your reserch properly on the defi project you want to invest in first.
Now that we have discussed what defi is all about, its concepts ,advantages ,and risk, lets look at some ways we can make money using Defi systerm.
• Lending: You can temporarily lend your crypto to users who need it on your own terms while maintaining your anonimity. When it is payback time ,it is not uncommon to see interest rates of 30-40% APY per person you learnt the crypto which we don’t usually see same in Cefi.
Investing in lending in Defi give you high returns rate and true control of your lendings (only you can send money to your lendee ,just be sure not to provide anyone with your private keys, for your fund security). It is all collateralized.
• Providing liquidity: This involves adding your money into a general money pool in crypto using two different crypto currencies. In this, money is earned from the transaction fees of anyone who buys that crypto currency of which your money is a part of that liquidity pool for that coin. The down side is what you call inparmanent loss which happens cause of the volatility in the price of
the two coins. If the price of the coins where to significantly spike up you wouldn’t earn as much as you would have earned if you had just bought those two coins as separate units and not part of a liquidity pool.
• Incentives and Airdrops: This is a way crypto currency companies advertise their business and crypto native token by giving away free money to their users or the general public when they perform certain social task. When you participate in these airdrops you are previleged to earn some free cash or crypto.