Decentralized finance (DeFi) is now becoming very attractive for private investors and investment funds. DeFi has already become a serious competitor to the conventional banking sector of the global economy. The growth in popularity is due, among other things, to the fact that the banking system has a large number of bureaucratic barriers, and customers have to pay significant fees when using banking services.
At the moment, decentralized projects attract tens of billions of dollars for their development, and they are represented by several main types.
Types of DeFi projects
Landings. Issuance of loans between clients. They are characterized by almost complete anonymity, the credit histories of users are not checked. Loans are issued against collateral. The income of asset suppliers is based on a percentage of transactions. As an example, you can specify such sites as Aave.
DEX. A decentralized exchange. Liquidity providers are guaranteed both a percentage of transactions and additional rewards. Operations are carried out in automatic mode. The most well-known decentralized exchanges are such as Uniswap, Balancer.
Derivatives. Decentralized contracts for the purchase or sale of virtual assets are being implemented. Nexus and Erasure are engaged in similar activities.
Payment systems. Platforms that are engaged in making different payments between customers or companies. These are xDai, Flexa.
What are the current ways to invest profitably in DeFi
There are several such methods now. One of the most used is farming.
It is also called profitable farming. Its peculiarity is that clients move their own finances to the protocol. In return, they are given rewards in the form of tokens of this protocol. Despite the apparent simplicity of farming, in order to maximize profits, you need to carefully consider certain strategies, look for the most profitable option for farming. If the user has experience in this field and understands the nuances and pitfalls of farming well, he can earn a decent income.
Now farming is offered by many sites. Among them are such as Compound. On it, users can use the Ethereum wallet, invest in a liquidity pool and receive profit in return.
Synthetix uses a similar mechanism. He also suggests blocking several assets as collateral. A mechanism is used, thanks to it you can get passive profit.
Another platform offering farming is Curve. It is possible to trade stablecoins profitably on this exchange protocol. For the fact that users add liquidity to the pool, the protocol rewards them with digital assets.
If you look at staking from the point of view of users, then for them it is somewhat similar to a savings account. It is enough to block a certain amount on the account and tokens will be issued in return. Users participate in staking pools. They are managed by decentralized PoS protocols. The profitability of staking in decentralized finance can reach several tens of percent per year. Many DeFi exchanges offer a staking option for their clients.
Purchase of tokens with the expectation of cost increasing.
This mechanism involves buying certain tokens, holding them for a certain period of time, and then selling them at a higher cost. This type of investment is considered both highly profitable and risky at the same time.
Some tokens may have very high volatility. It is possible to get several tens of thousands of dollars at once per day, or you can lose them also during the day. Therefore, this method of investing in DeFi is used by those investors who have the appropriate financial reserve to minimize risks.
Such an investment involves making a profit at the expense of so-called P2P loans. The mechanism is built as follows. The lender and the borrower contact using the blockchain. The lender issues a loan to the borrower at a certain percentage. The lender contributes its assets to the liquidity pool and makes a profit by receiving interest.
Almost all operations in the landing page are performed automatically, so the human factor does not interfere. As for interest rates, they are created on the basis of supply and demand for a particular digital currency. The advantage of landing is that almost any user can get a loan. The credit history is not checked. User verification is also not carried out. The main thing is for the borrower to make a deposit, it can be up to 14 percent of the amount of loans issued.
Through the use of smart contracts, a guarantee is provided that lenders will still receive a profit with interest, even if the value of the asset suddenly decreases or the entity that took the loan does not return it.
Many platforms provide such services. Among them are such as Aave, Maker, offering customers the opportunity to receive loans and receive interest from lending.
Trading transactions with leverage (margin trading) consist in the fact that users receive borrowed funds from the exchange secured by its own asset. Moreover, it is possible to use the issued loan exclusively on this exchange. Anyone can act as a creditor. It is enough to provide an asset to another participant, and then get a percentage. Due to the use of special mechanisms, the risks of asset loss are extremely small.
These are the ways to invest in decentralized finance. Before using any of them, you should use some recommendations.
In particular, the user should carefully study the project, read the technical documentation, find out whether an audit was conducted by reputable companies. You can also view what data the portals dedicated to DeFi provide about the project.
In addition, the user should understand that now there are a large number of projects on the market that supposedly promise high profitability, but in fact the profit will be very small. And you should not use only one project for investments, it is best to invest in several to minimize the risks of losing funds.
To sum up
Due to the fact that users can get a fairly high profit in a short time, a large number of interesting DeFi platforms appear, to which many large investment funds are interested, decentralized finance, as a sector of the cryptocurrency economy, are becoming more and more in demand. If you minimize the risks of investment, then the user can really count on a decent income.