“DeFi” stands for “decentralized finance,” and it refers to financial services that are based on open-source blockchains rather than proprietary systems. A smart gadget with an internet connection is all that is needed to manage one’s assets without the need for centralized financial middlemen.
With a non-custodial asset management platform like Zerion, investing in DeFi has gotten a lot simpler and makes it easier to understand What is DeFi Insurance. Create and link your Zerion account with your Ethereum wallet to get started. Afterward, you’ll be able to begin planning and creating your DeFi cryptocurrency portfolio.
Investing in DeFi Insurance may be done in a variety of ways. It all boils down to your risk tolerance. Here are four possible ways to invest in DeFi.
To “Hodl” is the most straightforward approach for novice bitcoin investors. It all started with a mistake in the word “hold” in a long-term investing plan on a crypto forum in 2013. “Hodl” became the tongue-in-cheek expression of disregarding market ups and downs and hanging on to what you acquire, no matter what.
HODLing looks to be the simplest strategy to develop your portfolio at first appearance, but it may not be the wisest. As a result, it is unable to take advantage of the potential passive income generated by your crypto assets that are offered by DeFi.
The DeFi rule of thumb is that no money is ever left on the table. For the most part, though, DeFi investment tools like Zerion make it simple for you to invest your crypto.
Borrowing and Lending Crypto
To borrow or lend crypto assets in DeFi, all you need to do is offer collateral. The banks that manage the approval of a loan do not conduct a credit check. An automatic digital “intermediary” is used instead, which sets rates depending on the coins in a liquidity pool.
When lending tokens to the liquidity pool, lenders often seek to make a profit via interest. Over-collateralized loans are common in the DeFi protocol, which implies that borrowers guarantee the loan with crypto that is worth more than the actual amount of the loan.
However, the mechanisms of decentralized money markets aren’t the only thing that sets DeFi lending and borrowing apart. Interest rates may also be quite favorable. Most DeFi accounts yield between 1% and 5% a year and accumulate interest every 15 seconds, while the average savings rate in the United States is merely 0.09 percent per year.
DeFi Staking and Yield Farming
These two tactics often work together, and the lego-like compatibility of most DeFi possibilities makes it possible for them to do so.
Staking is one of the most straightforward methods of putting your cryptocurrency to work. By securing your idle assets, you help to increase market liquidity while also contributing to the secure functioning of decentralized financial services, among other things. The majority of DeFi projects provide staking incentives in the form of governance tokens, which can be used to either retain voting power or be swapped for other assets. The same as with conventional savings, the longer you hold on to your DeFi assets, the more you will earn.
Profit maximization via interest earned and staking incentives is achieved by the use of a more complicated investment strategy that mixes loan, borrowing, and staking in order to maximize earnings. While yield farming provides some of the biggest returns in DeFi, it also entails some of the greatest dangers.
The following is a hypothetical example of how you may go about it: you take out a loan and exchange the borrowed monies for some other high-performing cryptocurrency. Then you use that token to put up collateral for another loan, and you stake those assets that you have borrowed.
When dealing with huge sums of money, an investment may be multiplied several times over in order to maximize the interest and staking advantages that you get from it.
Because it does not entail borrowing at high-risk interest rates or maintaining large collateral ratios, staking is considered a safer passive investing method when compared to yield farming.
Indexes are one of the most straightforward methods of diversifying your cryptocurrency holdings.
Exchange-traded funds (ETFs) are used in conventional finance to follow the prices of several assets at the same time – for example, an S&P 500 ETF that tracks the price movements of all 500 businesses in that index. DeFi indexes are comparable to traditional indexes, with the exception that the assets in which you invest are cryptocurrency tokens.
One of the advantages of tokenized indices is that, like exchange-traded funds (ETFs), the tokens in a particular index are generally picked based on rigorous criteria such as size or volatility. This gives investors the ability to essentially outsource the study and research that would otherwise be required to choose tokens for their portfolio to the index provider.
One such example is the DeFi Pulse Index, which is comprised of the major DeFi initiatives and can be found here. Another is the MetaVerse Index, which allows investors to place bets on the future of non-fungible tokens (NFTs) since it incorporates the largest NFT protocols in the Decentralized Exchange (DeFi), among others.
Grow Your DeFi Portfolio with Zerion
Regardless of your investment plan or risk appetite, Zerion a non-custodial asset management platform that consolidates DeFi operations in a single location – may make your investing process more efficient and less time-consuming. Every DeFi protocol and token is available to you for exploration, allowing you to construct your DeFi portfolio in a single user-friendly interface. Get started on the Zerion app now and take the first step toward DeFi investment success.
Guiding your DeFi journey
There was a brief introduction to decentralized finance in part one of this tutorial.
Using a platform like Zerion, we looked at how you can get started.
Here are some of the most common DeFi investing techniques that you may use to put what you’ve learned from the previous two installments into action.
Congratulations for taking the time to learn more about DeFi, and best wishes for a successful few years ahead.