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For those who don’t know that yet, DeFi stands for decentralized finance. This term is used for all kinds of financial applications of various blockchain technologies. While these DeFi applications aim to revolutionize the way global financial structures work, that doesn’t mean we can’t just use them to earn a little bit. In this article, we explain how you can do that with minimal risks.
How DeFi tokens work
Basically, DeFi projects allow many people to store a history of transactions instead of keeping it in one place, controlled by an autonomous company. That makes you more in control over your own money and less dependent on corporations, and that’s the main idea. While many DeFi projects are made simply for providing safe and transparent transactions, some of them focus on more specific areas, including loans, insurance, betting, and so on. Their operations are based on smart contracts.
DeFi tokens are cryptocurrencies native to those decentralized platforms. These tokens are mostly used to fuel the operations on a certain platform by providing means for paying transaction fees. They can also be used as governance tokens that allow a holder of such coins to participate in decision-making process. The entire DeFi market has a $40 billion market cap, and while it has seen better times, this area of blockchain applications will probably remain one of the most promising in the future.
Investing in DeFi
DeFi platforms have many benefits. You don’t need to get permission from some financial institution to access your money, to take a loan, or to make a transaction. They are incredibly secure thanks to cryptography and elaborate consensus algorithms, and blockchain technologies make it almost impossible to manipulate transactions data. And what’s especially great, you can use them to make a lot of money. Let’s find out how to invest in DeFi with minimal risks to reap considerable profits.
There are several ways you can earn with DeFi projects. First of all, you can simply buy DeFi coins and hold them, waiting for the price to skyrocket. However, this way you have to look out for possible problems of your chosen projects, and the price may go all the way down, so that’s definitely a risky investment. Instead, you can try staking the coins. That means you lock them for a certain period in exchange for some profit. You can also try a similar method, yield farming, to offer liquidity to an exchange.