In our previous articles on the DeFi 101 series about DeFi explaining and the components of DeFi, we came through all the terms about DeFi, and in this article, let’s explore how you can make a profit with your assets in DeFi world.
How to Invest in DeFi — Brief Guide
If you’re fascinated by all the opportunities DeFi could afford, you’re off to a good start. But that’s not the hard part; the hard part comes now — turning those opportunities into reality. In general, you will need to follow these steps:
- Prepare a Wallet: Your crypto wallet is a digital entity where you will store the crypto assets that are used to participate in DeFi protocols. You can choose any wallet you like, but it should be suitable for your investment plan. We also have an article about this topic that could help you here.
- Purchase Crypto Coins: Just like you need cash to invest in stocks, you need crypto coins to join DeFi protocols, if your wallet is also an exchange, you can purchase crypto there. Your just choice will be stablecoins, their price is stable and can be used for buying other coins on the DEX/CEX.
- Get Started With Protocols: There are protocols that enable investors to swap crypto, lend crypto, stake crypto for a reward, participate in liquidity pools where you’ll receive earnings when trades are made in your pools, and engage in yield farming where your participation in a loan earns you interest, and more. Details will be discussed more below.
- Track your investments/ your portfolio: Last but not least, there’s one more important step that needs to be done: Tracking. You’ll need to know how your assets are growing (or decreasing).
How to Invest in DeFi protocols
There are many ways to invest in the DeFi space. You’ll have to start acquiring cryptocurrencies frequently used in DeFi such as ETH, BNB, and MATIC. You can buy and trade these currencies through the decentralized exchanges mentioned previously.
Most investors have varying strategies when it comes to investing in DeFi.
- Staking: This involves committing idle digital assets to the market to provide liquidity and security. People stake their crypto assets to get rewards in governance tokens that are usually used for trading or voting on the staking project.
- Yield Farming: Moving on from simple investment strategies, yield farming incorporates all borrowing, lending, and staking to yield rewards. Users take out loans and exchange the loaned-out asset for high-performance projects. With tokens from such projects, users can give collateral for another token and stake their borrowed assets.
- Borrowing and Lending: Borrowing and lending in crypto are becoming a staple of the blockchain ecosystem. DeFi systems are starting to pop up in which lenders can supply tokens into liquidity pools. Borrowers pay interest on their loans which in turn gives lenders interest income.
- HODL: What’s investing in the crypto market without HODLing? So far, holding on to your digital assets is the simplest long-term strategy beginner investors can start with. It’s a strategy that’s based on the expectation that owned crypto assets’ value will grow over time. Even experienced retail investors and large institutions HODL through the market cycles.
- Invest in NFTs: The last option you can consider from our list of DeFi investments is NFT — Non-fungible tokens; you could already be familiar with this term, the NFT space is one of the fastest-growing segments of the DeFi industry. In general, you find the potential project, buy (or mint) their NFT, and add it to your wallet, then you can choose to keep HODL it, or do flip trade, it depends on your taste of investment.
Final Thought
Cryptocurrency and blockchain technology is expected to revolutionize a vast range of industries, and perhaps at the forefront of this is the traditional financial services market.
DeFi could represent a highly viable addition to your investment portfolio, and with our guide above, you can invest in DeFi through a number of popular channels and platforms. There is an extensive range of DeFi products that allow you to earn interest — each of which comes with varying risks and yields.
Otherwise, do not forget to prepare your own backup plan, carefulness is never excessive.
If you want to know more about the DeFi world, let’s take a look at our DeFi 101 Series.
We hope that our article can help you somehow.
Regards,
About Ashswap
AshSwap is the first decentralized exchange built on the Elrond blockchain that allows users to trade between stable assets with high volume and small slippage. As Elrond grows to become the infrastructure of DeFi, more types of stablecoins will flow in, and users will need a place to swap them.
Check out our social channels:
- Website: https://ashswap.io/
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