DeFi 2022

Is it worth investing in DeFi?

DeFi is considered one of the most promising and developing industries for investors. It is attractive for high returns in the crypto market. According to data from DeFi Pulse, DeFi tokens’ price locked in DeFi protocols rose sharply from $1 billion in 2019 to $15 billion in 2020. Another growth spurt was $87 billion and was recorded in May 2021. At the same time, DeFi is still at an early stage of its development. In this article, we will tell you what DeFi is, how it works, whether this technology has a future, and how to make money on DeFi tokens.

What is DeFi?

DeFi (decentralized finance) is a financial instrument in the form of services and applications created on the blockchain. The main aim of DeFi is to represent an alternative to the banking sector and replace the traditional technologies of the current financial system with open-source protocols. That is, it opens access to decentralized lending and new investment platforms to a large number of people, as well as allows them to receive passive income from cryptocurrency assets.

Most existing DeFi projects are developed on the Ethereum blockchain, and the number of new decentralized finance applications is steadily growing.

How does DeFi work?

DeFi, as the name implies, is a decentralized option of banking services, in which people and organizations can provide loans to other people and organizations without the participation of third parties (banks and brokers). This role is taken by smart contracts — automated and self-executing algorithms that encode all the obligations of both parties and the conditions for the execution of loan contracts, as well as the payment of interest to creditors.

As DeFi eliminates intermediaries from lending, the process of a loan transaction becomes simpler, and the loan itself becomes cheaper. Surely, the lender has the risk of losing his money by giving it to a borrower who is unwilling or unable to repay it. However, this problem is usually solved by the provision of excess collateral by the borrower.

Pros and cons of DeFi

Pros

• Speed. Owing to the blockchain and smart contracts, DeFi loans are issued very quickly — about a minute (a little more if you need to register). Without intermediaries and any verifications, transactions take place almost instantly. Whereas the issuance of bank loans can take several weeks.
• Ease of issuing a loan. To apply for a DeFi loan, all you need to do is register on the appropriate platform, such as Aave or Maker, and make a deposit.
• The absence of intermediaries. Smart contracts allow lenders and borrowers to enter into a contract directly. In addition to making transactions faster and easier, it also enables lenders to get higher returns and borrowers to borrow at lower interest rates.
• Ease of market access. DeFi is an open and transparent ecosystem that anyone can join who has access to the internet and owns a crypto wallet. Location and credit history are also not important.
• Market transparency. DeFi lending platforms are built on public blockchains so that any user can check the terms and specifications of smart contracts and understand how the system works.
• Greater efficiency of analytics. Since DeFi is done digitally, it allows you to track all the processes and data associated with it. This creates excellent prerequisites for improving the quality of analytics for both the lender and the borrower.
• Compliance with obligations. Unlike banks and other traditional financial institutions, where no one can guarantee compliance with international, state, and local regulations due to the human factor. In DeFi lending, obligations can be written into a smart contract that guarantees their enforcement.
• Immutability. Another advantage of DeFi is the inability to change the data entered into the blockchain. This ensures reliable data coordination, increases security, and enables high-quality auditing.
• Anonymity. DeFi lending typically does not require passing verification, allowing users to borrow and lend money anonymously.

Cons

• The risk of hacking smart contracts. Although this is rare, users borrowing money from DeFi platforms still need to have at least an average level of technical knowledge and skills of using blockchain in order to be able to recognize a scam project. Or they should only use the services of DeFi platforms that have been verified by independent auditing agencies.
• The volatility of DeFi coins. DeFi coins are very volatile. Thus, in order to minimize this risk, you should lock your funds in various projects and protocols, or make investments in projects based on stablecoins.
• Investing in scam projects. One of the highest risks is considered investing in scam projects. Therefore, before investing in some projects, you should ensure that the protocol has been tested by auditors. You have an opportunity to check the smart contract registration in special explorers of the blockchain and websites that track DeFi projects (DeFiMarketCap, DeFiPrime, DeFiPulse). You can also read publications and monitor social media of projects to get to know more information about their environment and audience.

Top 10 DeFi projects for 2022

The market of DeFi expands and becomes bigger every day. These facts led to the appearance of a huge number of DeFi projects. For this reason, we have decided to provide you with information about the top 10 DeFi projects you should pay attention to in 2022.

1. Aave

2. Avalanche

3. Cardano

4. Chainlink

5. Polkadot

6. Terra Luna

7. Polygon

8. Solana

9. Synthetix

10. Uniswap

How to invest in DeFi?

Yield farming is a kind of investment that enables liquidity providers (LP) to lock their DeFi in a smart contract (it is also referred to as a liquidity pool).

Staking. The essence of this kind of investment is to store cryptocurrency in a special crypto wallet that supports the Proof-of-Stake (PoS) blockchain network. That is, staking resembles a deposit on which a certain amount is locked to get a passive income from it.

Lending & Lending Protocol. This is a type of lending where the user, as a lender/borrower, can deposit their assets and receive interest or take out a loan secured by their assets. This is the most popular DeFi solution at the moment.

Margin trading (leveraged trading) on DEX is a kind of trading on the crypto exchange by utilizing leveraged funds. Owing to leverage, a user can invest more funds than available during the trading process.

Investing in DeFi crypto. This kind of investment functions as follows. The investor buys the DeFi token and waits for its price to rise.

This method of investing is that within several hours after issuance of the DeFi token, its cost can rise by thousands of percent. Also, you should consider the risks here, as new tokens are highly volatile.

DeFi solutions are Coming Soon to the Cryptorobotics platform

At the beginning of 2022, the Cryptorobotics trading platform is going to release the first DeFi solutions, which will include the following features:

• DeFi analytics with current returns on the PancakeSwap exchange.
• DeFi alerts — notifications about the current profitability.
• DeFi smart orders are created for trading considering the “Impermanent Loss”.
• DeFi robots. They are capable of opening and closing orders by themselves.

Users will be able to use all these features on the PancakeSwap exchange. To get more information and news about the Cryptorobotics trading terminal, subscribe to our YouTube and Telegram — @Cryptorobotics channels.

Crypto & casino expert https://www.linkedin.com/in/defimarketing/