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DeFi is crazy and we love it!

Credit: Lightbulb Moment

Welcome to the world of decentralized finance!

While Bitcoin trades $55,967.06 (at the time of writing), the party has already started in the DeFi industry.

DeFi stands at the heart of crypto-anarchism, focusing on the protection of privacy, political and economic freedom. The technology aims to be absolutely transparent in order to remove intermediaries from financial transactions. The trusted bodies are network participants.

The capitalization of the decentralized finance market has grown from $686 million on January 1, 2020 to $15.6 billion just one year later.

However, DeFi is power-hungry and the buzz has attracted common crypto scams. For example, scammers have been ill-using Uniswap, a popular DeFi platform, with activities such as listing fake tokens for sale. Such scams can trick beginners who haven’t done enough research and make quick decisions based on excitement and greed.

DeFi: the future of crypto trading

Crypto trading

Decentralized exchanges (DEX) were created in order to solve all the problems of centralized exchanges. DEXs are not operated by centralized companies — instead, they are decentralized and trading is fully automated. The main advantage of decentralized exchanges like Uniswap and SushiSwap is the fact that you can start buying and selling crypto almost immediately. Considering that the majority of DEXs are built on the Ethereum network, all you need to trade is an ETH wallet.

After you connect your wallet to the exchange, you can start trading - there’s no registration process and no KYC/AML verification. You don’t have to disclose any private information or send any scans of your documents.

Decentralized exchanges are global — they provide access to cryptocurrencies to anyone, anywhere in the world, and they give you full freedom to use digital currencies with no outside interference.

The most prominent DeFi exchanges are Uniswap, which currently has a trading volume of $1.75 billion, Pancake Swap ($1,153 billion), and Sushiswap ($685 million).

Crypto staking

Credit: Investinblockchain.com

Staking is a way of earning rewards for holding certain cryptocurrencies. Many long-term crypto investors and traders consider staking an opportunity to make the assets work for them by generating rewards. The staking function has the added benefit of contributing to the security and efficiency of the blockchain projects you support.

By staking some of your funds, you make the blockchain more resistant to attacks and strengthen its ability to process transactions. Staking often requires a lockup or ‘vesting’ period, where your crypto can’t be transmitted for a certain period of time.

Before starting, it is crucial to understand your chosen project. Currently, the most prominent staking projects are:

  • Tezos is the biggest staking project for the moment, with more than 80% of users staking. The most popular exchanges support staking for this project. Tezos is a multi-purpose blockchain that uses a proof-of-stake consensus mechanism to secure its network. Token holders can delegate their accounts to a validator, who will be in charge of securing the network on their behalf. The user may then earn the rewards generated minus the validator’s fees. The current annual yield on Tezos is around 6%, minus the fees.
  • Cosmos is an ecosystem of connected apps and services. When the staking transaction is complete, rewards will start to be generated immediately. At any time, stakers can send a transaction to claim their accumulated rewards using a wallet — typical APY is 9.7%.
  • Kirobo is a decentralized platform that adds a protective layer to blockchain transactions, making transfers safer and more accessible to crypto beginners and veterans alike. Our goal is to help people feel good about sending transactions on the blockchain by reducing the possibility of asset loss due to human error. Kirobo also offers a staking service with a contract reward of 500,000 KIRO every 30 days. The more considerable the stake the bigger the reward!
Yield farming

Yield farming tends to earn users more rewards than staking, since the risk is higher. You’re investing in projects that rank relatively low in market capitalization, experience and reliability, which is why they pay more for your support. In the DeFi economy, a yield farmer plays the role of a bank, lending their funds to encourage the use of coins and tokens. Yield farmers usually move their digital assets from one lending market to another in search of the highest yields.

Examples of protocols offering yield farming are Compound Finance and Maker DAO. Returns are calculated annually and are usually higher than those of a typical bank — from 3.24% to 27% APY.

Liquidity Pools. Credit: Cointelegraph

Liquidity pools are pools of tokens locked in smart contracts that provide liquidity to decentralized exchanges. Crypto holders can lend their money to a pool in return for a part of the transaction fee profits.

The value of tokens in a liquidity pool is determined by the ratio of tokens held within as well as the size of the pool. A large pool and low trade means that the cost of tokens will decrease. Small pools and more trades equal a high token cost.

To participate in a liquidity pool, a user does not have to meet any special eligibility criteria or fill in any KYC forms, which means that anyone can participate in providing liquidity for a token pair. Liquidity pool providers include Uniswap, Curve Finance, and Balancer.

P2P borrowing and lending platforms. Credit: voice.com

According to research conducted by Messari, DeFi lending is the top-performing category in terms of ROI, followed by decentralized exchanges and DeFi payments.

DeFi’s open lending protocols are similar to bank protocol - users deposit their money and when someone borrows their digital assets, they earn interest. However, instead of an intermediary, P2P platforms use smart contracts to dictate loan terms. Once the smart contract has been deployed on the blockchain, it is implemented immediately and can’t be stopped unless both parties agree. Due to the transparency and immutability of the blockchain, the lender earns high returns and is able to assess risk more clearly. The standardization and compatibility of the system can also minimize costs with automation. Examples of P2P lending platforms include My Constant, BlockFi, and Aave.

Prediction markets

Prediction markets are exchange-traded markets created to trade the outcome of events. The market prices can indicate what the crowd thinks the probability of the event is. The decentralized prediction market offers greater flexibility, allowing users to bet on the outcome of future events in a more open, and inexpensive, censorship-resistant environment. Users are also able to create their own markets, make forecasts, and bet on them. Additionally, users can bet on a fraction of an outcome, thus getting rewards based on their predictions. Examples include Augur, Gnosis and Omen.

The naive will lose their homes buying some shitcoin that’s going to the moon. But others will gain financial freedom by breaking free of financial institutions and regulators!

The article is not investment advice and must be used for informational purposes only. It is very important to do your own analysis. You can use KIRO for utility purposes only. Israeli, Canadian, and USA citizens cannot buy KIRO.

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Alex Goldberg

A huge crypto fan. I believe that the decentralized world is the future, Blockchain technology is changing the world.