How to make money Defi Decentralize Finance: Pros and Cons, profitability, and best coins for profit and a lot moreDeFi is opening up more and more passive income opportunities. Some of them are more complex, some are, on the contrary, very simple and accessible even for beginners. The editors of Bitcoinminershashrate.com propose to consider the main current methods of making money on decentralized assets.
Let’s talk about such methods of earning money on DeFi as:
Each of them has its own pros, cons and features.
The content of the article
With the emergence of various decentralized financial protocols, yield farming has exploded in recent months.
At its core, this is a process in which the user receives native and control tokens of a particular protocol as a reward for being active in it (liquidity supply, deposits, loans, trading). This concept gained popularity thanks to the Compound protocol, which began distributing COMP tokens to users who contributed funds to the platform or took out decentralized loans. Thus, the project encourages users to perform certain operations.
Most cryptocurrency protocols are based on decentralization; if in bitcoin or ether it is achieved through mining, then projects built on Ethereum achieve decentralization by transferring control to protocol users using tokens.
This is exactly what the Compound developers did. They issued COMP tokens, giving users control over the protocol. COMP is distributed in proportion to user activity and represents an additional bonus for using Compound only. Immediately after the release, the token increased significantly in price. The community quickly realized that using the platform could bring benefits. This phenomenon is called profitable farming. This farm led to a sharp inflow of capital to Compound – almost half a billion dollars was added to the protocol in the week in mid-June.
Other sites that provide an opportunity to engage in profitable farming:
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Another way to make money on decentralized assets is to play on price growth. The peculiarity of the sphere now is that in a few hours after the release, the token can rise in price by hundreds and thousands of percent, and then also rapidly fall in price or continue to grow. It is not surprising that the field of investment is in great demand.
The most striking example is the YFI token of the Yearn.Finance platform, which grew by 130,000% from July to September 2020.
Now it continues to be extremely volatile, fluctuating in the +/- $ 3000 range every day, which provides a lot of opportunities for market speculation. There are other similar examples – UMA (UMA), Unitrade (TRADE), Ocean Protocol (OCEAN) tokens.
Thus, by buying a promising DeFi token for a small amount, you can increase your investment thousands of times. But at the same time, no one canceled the risks. Not every project is expecting steady growth, especially since now there are more and more such projects; many of them are known to be fraudulent.
To choose a token with good potential, you can pay attention to a couple of criteria:
However, it is worth noting that it is best to buy DeFi tokens at the moment of their appearance on small platforms, since after listing on Binance or other market leaders, the price usually stabilizes or gradually decreases. On the other hand, small exchanges do not strictly monitor the quality of coins added to the listing.
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Staking is a traditional way of passively making money on cryptocurrency, which has been relevant for several years. It is now attracting special attention due to the fact that Ethereum plans to switch to the proof-of-stake protocol soon. And among the top 30 other major currencies by capitalization, there are already several blockchains supporting stake rewards.
The essence of staking is that assets are not moved, but blocked directly on the user’s wallet. The bets of individual participants form a single staking pool. This provides operational support for the network, and also reduces the number of coins in circulation, preventing inflation and depreciation.
Different coins offer different yields, you can find options with a yield of 20% per annum. This is significantly more attractive than traditional bank rates and crypto landing rates. But there are also risks, mainly associated with price volatility. And since the reward is paid in the same coins that are locked, this further increases the risk in the event of a market crash.
Coins with a large market capitalization and low volatility are safer to bet, while coins with a small market cap are more risky, but the expected return on them can be noticeably higher.
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DeFi lending plays the same role as any traditional bank providing loans to users or businesses. However, the area of decentralized assets offers significantly more interesting earning opportunities. P2P lending platforms offer loans to anyone without checking their credit history and without ID. The only condition is a deposit.
On the other hand, participants who have unused cryptocurrency can give it to borrowers at interest. At the same time, a special automatic liquidation procedure ensures that the lender will return his funds with interest even in the event of a fall in the value of cryptocurrencies or non-repayment of the loan by the borrower.
According to research firm Messari, P2P lending in DeFi is the most effective direction in terms of ROI (return on investment).
Examples of platforms where you can give funds at interest:
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Many of the DeFi protocols operate on what are known as liquidity pools – pools of tokens locked in a smart contract. They are used to facilitate trading by providing liquidity and are widely adopted by the next generation of decentralized exchanges. This mechanic became popular after the launch of Uniswap.
In classic crypto exchanges like Coinbase or Binance, trading is based on an order book. Traditional stock exchanges work in the same way. Sellers try to sell the asset at the highest possible price, and buyers try to buy at the lowest possible price. When the buyer and seller agreed on a price, the deal went through.
In decentralized finance, trade is reproduced differently. Each liquidity pool contains two tokens and creates a market for that particular pair. For example, the popular liquidity pool on Uniswap is DAI / ETH.
Now about how to make money on it. To ensure that pools always have assets, platforms encourage users to deposit funds. The liquidity provider (LP) receives special tokens, called LP tokens, in proportion to the amount of liquidity provided to the pool. LP receive a certain percentage of the commission for each transaction in the pool where they deposited funds
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Margin trading (leveraged trading) is a method of trading using borrowed funds, thanks to which you can use many times more amount to exchange than the user has. In the DeFi realm, margin traders borrow cryptocurrencies from decentralized credit protocols powered by smart contracts.
Those who wish can make money on this – give their unused cryptocurrency at a percentage. It is possible to receive 5-20% from lending to margin traders.
Examples of DeFi platforms offering this earning opportunity:
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With the help of the listed DeFi profitability aggregators, you can choose the most profitable protocols at the moment:
Here you can track the total value of DeFi locked assets: https://defipulse.com/.
To choose the appropriate way to make money on DeFi assets, it is best to try everything – fortunately, the threshold for entering them is minimal. The protocols work even with the smallest amounts. And thanks to their transparency, at any time, you can monitor the state of the market and your own assets in order not to miss the right moment to deposit or withdraw funds.
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