For cryptocurrency investors and individuals looking to diversify their portfolios, the goal is to find a gold mine in decentralized finance.
Decentralized finance, or DeFi, means financial assets are electronic rather than in physical form like fiat currency.
Fiat currency is a term given to currencies printed and backed by a central bank or other government institution. The dollar is a prime example of a fiat currency, it is controlled and regulated by the US government and its actions help determine the value of the currency.
DeFi currencies like crypto derive their value from the total supply and demand of the currency in the market at any given point in time, making them more volatile, but with that volatility comes opportunities for high rewards.
Types of DeFi investments
As with many other traditional investment opportunities, there are many avenues to explore in DeFi.
You can buy and hold (HODL) crypto, buy NFTs, and even borrow your idle coins and earn a passive return on someone else’s use of them.
How smart crypto investors are using the market
As with any investment strategy, gaining an advantage over others in the market is crucial for your investments to work in your favour. Experienced investors will use various techniques to gain an advantage over others and generate massive passive income when the coins are not used.
Hodl: Hodl is the industry joke when it comes to buying crypto and holding it as it appreciates in value. The joke originated as a typo about long-term investment strategies that became industry jargon for people who buy crypto and keep it for what it appreciates.
Borrow and lend: One of the attractive features of DeFi is that it is peer-to-peer and has no third party intermediary. The benefit is that with crypto, you don’t have to go through any credit checks or other formalities to get a loan. Instead, you would only need to provide a security or other agreed instrument to borrow from a lender.
Another benefit of crypto borrowing is that interest rates are usually much cheaper, especially considering the continuation FED interest rate rises this will continue until at least 2023.
DeFi Yield Farming and Staking: There are two interchangeable ways to earn passive profits from your cryptocurrencies. The first is DeFi yield farmingand the second is by staking.
DeFi Yield Farming: DeFi yield farming combines lending, borrowing and staking your cryptos to maximize profits. Normally you would use your crypto and wager it against other people in the market to gain an advantage. You could use this advantage to mine more crypto or perform some beneficial actions on your holdings.
Mark out: Staking is a process similar to a typical investment strategy such as Sparing or CD, where you simply need to lock up your unused coins that a second party would use for an agreed rate of return.
Third Party Partners: A sneaky way to invest in DeFi without taking too much risk is through third-party affiliate sales.
With this method, you need a website or page with a reasonable level of traffic, visitors, and subscribers for it to work, but generally you are promoting an NFT and once that NFT is purchased through a link you provide, you would earn more than 6 % of the sale received.
DeFi Indices: You may have only recently become aware of DeFi indices as they have been in the news lately with the report of the FTX debacle.
Other than that, DeFi indices work similarly to traditional ones, where an index tracks prices of multiple assets together, like volume or volatility.
The data provided allows investors to make more informed decisions about the tokens and coins to invest in and provides a better way to protect multiple investments at the same time.
As with any investment, there are risks associated with DeFi investing. But a balanced, strategic approach that focuses on traditional investments and crypto’s riskier but higher returns is a good idea in 2023.
Being aggressive can lead to decent returns, but it may also need an overhaul. The ability to make some money from DeFi is within your reach, but you must have a strategy.
You can make some spare cash without much risk, but it takes sweat capital to build an audience and promote a product like an NFT to be successful.
Photo by Joshua Mayo on Unsplash
None of the information on this website constitutes investment or financial advice and does not necessarily reflect the views of CryptoMode or the author. CryptoMode is not responsible for any financial loss caused by actions taken based on information provided on this website by its authors or clients. Always do your research before making any financial commitments, especially on third-party appraisals, pre-sales, and other opportunities.
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