13 May 2022
3 min read
Decentralised finance or DeFi refers to financial services developed on open-source blockchains rather than proprietary systems. A smart device with an internet connection is the only requirement to manage assets without centralised financial mediators. DeFi automates trust and security while providing complete transparency to all parties involved.
DeFi has quickly grown into a multibillion-dollar industry. The total value of DeFi contracts has increased from $650 million to $43.50 billion since the beginning of 2020. If you’re still clueless about how to get into this market, we’ve got your back!
Read ahead to know 4 Not-To-Miss DeFi Investment Strategies that will help you in developing an amazing portfolio of your own!
1. Borrowing and Lending Crypto
To loan or lend crypto assets via DeFi, you only need to submit collateral. Banks do not undertake credit checks before approving a loan. Instead, a smart contract acts as a digital “middleman” that regulates rates based on the coins present in a liquidity pool.
People who lend tokens to the liquidity pool frequently hope to profit from interest. In the DeFi protocol, over-collateralized loans are frequent, which signifies that borrowers insure the loan with crypto worth more than the loan amount. However, DeFi lending and borrowing differ from conventional lending and borrowing in more dimensions than only the technicalities of decentralised money markets: interest rates can be very low.
2. Hold On for Dear Life
Hodlers hold on to their coins despite a fall in the market because HODL disapproves of all trading based on short-term price movement. Most investors consider an asset or currency to be a negative asset when its price decreases. HODL investors, on the other hand, keep their assets and coins rather than selling them. HODLing is a viable idea for novices since it does not need the same level of obsessive focus as day trading. Instead of basing their investing strategy on short-term price fluctuations, HODLers keep their cryptocurrencies, anticipating frequent price hikes. It is essential to remember that HODLing through fluctuations can be fruitful.
3. DeFi Index
Exchange-traded funds (ETFs) track the prices of numerous assets at once in traditional finance, such as an S&P 500 ETF that tracks the price movements of all 500 companies in the index. Assets you’re investing in are crypto tokens, thus, DeFi indexes are similar.
The primary lure for investors, identical to ETFs, is that tokens in a particular index are generally selected depending on rigorous criteria such as size or variability. It gives investors the liberty to effectively outsource the research and studies that would otherwise be necessary to choose tokens for their portfolio to the index operator.
4. Yield Farming and DeFi Staking
- Yield Farming Yield farming is a more comprehensive investing system that involves lending, borrowing, and staking to increase profits through interest and staking incentives. Yield farming delivers extraordinary returns in DeFi, but it also accompanies colossal risks.
- DeFi Staking Staking is one of the most basic methods to put your cryptocurrency to use. You contribute to market liquidity and help ensure the safety and reliable operations of decentralised financial services by locking up your inactive assets. Most DeFi platforms offer governance tokens as staking incentives, which can be held as voting power or transferred. The longer you stake your DeFi assets, the more you gain, much like traditional savings. Staking is a safer passive investment approach than yield farming because it does not entail high rates of interest or collateral levels.
DeFi has a huge potential to grow into a trillion-dollar market, and nothing is stopping it now. If, as a newbie, you’re still nervous about what strategies to use, As a result, “HODLing” and “Buy And Sell Tokens” may be the best options for you. If you are familiar with the ecosystem, however, utilising the various tools provided by this rich ecology is the way to go.
There is nothing that will help you more than research. We hope this article helped you in navigating through your DeFi journey!