Decentralized finance is a promising area, especially now, during the digital coin fever. DeFi covers a wide range of areas – from insurance to money transfers. Low fees, no middlemen are the main advantages of DApps.
DeFi active users are investors who earn on deposits, staking, and lending. Also, decentralized finance attracts traders who use convenient tools for trading on exchanges, quick loans. In addition, software developers make money on decentralized finance. The market is growing, and the need for specialized software is also increasing.
How to make money on DeFi
Decentralized finance provides several earning opportunities:
- yield farming – profitable farming;
- supply of liquidity.
The bottom line comes down to receiving an award for actively participating in the development of a specific protocol. This can be trading on the stock exchange, lending, deposits, and the supply of liquidity. Rewarding is carried out in protocol control tokens. There is a kind of stimulation to perform certain actions.
The Compound project took an active part in the development of the direction. The developers released a native token, which was handed out to everyone for their active participation in the development of the protocol. Thanks to this, the COMP token has significantly increased in price, and the income of users, coin owners, has increased accordingly. In turn, the growth in the price of the crypto coin ensured an inflow of investments into the project.
At first, tokens were used by developers as a motivational tool. They significantly popularized this direction, helped to attract additional participants. Subsequently, tokens turned into a tool for speculation in the market.
Other projects that provide income on profitable farming: Curve, Balancer, Synthetix, and others. At the same time, Curve motivates deposit support, Balancer provides management tokens to everyone who maintains liquidity.
Advantages of the method:
- an additional source of passive income;
- an increase in the price of motivational tokens increases profits;
- the ability to control the protocol.
- high volatility;
- technical risks.
Investing in decentralized tokens
invest resources. Investments in decentralized assets provide income immediately after the investment if there is a sharp rise in the price of the token. You can also lose your savings because the cryptocurrency loses value in a matter of minutes under the influence of various factors.
The volatility of tokens makes it possible to make money on speculative transactions. The main thing is to choose a promising direction that will provide profitability. At the same time, there is a possibility of getting into a fraudulent project, which will close after attracting financial resources.
Investment site selection criteria:
- the project has its application, a platform with advanced functionality;
- the volume of token emission – the principle works, the fewer coins was issued, the better;
- listing on popular cryptocurrency exchanges – evidence of the seriousness of the project, the absence of a fraudulent component.
At the same time, listing on large exchanges will be associated with low profitability. As a rule, the token price stabilizes, it is difficult to make money on speculation. It is best to buy tokens at the time of their appearance when the price has not yet risen and the project has not had time to enter serious exchanges.
The advantage of investing in DeFi tokens is the ability to quickly make money on a sharp increase in the rate.
- the difficulty of choosing a token for speculation;
- high investment risks;
- the minimum time for deciding on the sale or purchase of a token.
Another popular way to get a passive income is staking. In this case, the cryptocurrency is blocked in the user’s wallet. Serves to support the blockchain network. In this case, the owner receives a certain reward for blocking his funds. Implementation is possible in networks based on the Proof of Stake mechanism.
The principle works, the more popular the cryptocurrency, the lower the profitability, but the lower the risks. Ensures the maintenance of the network, helps to stabilize the exchange rate, reduces the number of coins.
- a simple, proven method;
- high security, subject to the selection of verified tokens;
- profitability can reach 15-20%;
- counteracting cryptocurrency inflation.
- liquidity is falling;
- when the rate depreciates, the profit falls proportionally;
- using high-yield coins is risky;
- reward in the same coins, which increases the drop-in profit in the event of a general decrease in the value of the token.
Decentralized lending works in a similar way to traditional bank loans. At the same time, the opportunities for earning money on lending are much higher. You can get a loan without a credit history, documents. The main thing is to post a deposit.
Cryptocurrency owners can provide it to everyone at a certain percentage. There are mechanisms for the return of digital assets even in the event of a non-return of funds by the borrower, or a market fall.
Lending is considered the most efficient way to make money on DeFi. Advantages – the choice of assets, sites, you can pick up high rates, the risks are minimal. Disadvantages – fluctuations in interest rates, which are closely related to the general state of the cryptocurrency market.
You can also make money on decentralized finance using liquidity pools. Locked tokens are used to create liquidity. The exchange owners encourage clients to fill up the pools. To do this, they provide so-called liquidity tokens in proportion to the amount of contributed assets. Income as a percentage of the commission for each trade.
Earning on leverage is popular – unused coins can be given away at a certain percentage to margin traders. Trading with leveraged digital assets allows you to work with larger volumes than a trader has. Funds for margin trading are traded on special platforms. Disadvantages – low-interest rates, advantages – a high guarantee of the safety of your funds.