You’ve probably heard the buzz about this thing called DeFi. It stands for decentralized finance and it simply refers to new peer to peer money applications, built on the Ethereum blockchain. Why money applications? Think of your money and banking services today like letters we wrote to communicate before email. DeFi is going to evolve money and antiquated banking services similar to the way email transformed our ability to communicate. It is value you cannot unsee, once you see it.
The secret is that DeFi is already humming with close to $2.5 billion in value being exchanged across the top DeFi apps listed here. Users of DeFi are saving time, saving money, and being empowered to do things with their money, previously thought to be not possible.
These apps cover a wide range of utility including:
- Saving interest
- Lending and borrowing
- Trading (market swaps)
- Margin trading
- Futures
- ETF-like exposure
- Derivatives for indices, commodities, and Forex
- Options
- Insurance
- Sports betting, games and more!
The next question should be “what qualifies as DeFi?” Here’s some questions I ask myself to be sure I’m using DeFi and not being misled by an app claiming to be DeFi.
- Is it built on Ethereum?*
- Am I required to connect an Ethereum wallet to get started? (ie MetaMask)
- Am I 100% in control of my assets via this wallet?
- Am I interacting only with the app’s smart contracts but no human middlemen?
- Am I not required to submit to any KYC (Know-Your-Customer)?
- Are there no geographical restrictions to using this app?**
- Is there no minimum to participate?**
*Not mandatory but worth noting 99% of DeFi is built on Ethereum.
**Neither of these traits should be interpreted as disqualifiers of an app from being DeFi, especially since bureaucracy and regulation may force certain countries to be banned from access.
What returns might I earn with DeFi and which DeFi apps might I use to earn with?
The most exciting question everyone asks is: “How much money will I make?”
The truthful answer is that it’s difficult to say since it depends on the timeframe to invest, the amount of money to invest, and because DeFi interest rates change daily. Having invested my own money into nearly every DeFi app in the market across thousands of transactions, I can share my own experience with some DeFi opportunities, earning 100-300% APY for weeks at a time, while other times earning barely 1-2% return.
A few of my highlights over the last 6 months have been:
- Lending stablecoins in Curve Finance for as much as ~60% APY, and here’s how.
- Lending stablecoins in mStable for 25% APY right now, and here’s how.
- Mining for the COMP governance token on Compound for ~45% APY right now, and here’s how.
All 3 of these DeFi opportunities above fall under a a popular meme we call “yield farming.” Yield farming describes when we combine multiple DeFi opportunities into a single program. Yield farming often involves using assets that would otherwise be idle in a wallet, providing liquidity, and usually does not require buying new assets. Yield then comes in multiple forms all at once, including lending interest, market-making fees, and pooled rewards by protocol teams, such as a governance token like COMP, BAL, or MTA.
What are the risks to using DeFi?
The risks to consider in DeFi are consistent across most apps, but the risks often can…
Hi! My name is Lark Davis!
I’m a cryptocurrency investor with years of experience and I’ve been making consistent profits in the crypto space.
I’m passionate about helping others do the same, so I run multiple educational channels on crypto investing.
