Blockchain technology has taken the world by storm, especially Cryptocurrencies. It has transformed into a trillion-dollar industry in the past decade, attracting millions of investors.
And now Decentralised Finance (Defi) is the trend raging in the Crypto world, and that’s not without some solid reasons.
So I decided to explore the world of Defi & try to answer some questions like What is Defi Crypto? Which are the best Defi coins to buy & how to invest in Defi.
So let’s get started with the core question first.
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What is Defi?
Decentralized Finance or DeFi is a term used to denote multiple Blockchain-based applications & technology designed to uproot the traditional financial system. Based on secure distributed ledgers like typical Cryptocurrencies, DeFi is rapidly becoming popular among blockchain lovers.
DeFi is touted as the next big thing in blockchain technology & is designed to eliminate any interemdeiatires for financial transactions. It uses smart contracts to perform these transactions. Smart Contracts eliminate the need for intermediaries for the execution & are automated.
The goal of DeFi is to ease the borrowing & lending of money without the need for access or central authority. It utilizes P2P protocols based on decentralized blockchain technology, especially Etherium.
How DeFi works?
DeFi uses decentralized blockchains for transactions using applications called dApps. I believe you do have an idea about Blockchain. In simple terms, it’s a secured database distributed over a vast & decentralized network.
The concept of Blockchain is simple. Once the first party decides to transact, such transaction is recorded in a block. Later the same transaction is verified by a second party. Once the verification is successful, that particular block is encrypted. Finally, a second block contains information about the previous block. Hence the name blockchain.
The best part of Blockchain is no one can alter the information in a block without affecting the following blocks. So practically, it is not possible to alter that information & the system is safe.
DeFi uses the exact same procedure.
DeFi lets you borrow or lend money, enabling thousands of Crypto owners to generate revenue annually. This Decentralised system allows you to lend or borrow money at a pre-determined rate. So, DeFi is challenging the established financial institutions & norms.
How to invest in DeFi?
After understanding DeFi, I am sure you are thinking of an investment opportunity. So for anyone who wants to invest in DeFi.
Create a Crypto Wallet
This is the first step towards investing in DeFi. You can invest in multiple DeFi protocols using Cryptocurrencies only. So the first step is to create a Crypto Wallet & add some Cryptocurrency.
Although you can use any Cryptocurrencies to buy DeFi protocols, I recommend using Etherium. Reason? Currently, most of the DeFi protocols are based on the etherium network. So it’s better to use Etherium-based Crypto.
For Crypto Wallet, there are hundreds of options available in the market. So you can choose anyone you like.
I personally use Coinbase.
Once the wallet is ready, it’s time to fill it up with some Cryptos. These cryptos will be used to buy DeFi protocols later.
The easiest way to buy crypto is by creating a wallet that is a crypto exchange itself. But if your Crypto wallet is not a Crypto exchange, now worries. You can buy them from any other exchange & load them into your wallet.
Find a Protocol to buy
This is where the real game begins. Now, as I mentioned earlier, you can lend or borrow money via DeFi. This is done via a specific protocol. There are multiple options in the protocol. Some let you borrow, some let you lend, some let you stake your crypto for some reward, & some let you participate in a pool where you can generate rewards when the trades are executed in your pool.
All you need to do is visit a website of a particular protocol, follow their instructions & start trading. In most cases, you’ll have to give access to your wallet to this website.
So make sure they are reliable before you move ahead with the trading. Here’s the list of some of the best protocols for investing.
What are some of the best DeFi Coins?
One of the most advanced & futuristic DeFi projects, Colony, is the futuristic & community-driven fund. Supported by Avalanche Foundation, Colony Lab is a collection of smart contracts that ensures the flawless functioning of an organization.
This Defi Crypto project’s core goal is to early-fund the projects that are built on Avalanche. You can provide liquidity in the exchange to earn the returns in the form of interest.
A well-known decentralized finance platform that enables users to lend & borrow cryptos, it’s one of the best DeFi crypto projects for investment.
Build on Etherium blockchain technology; smart contracts manage all the assets. In short, all the deals here are handled by a series of networks & algorithms.
If you love defying an established financial system that is centralized, Aave can be your first choice as it is designed to eliminate such over sighting organizations.
Developed as an option to the overcrowded Etherium network, Fantom is an open-source smart contract platform designed for dApps & digital platforms.
The best part of Fantom is its more secure, stable & decentralized as compared to the popular Etherium network.
PanCake Swap is a Binance Smart-chain DeFi project that focuses on Decentralised Finance. The core goal of PanCake Swap is to offer trading liquidity to the users.
As Certik, a smart-contract security firm, audits it, you can rest assured about its security & reliability.
It offers a great investment opportunity.
This project is quite different from the ones I mentioned above. It operates more like Google ass its main function is indexing & querying. It indexes data of multiple leading blockchains like Filecoin.
If you are looking for an investment opportunity, I will surely recommend The Graph.
DeFi is currently in its infancy. But make no mistake, the way things are going will be the future of transactions.
Still, it struggles with some basic flaws currently like unregulated environment & risk of scamming & hacking.
But if you research carefully, it does offer an exceptional investment option.
Hope you liked my take on the DeFi & various DeFi cryptos for investments. For any further information, explore our website more.
Can I invest in DeFi via Cryptocurrency?
Yes, follow the steps I’ve mentioned in the above blog for more details.
Is Cryptocurrency & DeFi the same?
DeFi is a system, while Cryptocurrency is a part of DeFi