The introduction of DeFi (decentralized finance) services to the market has created a number of unique benefits for users. DeFi is a term used to describe the decentralization of traditional financial services. The concept was first introduced in 2018 via a Telegram chat between entrepreneurs and Ethereum developers. Today, DeFi is one of the fastest-growing sectors in the crypto market.
The impressive rise of DeFi can be attributed to multiple factors. For one, these protocols introduce a host of new earning opportunities to the market. What was once profits for large centralized banks are now available to the average user. As such, DeFi continues to invent new and exciting ways to leverage blockchain technology to improve the typical user experience. Here are 5+ ways DeFi can make your life easier.
The open nature of DeFi makes it ideal for use by a global audience. Unlike the centralized financial system, there are no gatekeepers to deny you access to basic services. This approach is ideal for the market in many ways. Primarily, it opens the doors for the unbanked populations of the world to access financial services in a meaningful way.
This strategy makes perfect sense when you realize that a large majority of the world’s unbanked population resides in developed nations such as the US. Recent studies have shown that as much as 6% of the US adult population is unbanked at this time. These individuals have been cut out of the system for various reasons ranging from lack of funding to their financial histories.
DeFi applications provide a way for these individuals to regain access to critical financial services. Best of all, these networks rely on strict algorithms to protect your tokens while remaining open to the public. As such, DeFi platforms are set to play a vital role in the growing digital economy.
One of the premier reasons why you should consider venturing into the DeFi sector is passive income. DeFi platforms eliminate the centralized bank from the equation and replace it with ordinary users. As such, these platforms have pioneered a variety of ways for you to earn profits without all the risks associated with trading cryptocurrencies. Here are just some of the ways that you can secure a passive income in the DeFi sector.
Staking is the most popular DeFi feature in the market today. Staking is a term that describes the process of locking your cryptocurrency up into a network contract in exchange for rewards. There are many different types of staking protocols in the market today. These protocols enable anyone to effortlessly secure profits.
Unlike trading, you don’t need to spend days learning complicated trading algorithms or monitoring the market conditions. As such, Staking is a better option for new users versus trading. Notably, your staking rewards vary depending on the time and amount of coins staked. users can stake greater amounts to earn more. It’s that simple.
Yield Farming is another popular feature that has found a home on many DeFi networks. This protocol operates similarly to staking in that you will lock your cryptocurrency into a network smart contract and in return, you receive rewards based on your participation level. However, Yield Farming differs from staking in a couple of ways.
For one, Yield farming is designed solely to leverage liquidity to provide the highest yields possible. Unlike staking, yield farmers don’t play a role in the security of the network. As such, there are no early withdrawal fees or predetermined lock-up requirements for these protocols.
Another popular way you can easily secure rewards on DeFi networks is through P2P lending applications. These systems eliminate the bank from the lending equation completely. Instead, regular users provide loans directly to other users via liquidity pools. Notably, this technique enables both parties to create terms that are ideal for their scenarios.
P2P lending protocols provide an open and unbiased way for you to access funds without credit. Anyone can get a DeFi loan if they meet the down payment requirements and agree to the stipulations of the platform. In this way, these platforms exemplify some of the best attributes of the DeFi community.
P2P Lending Evolves
P2P lending protocols have evolved a lot since they were first introduced in 2018. Today, these networks employ large liquidity pools and smart contracts to ensure that all lenders receive repayment on time, regardless of the borrower’s repayment schedule. Features like these have helped P2P lending to become a much sought-after service in the DeFi community.
The expansion of DeFi has also affected the crypto markets via DEXs (decentralized exchanges). A DEX eliminates the centralized exchange from the trading equation. By doing so, it provides a more secure and affordable trading experience to the market.
Notably, many DEXs operate as AMMs (automated market makers). These platforms do away with order books to determine market value. Instead, you trade directly with smart contracts. This approach provides a more responsive trading experience.
You Gain Safety When You Trade on DEXs
One of the best features of DEXs is their non-custodial nature. If you have ever used a large centralized exchange, you are familiar with all the hoops you have to jump through to even begin trading. In most instances, there is an extensive KYC background report needed before you gain access to the market.
Additionally, you have to upload your crypto onto the network to trade. This approach creates a scenario where there are large network wallets that hold thousands of user’s cryptocurrencies. These wallets have and continue to, draw the attention of hackers. When a centralized exchange gets hacked, it can mean your coins are gone forever. It can also have a detrimental effect on the market when these attacks occur.
Never Miss a Trade
Another benefit of a non-custodial DEX is that you always have access to your cryptocurrency. If you have ever gone to make a trade on Coinbase or Binance and realized the network was down for upgrades or other reasons, then you understand how important it is to retain ownership of your crypto directly. DEX user’s tokens remain in their wallets until the actual trade occurs.
5+ Ways DeFi Can Make Your Life Easier
Now that you have a better understanding of how the DeFi revolution can improve your daily life, you’re ready to seek out some reliable platforms. Remember, the DeFi community is still fairly new, so you will want to stick to reputable projects. Projects such as Uniswap, Maker (MKR), META1 Coin (META1), and Compound (COMP) have all been vetted by the community. As such, you lower your risks and still enjoy healthy rewards for your participation.