For cryptocurrency investors and people looking to diversify their portfolios, finding a goldmine in decentralized finance is the goal.
Decentralized finance, or DeFi, means that financial assets are electronic and not physical forms like fiat currency.
Fiat currency is a descriptor for currencies that are printed and supported by a central bank or other governmental institution. The dollar is a prime example of fiat currency, it’s controlled and regulated by the US Government, and its actions help determine the currency’s value.
DeFi currencies like crypto derive their value from the overall supply and demand of the currency on the market at any given time, making them more volatile, but with that volatility comes high-reward opportunities.
Types Of DeFi Investing
Like many other traditional investment opportunities, with DeFi, there are plenty of avenues to explore.
You can buy and hold (HODL) crypto, buy NFTs, and even loan out your idle coins and make a passive return on their use by someone else.
How Smart Crypto Investors Leverage The Market
As with any investing strategy, gaining advantages over others in the market is crucial for your investments to work in your favor. Savvy investors will use various techniques to gain an advantage over others and make massive passive incomes when the coins are not in use.
Hodl: Hodl is the industry joke for buying crypto and holding it as it increases in value. The joke originated as a typo about long-term investment strategies that became the industry jargon for people that buy crypto and keep it as it appreciates.
Borrow And Lend: One of the attractive features of DeFi is that it is peer-to-peer and doesn’t have a third-party intermediary. The advantage is that with crypto, you won’t need to go through credit checks or other paperwork to secure a loan. Instead, you would only need to provide some collateral or other agreed-upon instrument for you to borrow from a lender.
Another advantage to crypto borrowing is that interest rates are typically much more favorable, especially in light of the continuing FED rate increases that will continue through at least 2023.
DeFi Yield Farming and Staking: There are two interchangeable ways to make passive gains on your cryptocurrencies. The first is DeFi yield farming, and the second is through staking.
DeFi Yield Farming: DeFi yield farming combines lending, borrowing, and staking your crypto to maximize profits. Typically you would use your crypto and leverage it against other people in the market to gain an advantage. You could use this advantage to gain more crypto or cause some beneficial actions to your holdings.
Staking: Staking is a process similar to a typical investment strategy like savings or CD, which requires you to simply lock your idle coins that a second party would use for an agreed rate of return.
Third-Party Affiliate: One sneaky way that you can invest in DeFi without taking too much risk is through third-party affiliate sales.
In this method, you would need a site or page that has a decent level of traffic, visitors, and subscribers to make it work, but in general, you promote an NFT, and once that NFT is purchased through a link you provide, you would receive upwards of 6% of the sale.
DeFi Indexes: You may have only recently become aware of DeFi Indexes, as they have been in the news lately with the report of the FTX debacle.
That being said, DeFi indexes operate much like traditional ones, where an index tracks the prices of several assets together, like volume or volatility.
The data provided allows investors to make better-informed decisions on the tokens and coins to invest in and provides a better way to safeguard multiple investments simultaneously.
As with any investment, there are risks associated with DeFi investing. But a balanced, strategic approach focusing on traditional investments and higher-risk but higher returns from crypto is a good idea in 2023.
Being aggressive may provide decent returns but also may need to be revised. The ability to make some money through DeFi is within your grasp, but you need to have a strategy in place.
You can make some residual money without much risk, but it takes sweat equity to build an audience and promote a product like an NFT to be successful.
Photo by Joshua Mayo on Unsplash
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