Decentralized Finance, the new frontier in financial services, and Grandma’s way of avoiding bank charges she’s always complaining about and a way for her to make some cool cash to spend on her anti-ageing products.
After Bitcoins big bang, DeFi rose as an alternative to traditional financial services, more like a system where you can ditch financial intermediaries and go straight to services that even end up paying you. Instead of keeping your money in banks as traditional financial institutions encourage you to do without any returns for saving your money, DeFi platforms give you opportunities where your money can be safely stored and generate passive income for you.
DeFi gives access to the masses to control their financial services rather than being controlled by central authorities like banks and with DeFi, users get to make money rather than lose money to the charges their banks take for keeping their money with them like the ridiculous account maintenance charge.
DeFi uses smart contracts which in turn, is used to power Decentralized Applications (DApps) and Decentralized Exchanges (DEXs).
The keyword is “money”, how can you make passive income with DeFi.
1 Staking and Auto-staking
If you’ve used a bank fixed deposit service where you can lock your money for some time in hope of getting some interest, DeFi does it better. With Defi, you can lock your crypto assets in yield pools (staking) for some time and get rewarded in the same token. Why would anyone pay you more tokens for saving yours? Here’s the trick; when you stake tokens on a network for an extended time, you automatically contribute to sponsoring the security and decentralization of that Blockchain network- your tokens are hired as the security enforcers and you get paid for providing security enforcers. It’s more technical than this but this is what it means in basic language.
However, there’s a new approach to DeFi staking and its called Auto-staking. When you buy the tokens of a platform that has the auto-staking functionality, your tokens generate rewards for you automatically by just holding that token. A quick example is Titano Finance. Titano Finance offers the craziest auto-yield APy I’ve ever seen, a 102,483.58% APY (subject to change according to their algorithm). Holders of Titano tokens are automatically rewarded with more titano tokens every 30 minute and with an initial investment of $1000, a holder can earn up to $1,002,758.54- now, this is crazy. Titano Finance rewards its holders with automatic compounding interest. To learn more: https://titano.finance/
Compounding interest in simple terms means generating more interest from an initial interest. The initial interest Titano pays is further auto-staked to generate more interest – compounding interest offers to be one of the best investment plans.
Aqru is an example of a DeFi staking platform that is easy to use even for newbies. Aqru lets you deposit both fiat and cryptocurrencies for staking. On Aqru, supported stablecoins pay the highest yield up to 12%APY and Bitcoin and Ethereum both yield up to 7%APY. Other DeFi staking platforms include Binance, crypto.com, Coinbase, eToro and so on.
2 Becoming a Liquidity provider
Liquidity pools allow users to provide the market for token pairs to be traded on Decentralized Exchanges. DeFi users who place their money in liquidity pools are called Liquidity Providers(LP) and they control some parts of the pool like equity in a company and get to earn a percentage share from all transactions done on the token pair on the DEX proportional to their pool investment. Thus, the more the trades, the more the earnings are made so it’s best to research and find the best and most actively traded DEXs and token pairs to invest in.
Uniswap the first DEX to become popular holds the spot of being the most profitable DEX due to its high trading volume since its launch. It has traded over $800 billion in trading volume and hosted one of the most valuable airdrops of all time; distribution of 400UNI tokens to its early users which was worth $16,000 at its peak- speak of the GOAT of Decentralized Exchanges.
Uniswap is the most popular DEX on the Ethereum blockchain but who takes this same spot on the Binance Smart Chain network? That will be PANCAKESWAP.
PANCAKESWAP is a DEX built on the Binance Smart Chain network and for the last time Tom, you swap tokens here and not pancakes🤦.
Pancakeswap isn’t a joke when it comes to trading volume, recording as high as $300million daily trading volume- now that’s crazy.
Pancakeswap and other DEXs built on Binance Smart Chain are popular because of their low gas fees and transaction speed.
Other DEXs include Curve for Curve DAO, spookyswap for Fantom Network, Raydium for the Solana Blockchain and so on.
3 Yield Farming
Yield Farming gives you the ability to plant some tokens in your garden by the side of your house and reap some yummy Bitcoin fruit when it’s ripe. Haha, got you there, just kidding.
Yield farms allow users to stake their tokens in yield farm pools and receive rewards in the same token or a different one. This means that your staked assets earn you profits from all fees on DEXs and still pay you Liquidity provider token profits. Now that’s a double-edged way to make some sweet cash.
As staking and yield Farming have so many similarities, there are key differences that separate them. The main difference is that yield farming requires users to deposit their crypto funds on DeFi platforms. Staking is when crypto investors use their funds to support the blockchain security network. Another difference is that yield farming does not require you to lock your tokens as staking does. Yield farms give you a flexible plan for your investment while staking is fixed.
Essentially, all DEXs provide yield farms with the most popular being Pancakeswap. Pancakeswap allows yield farmers to earn CAKE or other BSC tokens while providing liquidity and staking the liquidity tokens to earn more.
Just as you can lend some money to a friend and get interest as long as the money is unpaid, you can do the same with your crypto assets with DeFi.
DeFi Lending platforms allow users to lock their assets and receive interest for doing so. These tokens are used by borrowers on the platforms who pay interests to the platform which is in turn, shared to the lenders at a much higher and stable percentage.
It is important to note that your friends or banks can delay payments but DeFi systems are automated meaning payments are made instantly on due time.
Compound Finance, one of the most popular DeFi lending platforms, offers an 8.19% APY for lending DAI.
Some other platforms include Aave, Uniswap, Maker, Solend and so on.
Launchpad, a place where crypto projects take-off to the moon. Launchpads are incubator platforms that help crypto projects raise capital for operations. In Launchpads, early investors invest their funds into early stage projects with expectations of gaining the most when the project does well.
For cryptocurrency and token projects in a launchpad, a percentage of the total supply is sold to investors at a discount price to its listing price, thereby giving early investors automatic profits as soon as the token is listed. It’s just like playing equity in a company. You buy shares at a discount price when the company is first launching, expecting to receive more earnings when the company does well.
Major launchpads include; Bscpad for Binance Smart Chain based tokens, DuckDAO, pinksale, Raydium’s Acceleraytor and many more.
Decentralized Finance is slowly replacing the services traditional centralized financial institutions offer with its decentralized system, giving users a chance to ditch financial intermediaries and go straight to accessing financial services directly themselves and making more money with their money.
Disclaimer: These are the writer’s opinions for entertainment and educational purposes and should not be considered investment advice. Readers should do their own research.