There are a lot of people discussing the term DeFi but what is it? DeFi stands for decentralized finance. This means for anything you can think of that has to do with finances, you can achieve it using blockchain technology (blockchain being a decentralized ledger that allows you to carry out transactions and contracts). DeFi is the future for finance. Why should you care? Well, because this technology means more hands-on money management, more options to spend money and tokens online, more ways to create contracts online that eliminate the need for middle-men like banks, brokerages, or other third party financial systems, and DeFi offers more lucrative ways to invest. Let’s take a quick second to talk about why all those things are important for your future.
As you may have noticed, the trend for making payments online has risen in the last year due to the lockdowns the world experienced. This means more businesses are turning to digital options when it comes to paying for merchandise, bills, or debt. The move to online comes from the need to process transactions in a safer and quicker way. In the future you’ll see more and more options to pay online and cryptocurrency will be at the forefront of that movement. DeFi is your financial freedom as it allows you to step away from banks. However, with great power comes great responsibility so that financial freedom means you’ll want to and have to pay more attention to your finances.
More online options in regard to finances means more ways to spend digital currency. Think of how easy it is to send someone money through Apple Pay or PayPal. Now imagine many more applications that function the exact same but they can provide much more security and quicker transactions. By using DeFi solutions, there’s a way to protect your personal information online which is more important than ever in this fast-paced technologically advancing world. Now it’s possible to do everything from buying a t-shirt to paying your credit card debt or mortgage.
Now, speaking of mortgage, Defi can allow people to take control of home buying and selling. As it stands, the industry requires you to have third parties write up a contract whether you’re purchasing a home or selling one. It also often requires advisors, inspectors, and realtors. Not anymore. Now you can manage those things yourself and you can do it using DeFi applications that will guide you through it. This means you’ll not only feel in control of your purchasing or selling power, you’ll be incentivized because you’ll get to keep more of your money! No more paying people to do the things you can achieve yourself. Of course, advisors will always be there and there are certainly people you can contact for help. The point is, if you’re up to it, creating contracts on the blockchain can be as easy as a few clicks.
Defi also offers more ways to earn on your savings and investments. With traditional banks, savings accounts only appreciate by a small percentage per year. CDs and bonds don’t carry a lot of earning power either. With Defi, you’ll have more ways to invest your money so that your money can make more money for you. The ways to increase your earning potential include processes like staking, trading, or yield farming.
Staking your tokens means you allow a portion of your funds to be used for liquidity pools. You pick a project you strongly believe in, purchase a certain amount of their token, stake those tokens, and then at the end you’re rewarded with interest earned on the use of your funds. You can choose to stake with lots of coin/projects and the interest earned will vary, so make sure to do lots of your own research. Some people can make large returns just by staking coins for awhile.
Trading cryptocurrency means you can purchase a certain amount of whatever crypto you like and then you’ll trade that coin based on the market, price, and some good old fundamental analysis (aka: what’s happening in the news and how will that affect the project you’ve chosen)? You’ll want to do research on what exchanges are trusted and which exchanges have a lot of people using them. If you pick a small exchange that doesn’t have a lot of people/volume, it can be difficult to offload quickly if you decide to pull out of a trade. Don’t get stuck riding the chart to the bottom and having to hold an asset for a longer time in order to recover from your losses. Don’t worry, there’s tons of great information online when it comes to trading, in particular YouTube’s for great “how-to’s.”
Yield farming is a relatively new phrase that simply means you buy a coin/token and allow a startup to use your funds temporarily. By doing this, you earn yield. If the company does well, you can earn a high percent yield simply by loaning out your funds temporarily. Dubbed the “rocket fuel,” of Defi by Coindesk, yield farming has helped many to accomplish true financial freedom. Each person who sets out to participate in yield does so at their own risk and has to construct their own strategy. One of the things I love about this space though is that there are always guides and videos to explain things and guide you through the process.
This all sounds like a lot and it can be overwhelming but remember to break things down into parts. Defi is all about becoming empowered in a new world that places security and individuals’ finances first. Continue doing your own research, ask lots of questions, and check out other online resources when it comes to things like signing up for exchanges to creating your own business contracts. There are lots of resources so use them to your advantage! Remember, knowledge is power and in this case, that power means more money in your pocket.