DeFi is under my radar | Is DeFi Yield farming a good idea?

in Project HOPE8 months ago

In my previous articles, I was writing about some educational stuff. The 10x rule, list of YouTubers bringing educational content, some motivational stuff and others. And you know what? Right now, I would like to tell you, what I am learning at this present moment.

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Photo: Pixabay

DeFi - decentralized finances

Have you heard of DeFi Hype? Or DeFi bubble? Some people/influencers are comparing DeFi to the ICO bubble of 2017. And I agree that this can bring big attention to crypto. With the price bubble of course. Put on the side the fact, that all the bubbles tend to pop one day or another. Such as ICO 2017 bubble or the housing bubble of 2008. Yes, one should be careful about all the bubbles.

Why am I interested in DeFi?

Decentralized finances are truly the real usecase of cryptocurrencies. And you can think of it as the distribution of the traditional banking business. Lending and borrowing. With "higher" rates than the ordinary person can get in a bank, without any restriction - you just need to put there your collateral and it works for you. Or you lend your money/crypto and get extraordinary rewards.

There are surely many risks, and this is why this space is so unmatured yet. But those are not to talk about at this moment. Maybe in the future post.

Here are the positive things. When you plan what you would like to do with your finances, you could definitely profit from DeFi. Do you have some USD/USDT/USDC, which you will not use for a while? Lend it for 12,66% at Nuo! Did you get some BAT as a reward from your Brave Browser? Put it on 13,48% interest on Compound! Do you HODL bitcoin and you don't want to trade it? Use BlockFi and get 6% p.a. interest as a return!

Do you know CoinMarketCap? Use DeFiMarketCap for browsing about DeFi.

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Here you can find, that the project with most market cap is Compound. That might (and might not of course) show you that Compound is the most trustworthy. And so maybe the one with fewer risks. But surely, the DeFi space is so new and there are serious potential issues!

DeFi Yield farming

Another amazing place to search info about DeFi is DeFiRate.
Some people use those informative tools to program their DeFi Yield farming plan. Do you know what that is? You simply use your collateral to borrow crypto with the biggest spread between lend-borrow, so then you can use to lend it again somewhere else and get extra "exchange tokens", or better to call them "DeFi tokens" for that. Such as COMP token you get for your operations on Compound. That is why it is so popular nowadays.

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DeFi borrowing rates

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DeFi lending rates

Imagine to borrow BAT token for 1,25% at CoinList and then lending it for 13,47% on Compound while getting extra COMP tokens. Interesting? It is, for many people already.

There are of course many risks involved. Your position can get liquidated when the price of the asset drops radically. You also can lose your funds if you use some DeFi application, which gets hacked or robbed in some way or another (such as the DAO hack a few years ago).

Conclusion

Be very cautious, when using DeFi. You are handling your finances. You can lose your password or mnemonic passphrase and you lost your funds forever. You can use some service with fewer experiences and those funds might be attacked by some malicious player. Where is money, there are hackers and cheaters, get this in your mind.

But besides those threads, you can start using DeFi in your way. If you have mid-term or long-term assets, you want to lend, you can now do it with better interest rates than any bank can offer to you. Yes, the risks are included.

If you are going to try the DeFi Yield farming, you can get very juicy profits. But the risks are much higher, so be careful doing that. If interested, I can give you some links/examples of how to do it.

In all ways, do the right decisions that fit your risk-level and use only funds you are satisfied with if anything wrong happen with them. Me personally, I would never use those kinds of transactions borrowed money.

Used links, which you might find useful:
https://defirate.com/lend/
https://defirate.com/borrow/
https://defimarketcap.io/


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DeFi is definitely something that will change the course of the traditional "banking thinking"...

Go crypto, go! :)

Yes yes, I look forward to this :)

I think the lending aspect of DeFi is what has been actually interesting many people, not really DeFi as a whole, because majority of blockchain technology and cryptocurrency is about DeFi and taking over traditional institutions. we look forward to 'lending on the blockchain', DeFi has always been the subject of cryptocurrencies from the first day.

True, I agree. The problem with borrowing at this moment is, you need to be "a crypto nerd", cause you need Ethereum or something else as collateral. And who wants to borrow money and already has some Ethereum? Not an "ordinary Joe" without money. But when the collateral in the future can be a fraction of your 1 Tesla stock or a fragment of your house, when things will be digitalized, then it can work for more people (not just crypto nerds).

That's a bit true, however, someone who doesn't want to exchange his ethereum for any other cryptocurrency but needs some stablecoins can use his eth as collateral pending when he returns the stablecoins he borrowed. There's some feasibility, but fact is, defi still has a long way to go, just like cryptocurrency as a whole.

True, DeFi still making its own first steps.

DeFi has always been there, I'd say it's as early as crypto itself. Just that the lending and asset management part of DeFi is making its first step. Aurgur is one of the earliest eth smart contract, it's defi too.

If you talking about MakerDAO, yes it is not that new. But if you check the volume of DeFi right now, it is totally different than a year ago or so.

Yeah, it's a trend currently, but that's normal in cryptocurrency, we might see the heat cool off soon, just like when privacy coins boomed.

@tipu curate

Upvoted 👌 (Mana: 7/21)

This defi as it exist, is it in form of like you only lend the community your cypto you own in possession and wait for the interest to start reading

You can borrow for your crypto as a collateral and invest it to the more crpyto. When price is rising, you get profit. While the price can drop significantly you can be rekt in a minute (when unexperienced).

I have no money to try stuff on DEFI dear, and I am already scared of the risks, can only play with that if I have money I don't mind using. Anyway...well writting article and good reference site as well.

Decentralized finances are truly the real usecase of cryptocurrencies

I concur. And with Satoshi in mind, they are often synonymous.