Millennials share their overnight DeFi success experiences, but they will not speak aloud about the risk and uncertainties associated with it. They might say that they overcame the uncertainties and risks with a few tricks and techniques. But, let me tell you one important thing, no such trick exists. It is just that investing in DeFi is proposed to be too risky; may it doesn’t have to be. Let’s start reading and find out the simple and safe ways to invest in the DeFi ecosystem.
Let’s start with the basics. What is DeFi?
Many neoteric financial applications that operate on decentralized networks can be pronounced as Decentralized Finance (DeFi) to metamorphose the traditional financial system. Any interference or action of a third party is negated from the network, like a bank or a brokerage firm. A direct transaction between the buyers and sellers takes place, making it obsolete. All the negatives such as lagging transactions, red-tapism, and others are entirely eradicated from the network.
Here, the third-party role is played by smart contracts that are immutable and cannot be manipulated. And, trading or investments are made through digital currencies like Bitcoin, Tether (USDT), Ethereum, and many others.
Let us evaluate risks and rewards in the DeFi world.
One simple question- Should I invest in DeFi? It’s not tough when you are weighing the risks and benefits of it. At the end of this read, you will find your answer.
Investment in cryptos is always considered risky, but then it gives you huge returns as well. It is said that the DeFi is a much more supreme virtual entity, then the risks also amplify in the ecosystem. All the DeFi protocols insist their users lock their assets (staking) for a particular period. This results in a blender or giving huge returns. If the funds’ value falls, it can cause a considerable loss, but it will pour out huge benefits if it rises. So, we can conclude that patience is the key. It would be best if you waited for the right time.
DeFi network operates on different mechanisms of calculating the locked tokens, which also occurs into negative impacts like impermanent loss and price slippage.
You all must remember how early 2000 was a period of fruitfulness, where rewards were reaped from DeFi tokens (YFI), making 20x-1000x benefits. And to be honest, even with all the risks and uncertainties on its wheels, DeFi is still going strong. You need a perfect blend of cautious optimism and hopeful skepticism.
Now, let us take a look at these principles. They might help you.
- People rule the world and the blockchain networks.
Blockchain is entirely about its users. Anything will have great value if they have followers. Similarly, if your blockchain network will have giant users, then it will showcase more value. But, blockchain has networks; therefore, their value increases quadratically. Active users are the one that counts, and the growth in the number of active users.
- Invest where you see profits and crowds
Look for the protocols that people are using. No-one has time to wander with their money from protocol to protocol. So, the best way to yield money is to go for long-term investments. For example, if Uniswap is giving out huge returns, and the product they are offering is excellent, you should go for it and stay away from other protocols.
- Simplicity is the key to success.
Keeping anything simple is the best way to deal with it. There are multiple protocols in the DeFi ecosystem. And the chances are high that more than one protocol will provide profits at a time. What you need to do, is to stick with one. Decide which is the one and stick with it. Simple. Period.
- The minor portion is the tastiest one!
You are going to invest all your money in DeFi. You will invest 10% of your money in the crypto world, and out of it, it is 2.5% in the DeFi ecosystem. If the whole crypto market crashes, you have lost only 10% of your savings or 2.5%. And if it reaps benefits, then it will be the tastiest fruit in the basket.
- Watch out- for gas fees on their ways.
You can avoid the high gas fees. Just follow one thumb rule- always avoid investing when they are charging substantial gas fees. Simple.
Evaluation and principles will help you out. But precaution is better than cure, so get insured!
Yes, get insured. How does DeFi insurance help? It offers you the following benefits and helps you in every possible way;
- It safeguards your DeFi deposits
- It acts as s shield against crypto volatility and the flash crash
- It offers immediate repossession of tokenized crypto
- It protects against any theft and fraud attacks on wallets
- It provides safety of funds from frauds on the crypto exchange
- It covers technical and financial risks
- It is a trustless claim and risk management system
So, Are you ready?
DeFi is once a life-time opportunity for investing. Your availability of funds will let you decide the amount you can invest. You have the complete picture. The ball is in your court. Read the above blog thoroughly, do more research if required, and invest in DeFi.