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Wednesday, November 25, 2020

Know How to Invest in Defi Projects-A Complete Guide

Finally, you are here!

I Understand your struggle and curiosity to learn more about this complex looking term DeFi. It may sound or look a little complex but it’s too simple to learn and invest in a DeFi Project.

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This Guide will help you understand how Defi projects can boost your financing skills. It also the factors you should consider before starting a Defi project.

Decentralized finance (Defi) is a rapidly growing industry. The total market capitalization has crossed $15 billion by 2020. The funds locked in the smart contracts have also reached $5 billion.

Anyone who wants to be a part of this wave is facing challenges with understanding the concept and finding secure-reliable ways to invest in it.

What Is DeFi?

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Decentralized Finance (DeFi) – is an ecosystem of Decentralized financial applications that are backed by Crypto payments. Generally, it is built on Smart Contract- Blockchain Technology. The use-cases of DeFI include developing a decentralized alternative to any existing financial services like Loan, insurance, banking, lending, staking..etc.

DeFi has emerged to be the most prominent use case of blockchain technology. All the financial services can now have easy access to decentralize themselves. It also provides an untampered, non-hackable, faster and more lucrative financial service.

Defi is going to trend the market for the next 5 Years and you should understand it a little more to make the best of finance. Read more about DeFI

Understand This !

Investing in DeFi is not something like a “DeFi token” or a” DeFi Wallet”. Rather you will have to find projects that are running on this concept of Decentralized Financing. These Projects generally offer financial services like lending, staking, insurance and pooling along with an ERC-20/ Blockchain-based native token.

It is the same way how traditional financing works. For Instance: the banks pay you Interest on deposits or some scheme. The only difference with DeFi is that the whole system here is decentralized and no bank or central authority controls it.

So you can now go find Top Project on DeFi concept. BUT, before doing that you must also learn about Decentralized Projects(tokens), wallets, Exchange which is required to invest in these projects.

Important! You can trade or store DeFi projects( tokens) even on Centralized Platforms 

What Are DeFi Projects?

Any Financial service offered commercially in a decentralized format is called a DeFi Project. Currently there are 100+ success projects running in the space.

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Example :

With reference to Coinmarketcap’s current list of Top DeFi tokens, you can see Aave on the second place. It is actually decentralized lending and staking application.  The platform provides a native token of its own “ LEND”.
If you are one some “LEND” you will have the authority to make changes to this ecosystem as per the community standards.

Decentralized Wallets

Decentralized wallets are Device based application that are non-custodial ( no access to others) that support storage of multiple ERC-20 assets and secured by Private keys ( 12 seed phrase ).

And, Because the DeFi projects are Decentralized, the funds involved in these projects are stored and accessed directly from these wallets. Decentralized Wallets play a crucial role in DeFi projects

  Some Top Picks below : 

Trust Wallet 

Trust wallet is a mobile wallet for the Ethereum and ERC20/ERC223 tokens. The application designed for IOS and Android provides the best experience and ease of use. It is a decentralized wallet which is user-controlled which has access to DApps. It does not hold any personal information making the crypto more accessible.

Trust Wallet is free to download which helps you to manage your addresses, in order to send and receive crypto. The user can also carry out transactions like trading and staking.

MetaMask Wallet

Metamask is also a decentralized crypto wallet and a gateway to blockchain apps. It can be used in chrome, FireFox & Brave and also can be downloaded on your Android mobile phones. Basically it works as a bridge between the regular browsers and the Ethereum blockchain.

Metamask is an open-source wallet which communicates directly with two exchanges where users can buy or sell cryptocurrencies. The security keys of the wallet are stored in the user’s browser but not on remote servers. Therefore providing more authority for the user over their public and private keys.

Decentralized Exchanges

The decentralized exchanges solve many problems faced by the centralized exchanges like hacking, mismanagement, and arbitrary fees. However, it has its own issues related to liquidity means lack of money flowing in the exchanges which enables fast and efficient trading.

Uniswap

Uniswap is a DEX-based exchange that allows anyone to swap ERC20 tokens.  Unlike most exchanges, where buyers and sellers determine prices and execute trades, Uniswap uses a simple math equation, pools of tokens and ETH to carry out the task.

Any token can be added to Uniswap by funding it with equivalent ETH and ERC20 token. For example, if you wish to exchange any altcoin or ERC20 token, you would launch a Uniswap smart contract for that ERC20 token. Also, create a liquidity pool- for example- $100 worth of ERC20 token and $100 worth ETH.

Kyber network

Kyber network is also a decentralized way to exchange ETH and ERC20 tokens instantly. To smoothly execute this, Kyber utilizes liquidity pools of different crypto assets called ‘reserves’ which can be integrated with any project.

The network also has its native token called Kyber Network Crystals(KNC) and all the reserves are required to pay fees in KNC to manage reserves. It has rolled out its new upgrade called ‘Katalyst’ which will create new incentives and growth opportunities for stakeholders, especially for KNC holders.  It also has a decentralized governance organization (DAO) called Kyber DAO.

How to start with Defi?

  • Initially participate in the launch of the project and get rewards in the form of tokens or if you missed in initial days, then you can buy the token on decentralized exchanges.
  • In this article,  let us consider using Uniswap exchange and Trust Wallet to purchase Defi tokens. Download ‘Trust Wallet’. If you already have a wallet, that good, else ‘Create a new wallet’
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  • To start purchasing any Defi token, you need to have Ethereum in your wallet. If you want to buy ETH then read this article.  How to purchase Ethereum
  • To buy a token of any Defi project by swapping with ETH we have to visit decentralized exchange through our trust wallet
  • Click on the four dots shown in the image.
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  • Once you click, you will be redirected to the browser of Trust Wallet. Type ‘UniSwap Exchange’ website address.
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  • You will be redirected to the Uniswap page within the trust wallet. The total available ETH is been displayed on the screen.
  • To buy any token, in this example, let us consider we are buying LINK, select LINK by clicking ‘Select a Token’. From the list, find LINK token, if you are not finding any token, you can paste the contract address
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  • Type the amount of ETH you wish to swap. The LINK tokens which can be purchased with the entered ETH will be displayed and the screen. Click on ‘Swap’
  • It will ask for the confirmation, click ‘Confirm Swap’
  • Yet another screen appears with the information of the transaction. Cross-check with everything and click on ‘Approve’
  • Now your transaction is completed, you can see your updated ETH and LINK balance.

Why DeFi ? 

After the invention of blockchain technology, the access was limited to a specific mass. Defi provides everyone in the world access to an unlimited number of financial products and services. Therefore, an unbanked individual can also have access to all the financial services without any permission of any central authority.

Defi does not involve any middlemen and hence, it has the potential to make certain products much cheaper. Defi enables the investors to trade more efficiently by buying or selling just a portion rather than entire-high value investment.

The Defi data is publicly available, which means you can check the Defi reserves, look out for accurate loans and also track the transactions of the platform.

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