As the value of DeFi continues to experience an upward rise, many cryptocurrency enthusiasts have started seeking how to invest in DeFi. The DeFi system was first valued to be more than $100 billion in 2021 and has kept on increasing since then. If you an investor who’s hoping to diversify into DeFi, but needs guidance on how to go about it, then this article is a must-read for you. Here, we explain the meaning of DeFi and the top 10 ways to invest in it.
What is DeFi?
Before discussing how to invest in DeFi, let’s examine the meaning of the term. DeFi is short for “Decentralized Finance,” and refers to a range of financial applications in the world of crypto and blockchain technology. Essentially, its target is to eliminate the need for middlemen (financial mediators) during financial transactions. These financial apps make it very easy for you to execute transactions without the involvement of an intermediary.
DeFi wants to democratize the world of finance by putting an end to centralized institutions and replacing them with peer-to-peer connections that can offer a wide range of financial services
Is DeFi a good investment?
Since the value of DeFi keeps growing and waxing stronger, we’ve concluded that it is definitely a good investment. Many people argue that decentralized finance may take over the finance industry in the near future. If this works out, services involving loans, investment, insurance, and many more will need the involvement of a bank or traditional lender.
Top 10 ways to invest in DeFi in 2023
Before we highlight how to invest in DeFi in 2023, it is important to note that every investment (including DeFi) has its fair share of risks. Hence, you must learn how to manage them effectively. Now, here is a list of 10 ways you can invest in DeFi in 2023:
1. Invest in DeFi coin
A great way to start investing in DeFi is to invest in its coins. When you do this, you will retain the native digital currency of a specific DeFi project. DeFi coins are usually listed on cryptocurrency exchanges, just like any other crypto token. Also, their value fluctuates depending on the demand and supply in the market.
Currently, there are more than 540 DeFi tokens for numerous DeFi projects. Each of these tokens specialises in a precise aspect of the whole decentralized industry.
2. DeFi yield farming
Yield farming is another profitable investment in DeFi. It is very similar to what is known as “Staking” in the real world. The major similarity between Yield farming and staking is that you will loan your idle crypto tokens to a specific decentralized exchange. However, you have to provide liquidity to the crypto exchange.
Essentially, liquidity enables both buyers and sellers to exchange crypto without the involvement of a third party. Hence, you have to supply liquidity for a particular trading pair. For example, if you want to supply liquidity to ETH/BTC, you have to deposit an equivalent amount of Ethereum and Bitcoin in monetary terms. This enables people to easily swap ETH for BTC in a decentralized way.
3. DeFi savings account
DeFi savings account is similar to what is called savings or fixed deposit account in the traditional banking sector. However, the difference is that, while accounts in the traditional banking sector help you hold money, DeFi accounts hold crypto tokens.
You can start investing in DeFi by creating an account and depositing idle crypto coins into it with the hope of generating interest in return. The interest rate paid on this kind of account is generally higher than what is paid in the traditional banking sector. Nevertheless, before investing, consider factors like the kind of crypto token to be kept, the period of savings, as well as the DeFi platform.
DeFi Staking is quite similar to making use of a DeFi savings account, however, there is a slight difference here. Basically, this method involves the DeFi investor finding a platform that endorses crypto staking. In this method of investment, it is required for you to “stake” or “lock” your crypto tokens on the platform you choose for a specific duration. In return, you receive an interest in it.
The first way to do this is to stake your crypto tokens in a PoS(Proof-of-Stake) blockchain, such as Cardano. Thereafter, the tokens will then be locked/staked into the blockchain and will be used to confirm transactions. However, using this method may not give the highest interest.
Another better way to do it is to find a third-party locking platform that offers high APY and has a great reputation. Subsequently, you have to deposit your crypto tokens into the platform’s smart contract, which will then be used to fund loans and liquidity pools. A good platform for this is DeFi swap. Using this method will give you a greater yield than the first method.
5. Get a DeFi wallet
Another way to invest in DeFi long-term is to get a suitable DeFi wallet. Essentially, doing this will permit you to keep your tokens in a non-custodial way just as they should be kept in the DeFi space.
Using a non-custodial wallet will guarantee you maximum privacy and security for your private keys and wallet.
This can’t be compared to other centralized platforms because keeping tokens in a centralised platform will give the platform access to regulate all your information, assets and private keys.
6. Invest in NFTs
Another good option you can consider is to invest in NFTs(Non-fungible tokens). Essentially, NFTs are primarily used to depict special digital tokens that verify the ownership of a specific item, primarily a music, art, or video clip.
Automatically, you become the only owner of the token when you purchase an NFT and include it in your digital wallet. Hence, you will be able to hold this wallet as you wish to and sell it off at any price you consider fit.
7. Hold stablecoins
Experienced crypto investors understand how risky crypto investments can be due to the extremely high volatility of coins. This can make an investor lose a lot of money. However, investors can minimize this high risk by investing in stablecoins.
When you open a DeFi account that can support Stablecoins, you can win against the risk of crypto volatility and earn high yields. This is because Stablecoins are generally pegged to some of m the strongest fiat currencies such as USD and EUR.
Just like what we have in the traditional finance industry, where banks and other financial institutions can sell their stocks to the public, it is also done in the DeFi industry. Essentially, DeFi stocks are another solid way you can invest and get yield in the DeFi industry.
DeFi Stocks permits you to invest in DeFi without needing any crypto token. Basically, this means that you invest in special stocks which are partly involved in the overall development of decentralized finance.
If you want to do this, you just have to search for a regulated and trusted stockbroker. Proceed to open an account for yourself and purchase your preferred number of shares.
9. Secured DeFi loans
Securing crypto loans is another good way to invest in DeFi. This is similar to the traditional loans you can get from banks and other financial institutions. However, the difference is that you wouldn’t need to undergo any credit check or fill out any documentation, unlike banks.
Nevertheless, you will need to provide collateral to access these loans, but this collateral must be supplied as crypto tokens. You can get loans with your crypto assets as collateral via a prominent DeFi platform without the involvement of any third parties.
10. Invest in DeFi smart portfolio
This investment is majorly for beginners in the world of DeFi who have zero experience. If you are a beginner, you can try this method, as it demands no experience or personal input. Beginners can invest in any reputable DeFi smart portfolio so that they can gain exposure to how DeFi works without choosing their assets or markets. The major work will be done by the platform that offers you the smart portfolio.
Considering how fast the DeFi industry is progressing, it is best for every crypto enthusiast to learn how to invest in DeFi. The information we provided above has provided you with a road map on how you can start investing. Study them critically and go for the most suitable one for you. Remember, all investments have risks so you must learn to manage your risks effectively.
As the best crypto exchange app in Africa, Bitmama offers a secure marketplace for crypto enthusiasts looking to invest in DeFi. Perform activities like crypto exchange, crypto staking, and creating virtual dollar or crypto cards for online payment.
Get started today by downloading the Bitmama app on Android or iOS.