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Investing in DeFi: Why You Should Rely on Diversification and not Short-Term Returns.

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Investing in DeFi

Investing in DeFi: Why You Should Rely on Diversification and not Short-Term Returns.

Investing in DeFi

Investing in DeFi comes with great potential for gains, but you must never take your eyes off the risks involved. Over the last few months, the decentralized finance space has witnessed exponential growth. It currently has about $9 billion DeFi crypto assets locked in its protocol. About a year ago, the Defi space had a little over $500 million locked in its protocol. This indicates that the DeFi space is a fertile ground for investment, but you must tread carefully.

Also Read: How to Store Your Bitcoin and Keep it safe

Since the start of 2020, the total value locked across all decentralized finance platforms has increased by more than 1000%. Meanwhile, it doesn’t look like taking a break anything soon. The exponential growth witnessed within the last few months might be connected to a yield farming trend that started when Compound (a lending protocol) began distributing its COMP governance token to all users who interacted with the protocol. 

Yield farming (or liquidity mining) is a way of allowing DeFi users to generate rewards with their cryptocurrency holdings. Users can access this by interacting with the protocols that distribute governance tokens. Yield farming has the potential to be a profitable venture on its own. However, the tokens being farmed often witness a surge in price as well. 

A good example is the Yearn.finance governance token (YFI), which within a space of 30 days, was up by 400%. It is arguably one of the best DeFi investments made in the last few months. Before we go further to discuss why DeFi diversification is a better approach than short-term gains, let’s explore decentralized finance. 

What Is Decentralized Finance (DeFi)

Decentralized finance is an ecosystem of financial applications built on the blockchain network. Specifically, DeFi refers to a movement that aims to develop an open-source, permissionless, and transparent financial service. This transparent financial service ecosystem operates devoid of a central authority and is available to everyone. The users maintain full control of their assets and interact with the ecosystem through peer-to-peer networks and decentralized applications (dApps). 

The core benefit of DeFi is its easy access to financial services, especially for people isolated from the current financial system. Another great advantage of decentralized finance is the modular framework upon which it is built. Also, the interoperable DeFi applications on public blockchain have the potential to create an entirely new financial market. Now let’s continue with the topic of investing in DeFi.

The Dangers of Chasing After Short-Term Gains When Investing in DeFi

The smart contract’s nature is one risk associated with yield farming, but most people seem to neglect it. Small teams with limited resources developed some of these popular DeFi protocols. This increases the vulnerability of these smart contracts and their susceptibility to bugs. Even well-audited protocols have been hacked, let alone poorly audited ones. 

The risk posed by smart contracts is real, and it can cost many people their hard-earned money. A good example is Yam Finance (YAM). YAM is a DeFi project that saw users lock more than $500 million worth of DeFi crypto assets. A bug discovered in the smart contract protocol made it impossible for the community to reach a quorum. 

Although the creators of Yam Finance warned users that their smart contract was unaudited, users never listened. The pursuit of short-term gains led users to lock more than $500 million in Yam Finance’s smart contract. These users also neglected the fact that Yam’s token wasn’t listed on top exchanges before the tragic incident. The Yam’s token crashed from around $100 to $1 in a single day, and the token is currently worth about $0.02. 

Other inherent risks include the volatility of cryptocurrency and the intentions of the DeFi protocol creators. When Chef Nomi, the SushiSwap protocol developer, decided to cash out a stake of Sushi tokens for more than 38,000 Ether (ETH), many people thought it was an exit scam. This caused Sushi tokens’ price to drop by over 70% from $5.3 to $2.3 within 20 hours. There are several ways of making gains while investing in DeFi, without losing your money to bugs or human error. 

Why You Should Diversify While Investing in DeFi

There are many good DeFi investments and DeFi projects, but it is advisable always to spread your investment across board instead of putting all your eggs in one basket. This approach helps you avoid losing your money to unexpected market moves, scams, or technical issues. You need to know that the components of the Defi portfolio are up to individual investors. 

Read: What is Lightning Network and How Does it Work

Therefore, it is highly recommended that you conduct your research before investing in DeFi projects or crypto assets. Someone that spread his investment across best DeFi investments would have lost money in YAM’s collapse and SushiSwap incident but would have made gains from YFI’s growth. Do your due diligence on the best DeFi projects and ensure you understand the system before investing your money.  

There are available platforms like OKEx where you can margin and swap different DeFi tokens. This enables you to execute strategies that maximize your gains while hedging your trading risks and other users. These tools allow traders and investors to take advantage of the potential gains in the growing DeFi space. They also help ensure that unforeseen events don’t see traders and investors wrecked while investing in DeFi.

Conclusion 

There is a huge potential in investing in DeFi, and as you have read in this post, there are risks too. This post doesn’t contain any investment advice; therefore, you must conduct your own research before making a decision to invest. For your questions and contributions on how to invest in Defi, kindly use the comment space provided below.

 

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What is Cryptocurrency And How Does It Work? 

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Obiex finance website

Cryptocurrencies are decentralized digital assets that operate on blockchain technology that in turn operates by storing a ledger of every transaction on all nodes powering the blockchain. 

In layman’s terms, blockchain technology is like a record keeper, it collects data (in blocks) and links one block of data to another, forming a chain. The data on the blockchain is open for all to see and cannot be easily altered. Blockchain technology can be used for a variety of use cases besides cryptocurrency, ranging from voting to crowdfunding, keeping health records, etc.

Using Bitcoin as an example, nodes are computers connected to the network to mine Bitcoin,  – this collection of independent nodes working together is what makes the network decentralized.

The decentralized nature of cryptocurrency is down to the creators recognizing flaws in traditional banking & financial systems like governments and financial institutions acting only in their best interests and not in the best interest of the common man, leading Satoshi Nakamoto (the creator of bitcoin and blockchain technology) to take steps to rectify that.

Related: What are NFTs?

To make cryptocurrency transactions, you will need to have a set of both public and private keys that will act as passwords protecting your crypto wallet. 

The Public key is connected to your wallet address, allowing you to share the address with others to receive cryptocurrency, while the private key is known to only you and is what you will use to approve outgoing crypto transactions from your wallet. 

Trading Cryptocurrency on Obiex

Obiex finance website

With the popularity of cryptocurrency trading currently at an all-time high, the biggest challenge for many rookie traders is selecting which cryptocurrency exchange to trade on.

If you fall in this category, the immediate priority should be finding an exchange that allows rookie traders to make trades easily, doesn’t charge extra fees and is completely secure. That exchange is Obiex Finance.

In this guide, you will be shown how to navigate the Obiex mobile app & website easily and what to do to get started with making cryptocurrency trades. 

Getting started with Obiex Finance 

Obiex Finance is a digital asset exchange and financial technology (Fintech) platform that gives its users the ability to easily execute cryptocurrency trades from anywhere regardless of their skill level.

Their commitment to ensuring that users get the best experience is shown in how they allow instant swaps from volatile coins like Bitcoin to stable coins like USDT, and vice versa, without confirmations. In a market where the value of crypto can fluctuate wildly, this feature is especially valuable as it allows users to seamlessly switch between making profits to saving those profits in a more stable currency before the value drops.  

To create an Obiex Finance account, simply head over to their homepage, click on “sign up”, fill in the required fields and verify your email address. After that, create wallet addresses for your crypto assets and you’re ready to start trading!

The cryptocurrency available for trading on the Obiex Finance platform are: Bitcoin (BTC), Ethereum (ETH), Binance Coin (BNB), Polygon (MATIC), Dogecoin (DOGE), Tether (USDT), Binance USD (BUSD), and USD Coin (USDC).

Getting Started with Cryptocurrency trading

After creating your Obiex account, you need to follow these simple steps:

  1.     Have a Trading Strategy: Trading cryptocurrency without having a strategy in place is the easiest way to lose your money. You will need to research the various crypto trading strategies thoroughly and choose the one that best suits your needs and temperament. For example, if you’re a patient person who is content to make smaller, safer trades over a long period of time instead of making riskier trades, then scalp trading is the best trading strategy for you. There are also other crypto trading strategies such as Swing trading, position trading, Arbitrage, dollar cost averaging etc.
  2.     Pick the cryptocurrency you’d like to trade: There are several cryptocurrencies available on Obiex Finance such as Bitcoin, Ethereum, Binance Coin, Tether etc. Selecting which cryptocurrency to trade is usually down to making a choice; whether to stick with the safer, more established cryptocurrencies like Bitcoin or to go with the more volatile coins that have a high upside and an equally high-risk factor like the Dogecoin which can move in either direction based on what Elon Musk tweets.

It is also important to note that when you pick a cryptocurrency to trade, it would be wise to ensure that the cryptocurrency matches the strategy you pick. For example, if your preferred strategy is patient scalp trading, then investing in volatile coins that have a high upside but carry a lot of risk is not the wisest move. 

To swap crypto on Obiex Finance, add the wallet of crypto assets you’d like to swap, send the crypto to the wallet you just created, navigate to the ‘swap’ option on your dashboard, and select the coins you’d like to swap. You will receive the swapped coin in your wallet balance immediately without waiting for network confirmations.

  1.     Securely store your cryptocurrency: The same way you’d protect your goods and profits if you had a physical store is the same way you need to protect your cryptocurrency so it doesn’t fall into the wrong hands.

You can store your crypto securely on your Obiex wallet but if you want an alternative, physical wallets are also an option. Physical wallets allow you to store your crypto in secure hardware, offline storage device reducing the likelihood of online hackers stealing your hard-earned crypto. This is a list of reliable physical wallets you can use.

Conclusion

If you’re a newbie to crypto trading, the keyword is patience. Taking the time to properly understand the market before making trades will stand you in good stead. While risks occasionally pay off, a patient, long-term strategy is required to make consistent profits. For more information about trading as a newbie, you can check this out to understand unfamiliar crypto terms and to learn more about spot trading and futures.

Obiex Frequently Asked Questions | Obiex FAQs

  • Will I be charged a fee when I swap coins on Obiex? 

No you won’t. While other crypto exchanges charge for trades and require confirmations to execute swaps, Obiex allows you to make free, instantaneous swaps without the delay that comes with waiting for confirmation. This also helps you avoid unnecessary losses.

  • Can I trade crypto on Obiex if I don’t know much about crypto? 

Yes, you can! The Obiex Finance platform allows both rookie and experienced traders to make easy, safe trades regardless of trading experience.

  • Can I send and receive crypto easily?  

Yes, you can. To send crypto, you will use your private key to execute outgoing trades and your public key/your wallet address to receive incoming trades. You can also send and receive crypto using just Obiex usernames.

  • Why do I need to swap coins? 

Swapping coins allows you to either acquire a coin you think is (currently) more valuable than a coin you have a lot of. You can also use swaps to ensure that your funds are invested in a more secure coin like USDT if you feel the volatile coin you’re holding is about to go on a bear run and lose value.

  • Do I get a referral bonus when I invite friends to use Obiex? 

Yes, Obiex has a referral campaign that rewards users that invite their friends and family to trade the minimum of $10 on Obiex.

 

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