The buzzword in the crypto ecosystem right now is DeFi – which became a high competitor for Bitcoin. With faster transactions and much more financial options, it’s not even surprising.
However, since DeFi is pretty new in the crypto area, you might be a little confused about what it is really about. Therefore, we gathered here all the fundamental details you would need to know before joining it.
So what is DeFi?
DeFi stands for Decentralised Finance and it’s an alternative system for the regular financial ecosystem, except it’s built on the blockchain.
At first, it started as a collection of projects that were offering loans, derivatives like futures contracts, leveraged trading, and staking systems that work similarly to traditional savings deposits that pay interest.
However, in the last two years, the DeFi ecosystem exploded into a 25 billion dollar phenomenon that has tons of applications and projects for any type of investment.
This ecosystem includes things like:
- Stablecoins – cryptocurrencies whose value is pegged to that of a national currency like the US Dollar;
- Decentralized exchanges – where you can forget about third parties;
- Lending platforms – where the interest rate is based on users’ contribution to the lending pool;
- Online gambling – that doesn’t ask for personal data;
- Prediction markets;
- And yield farming.
The most important thing about DeFi is that it allows people to do almost any type of financial investment without jumping through the hoops of dealing with the bank. It’s fast, it’s based on smart contracts, and it gives people direct control over what they do with their money.
This is a huge advantage for those that don’t usually have access to regular banking services and for those that don’t want to deal with dozens of intermediaries to invest.
It also allows people to launch their projects easier and faster. If you have an idea and you want to put it into practice, DeFi allows you to reach hundreds and thousands of people that might want to invest in your project.
How does it work?
There are several ways to participate in the DeFi phenomenon, depending on what your end goal is. You can generate passive income by lending crypto to other users or by joining different projects that can generate profits. Unlike traditional financial products, DeFi requires a lot of research. To make sound investments, it’s recommended that you read up on projects before investing in them.
There is so much enthusiasm right now for crypto that new coins and tokens pop up almost every day. Some of them are successful, others are gone as fast as they show up. Like anything else in the crypto industry, there is risk associated with investing in new projects, so make sure you know what you are getting yourself into.
Right now, CoinMarketsCap lists about 8.300 coins and tokens, but in reality, there are many more. Usually, centralized exchanges like Binance, vTrader, and Huobi have very strict standards when it comes to listing new cryptocurrencies. This means that a new project needs to reach a certain amount of recognition before being listed.
DeFi solved this problem via decentralized exchanges (DEX), where anyone with a project can generate a new token in a few minutes. The most popular DEX right now is Uniswap, with an average daily trading volume of 800 million dollars. It’s also the most used when it comes to DeFi tokens.
DeFi makes it easier for people to implement their ideas and also find projects with potential. It’s a money game with very few rules and lots of opportunities.
How to join the DeFi phenomenon?
Now that you know what DeFi is about, let’s take a look at the next steps.
First, you need a wallet. Cryptocurrencies and tokens are stored in digital wallets and most of them are built on the Ethereum blockchain (also known as ERC-20 tokens). The most popular Ethereum wallet right now is Metamask, but there are several others that can be used.
The second step is to buy some crypto – you should start with the most used ones, like Bitcoin (BTC), Ethereum (ETH), or a stablecoin like USDT or USDC. There are several platforms you can use to buy crypto using different methods. For example, vTrader.io allows you to buy popular cryptocurrencies with euro via bank transfer.
The third step is to decide which project you want to invest in.
Once you decided, you can buy that token through one of the centralized exchange platforms that listed it. You can use a DEX like Uniswap or use a swapping service provided by platforms such as vTrader.
The vTrader swapping platform is really easy to use – all you need to do is connect your wallet and choose which token to buy.
With that being said, your journey in the DeFi universe has started, and we wish you the best of luck!
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