Despite some volatility and high risks, DeFi tokens make money.
Transaction fees
An investor places liquidity (cryptocurrency) on a decentralised cryptocurrency exchange and receives a share of the transaction fees. The commission is typically 0.25-0.3% and is divided between liquidity providers according to their share of the pool.
The more active the trade, the more commission income the protocol receives and the higher the yield, but in many pools it can also be negative. The maximum rate is 0.27% for 30 days, which is about 3.2% per annum. In smaller pools, you can earn more, but the risks are much higher.
Cryptolending
An investor contributes a portion of funds to a lending pool, and this money is lent out as loans. This service is popular primarily among traders who are not satisfied with the terms offered by the centralized crypto exchange.
The borrower has to post collateral of over 100% of the loan amount (sometimes 150% and even 200%); in case of non-payment this collateral is automatically liquidated (sold), so the lender gets his money back anyway.
Yields depend on the currency of the loan and are constantly changing. The highest rates are usually on stabelcoins, e.g. USDT (up to 15%).
Profitable farming
The standard scheme is as follows: an investor buys a token, most commonly Uniswap, and places it in the liquidity pool of some trading or lending protocol. And as proof of participation in the pool, the investor receives special LP-tokens that are deposited (staked) on a special smart contract.
Immediately after launch, the projects often pay out large farm bonuses, so that the nominal yield can be as high as 1000%. Gradually, the number of tokens distributed each week decreases, but the yields still remain at 50-100%.
It must be remembered that this profit is nominal and the real return will depend on the price of the token.
How to invest in DeFi
Before putting your liquidity at the mercy of others, though, you need to get inside the ecosystem. The most popular “door” is the world’s largest steblecoin by capitalisation, Tether (USDT).
Unfortunately, you can’t buy this stabelcoin inside a DeFi app. The most reliable and yet easiest way is to buy USDT from a bank card at a regulated crypto-exchanger. Registering with such an exchanger is fairly easy and the process is not time-consuming for a potential investor.
Also, to participate in DeFi you will need a MetaMask wallet, which is supported by all DeFi protocols. You then need to send the purchased USDTs to MetaMask and then link the wallet to the chosen DeFi protocol. Usually the DeFi-application itself prompts you to do this. After linking to the wallet, you can place funds on the protocol.
