How to earn money in DeFi and what is needed for this?
The popularity of DeFi-segment continues to grow very quickly. So, back in early August, the amount of blocked funds slightly exceeded $ billion. And after 4 weeks this volume has almost doubled - up to $7.5 billion! For comparison, these number only a little are inferior in capitalization to the first four cryptocurrencies: Bitcoin, Ethereum, XRP, Tether.
But what makes DeFi so special for ordinary users? First of all, it is the opportunity to make a profit, invest and store assets in your wallets. Let's see how anyone can make money on DeFi?
There are 4 methods to do this:
- liquidity pool
- yield farming
Each of these options has its own characteristics, so let's take a closer look at them.
This is the most common and most user-friendly option. As with conventional banks, you can invest in DeFi and generate a steady income from your assets. At the same time, rates in such projects are often much higher than rates in ordinary centralized banks and this is one of the reasons why it is worth investing here.
The second reason is the lack of fixing annual interest. This means that profitability can change from time to time, sometimes significantly increasing the profit. At the same time, rates cannot fall below a certain percentage. It is also worth noting that, depending on the popularity of assets and the amount of funds invested in it, the APR may differ several times.
But where does the profit come from? It's pretty simple.
In addition to users who deposit assets, there are borrowers on the platform who receive funds secured by their cryptocurrency. Loans are subject to mandatory interest rates. It is from these payments that users' profit from deposits is formed. If the borrower turns out to be unscrupulous and does not make interest payments, then he loses the collateral, from which the profit is paid to the depositors.
Earnings using this method range between 2% - 10% per annum.
2. Liquidity pool
It is already more complicated and little is known about this method. Meanwhile, he is able to bring in much more substantial income than deposits. What does it consist in?
Let's imagine that you have 2 or more cryptocurrencies that you just have in your wallet and you do not use them to earn money. With this method, you can deposit all your cryptocurrencies and generate income by providing exchange services between these cryptocurrencies.
First, you create a pool of two or more coins and set the exchange rates. Then add these cryptocurrencies to the pool, and the system itself sets up smart contracts for exchange. That is, you don't have to do anything else! It remains only to monitor the status and stats of the pool.
For the fact that you provided your cryptocurrencies to the liquidity pool, you will make a profit, and from each transaction you will receive a commission from 0.1% to 0.5%. The more popular your pool is, the more you can earn. Essentially, you act as a decentralized exchange.
And most importantly, the earnings here are not limited by anything. You can add dozens of pools, increase their popularity and earn more. Potentially, using this method, you can earn 1000% per year or more.
3. Yield Farming
This method has appeared quite recently and has recently gained high popularity. It is partly because of this that DeFi has received such a high hype.
Yield Farming originated from the first method - deposits/loans - but with a significant change. It was the introduction of a new method of mining. So, if a user took out a loan secured by a cryptocurrency, or deposited his assets into a deposit in a specific DeFi project, then he became a farmer and mined the cryptocurrency of this project.
The demand for this type of income has become so great that users have increased the volume of assets in these projects hundreds of times. Apparently, it is due to the fact that people believe in the prospect of the project and are ready to get its coin by any means. The same thing happened with traditional bitcoin mining, when demand for miners significantly exceeded supply after the sharp rise of the main cryptocurrency in 2017.
It is also one of the classic DeFi earning methods. It's simple: you buy a project coin, wait when it will grow and sell at higher point. But usually it has to wait long enough - for several months.
But in DeFi projects, the situation is radically different. Many of them show growth of 300%, 500% and even 1000% in just one day. If you invest in such projects at the very beginning, then you can increase your deposit tens times during a month. However, it should be noted that this is quite risky investment and the rules of risk management must be followed.
We have presented 4 different options for making money with DeFi-projects for every taste. Everyone can choose for themselves what they like best. DeFi - projects are still at an early stage and therefore there are still high opportunities for earnings, which we previously saw in currencies such as Bitcoin, Ethereum and XRP.