Five reasons to invest in DeFi
Are you tired of the same old traditional finance investments and looking for something new? Have you heard about DeFi investing and are curious to learn more? Well, you’ve come to the right place! In this guide, we will explore what DeFi is and why it’s gaining popularity, the different types of DeFi investments, and some tips to help you get started on your DeFi investment journey.
I. DeFi Investing 101
Decentralized Finance (DeFi) is a financial ecosystem built on blockchain technology that aims to transform traditional finance services such as lending, borrowing, investing, payments, trading, and insurance. By using cryptocurrencies and self-executing smart contracts, DeFi provides a transparent, secure, and borderless platform for everyone with an internet-enabled device to access critical financial services.
The concept of DeFi emerged in 2015 when Vitalik Buterin introduced the Ethereum Virtual Machine (EVM) as the pioneer smart contract platform for hosting decentralized applications (dApps). Since then, several other scalable layer-1 and layer-2 networks have emerged with EVM compatibility to host smart contracts, such as Solana, Avalanche, and Cardano.
II. Why DeFi is gaining popularity
DeFi is gaining immense popularity as an investment option due to several reasons. First, it operates on decentralized blockchain networks that allow for a more secure and transparent investment experience. Second, DeFi is open to everyone with an internet connection and a digital wallet, regardless of their location or financial status. Third, DeFi protocols are able to offer considerably higher yields on investments compared to traditional finance alternatives due to higher market liquidity and competitive yields. Fourth, DeFi has opened up a wide range of new financial products and innovative services that previously did not exist in traditional finance markets. Finally, many DeFi protocols are open-source and community-driven, allowing for a more inclusive and collaborative approach to product development.
III. Types of DeFi Investments
1. Lending: DeFi lending refers to the act of lending out cryptocurrency in exchange for interest. DeFi platforms such as Aave, Compound, and MakerDAO provide borrowers with the opportunity to take out loans using their cryptocurrency as collateral, while lenders can earn interest on their cryptocurrency holdings.
2. Yield Farming: Yield farming is a popular DeFi investment strategy that involves staking or providing liquidity to DeFi protocols in exchange for rewards in the form of cryptocurrency. Popular yield farming platforms include Uniswap, SushiSwap, and PancakeSwap.
3. Decentralized Exchanges (DEXs): Decentralized exchanges allow for peer-to-peer cryptocurrency trading without intermediaries. DEXs such as UniSwap and PancakeSwap have gained popularity due to their user-friendly interfaces and low fees.
4. Non-Fungible Tokens (NFTs): NFTs are unique digital assets that represent ownership of a specific asset such as artwork or collectibles. DeFi platforms such as Rarible and SuperRare allow users to buy, sell, and trade NFTs.
5. Staking: Staking has become an increasingly popular activity in the decentralized finance (DeFi) ecosystem, and it involves locking a particular amount of cryptocurrency temporarily in a wallet to support the operations of a blockchain network. Sheesha Finance is one of the emerging platforms offering staking services to its users. By staking their assets, users can earn fractional rewards, and this process is an essential component of proof-of-stake (PoS) consensus algorithms, as it helps to secure the network and validate transactions.
With staking, participants in PoS blockchain protocols can lock up their stake or collateral for a chance to validate blocks and receive rewards. The protocol randomly selects a node that will validate each block. Compared to proof-of-work and other methods, the key advantage of the PoS consensus model is that it does not require intense energy consumption to run computational equipment. In fact, according to Vitalik Buterin, the merge reduced Ethereum’s network power consumption by more than 99.9%.
Before Ethereum’s September 15th upgrade to the Beacon chain, the energy consumption of Ethereum ranged between 46.31 terawatt hour (TWh) per year to 93.98 TWh per year. Since the merge, the energy consumed by the Ethereum network has been cut down considerably to 0.01 TWh. Unlike proof-of-work (PoW), where participants have to invest in capital-intensive mining equipment, PoS only requires validators to stake cryptocurrency to forge blocks, making it more inclusive and accessible to anyone wishing to partake, anywhere around the world.
It’s important to note that different PoS protocols require varying stake amounts and lock-up periods. Sheesha Finance offers users the opportunity to stake a wide variety of cryptocurrencies, including ETH, BTC, BNB, and more, with flexible lock-up periods.
In recent times, Lido, Rocket Pool, FRAX, and Sheesha Finance are some of the most popular staking platforms in the DeFi space. While staking directly on the Ethereum network comes with financial requirements of 32 ETH (~$50,000) and technological barriers associated with running an Ethereum validation node, these platforms have made it easier for users to participate in staking and earn rewards on their staked assets
IV. Tips for DeFi Investing
1. Do Your Research: Before investing in any DeFi project, it’s important to do your due diligence and research the project thoroughly. Look for information on the project’s team, roadmap, and community.
2. Diversify Your Portfolio: It’s important to diversify your DeFi portfolio by investing in different projects and strategies to minimize risk.
3. Keep Track of Your Investments: Use a portfolio tracker to keep track of your DeFi investments and monitor your returns.
4. Start Small: Start with a small investment and gradually increase your investment as you gain more knowledge and experience in the DeFi space.
V. Robo Advisors
Robo-advisors are computer-based investment management tools that automate various aspects of the investment process, including generating investment recommendations. They use advanced algorithms and big data analysis to analyze market trends and provide investment recommendations, enabling DeFi investors to invest in a diverse portfolio of assets with ease. Examples of popular robo-advisors include Cryptosimple and Wealthfront. OneClick is also a noteworthy robo-advisor in the DeFi space, particularly for its full automation and minimal configuration requirements.
OneClick Crypto, in particular, stands out as a leading robo-advisor tool. It employs AI and machine learning technology to analyze on-chain transaction history related to a particular wallet owner and provide personalized portfolio recommendations based on the acquired data. OneClick is also entirely non-custodial, meaning that it doesn’t hold or control investors’ funds, and can be accessed from any web3 wallet like Metamask or Trust Wallet.
Investing in robo-advisors like OneClick can potentially offer several benefits to DeFi investors, including convenience, lower fees, and access to sophisticated investment tools that may otherwise be out of reach. With automated investment management, investors can save time and avoid emotional decision-making that can often lead to poor investment outcomes. Additionally, robo-advisors typically charge lower fees than traditional investment advisors, making them a cost-effective option for investors. Overall, robo-advisors can be an excellent choice for DeFi investors looking to streamline their investment management process and potentially achieve better investment outcomes.
For those seeking maximum exposure with minimal risk, investing in Sheesha Finance and staking on their platform is a promising option. Sheesha Finance offers a user-friendly staking dashboard and is known for their commitment to transparency and security. As with all investments, it is important to conduct thorough research and seek the advice of a financial professional before making any investment decisions.
This article is solely for educational purposes and not intended to serve as financial advice. Investing in DeFi products, tokens, or company shares associated with these trends does not guarantee financial gain. The information provided in this article is based on publicly available sources and the views expressed herein do not reflect the views of the publisher. Always conduct your own research and seek the advice of a financial professional before making any investment decisions. The publisher will not be held responsible for any losses or damages resulting from the use of this information.
Sheesha Finance is a decentralized, tokenized incubator and accelerator that’s helping web3 startups across all industries and blockchain networks build products and services that solve real-world teething problems. Based in the MENA region, Sheesha Finance is one of the first platforms to provide everyday investors with access to a diverse portfolio of early-stage projects, and its smart contract-based system is fully autonomous, making it efficient and user-friendly for both institutional and retail investors.
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Writer: Nathan Cooper, Chief Program and Innovation Officer at Sheesha Finance