DeFi, as you must have known, is not just a made-up word in the crypto community; it’s an acronym for decentralized finance, an open-sourced blockchain application that acts as intermediaries. Getting rid of centralized intermediaries means anyone with a smartphone and internet connection could use DeFi platforms. However, some years back, when DeFi came into the crypto community new, several individuals invested in it without even understanding it. However, you can learn what DeFi is and answers to the questions about stablecoins investment and what is yield farming, amongst other DeFi related questions. Note that these strategies have proven to be efficient for most DeFi tokens; however, your risk tolerance would depend on what strategy you adopt. But here are some strategies you should consider.
Hodl:
No, it’s not a typo, and it’s pronounced as “hold.” Suppose you are new to the crypto world. In that case, you might have heard someone refer to another person telling them to “hodl,” it’s a common word amongst crypto investors, especially those interested in the Ethereum network. However, it should be noted that this word started as a typo in a crypto forum in 2013. It is typically used to mean holding on to your investments irrespective of the market’s ups and downs, so it doesn’t matter if we are in a bull run or a bear market; you just have to hodl.
You might think HODLing is the most straightforward strategy at first; however, the test would come when you realize your investment is about to hit the all-time low. It’s not always the easiest, nor the smartest, as you could move your investment to a more stablecoin for the time being.
Staking and yield farming:
The two strategies are primarily seen in the same sentence; however, they do not mean the same thing. One of the most accessible means of allowing your cryptocurrency to work for you is staking. Locking up your assets as liquidity means you are playing a part in ensuring the smooth operation of DeFi on that DEX. When you stake, you are entitled to staking rewards in the form of LP tokens or governance tokens which could be traded or used as voting power.
On the other hand, yield farming is a more complicated investment strategy that combines borrowing, lending, and staking to maximize outputs through staking rewards and interests earned on borrowing and lending. Note that yield farming offers the bulkiest profits in DeFi; it also carries enormous risks compared to others.
Investing in stablecoins:
Yes, here’s another strategy you can adopt. Major cryptocurrencies like Ethereum, bitcoin, Cardano, etc., could be used as a form of money, bitcoin precisely. However, their price fluctuation is a primary concern and one of the setbacks in its adoption as the future of money. The price of altcoins and other significant cryptocurrencies is very volatile and tends to swing to an all-time low with any slight changes. Stablecoins are totally different, and they are different from the traditional cryptocurrencies because they have the backing of most reserve assets like gold or USD. In a nutshell, stablecoins are tokenized versions of gold, USD, and other reverse assets. This helps keep the price of these stablecoins “stable”; hence, they do not suffer the same volatility as other cryptocurrencies.
Stablecoins could also be regarded as the middle ground between fiat and traditional cryptocurrencies. While they are still regarded as cryptocurrencies, they do not suffer the same fate of being volatile as others. So, are stablecoins good investments? If you want to have a feel of what the crypto community is all about but cannot battle with volatility, you should invest in stablecoins. They are a good fit to get your cryptocurrency journey started. However, there are a few things you need to understand before getting started.
Don’t be all about huge gains:
Investing in stablecoins and expecting huge gains like other traditional cryptocurrencies is like living in a fool’s paradise. There’s a reason why it’s called “stablecoin,” and traditional cryptocurrencies are regarded as “volatile.” For example, Tether, a popular stablecoin, has increased less than 1% over the last three years. It’s more like putting your money in a savings account.
Lending and borrowing:
This is another interest means of earning on DeFi; you can lend your stablecoins on lending platforms for fixed interest rates. However, note that these interest rates changes depending on the asset’s demand. So, if there’s an increase in demand for Tether, you can be sure the interest rate would increase compared to the regular rates. You can always switch to the fixed or variable interest rate depending on the lending platform.