How To Invest In DeFi In 2022 : 3 Standout Strategies.

Either from crypto influencers or some ad somewhere. You should have heard of how to invest in DeFi countless times since the start of 2022. This is because, as an industry, Decentralized finance(DeFi) is snowballing at the moment.

The DeFi ecosystem was worth over $100 billion in mid-2021. And as of June 2022, it is 5 times that figure already.

When compared to traditional Finance (TradFi), projects are still in their infancy in the DeFi ecosystem.

So could now be a good time to invest in this technology? Well, that's what you'd be finding out In this article.

Did you know there's a way to make crypto money in the least risky way possible? Yes, you heard that right. Can you believe that?

Well, investing in this new thing called Decentralized Finance(DeFi) could be your best bet at experiencing this hack.

Before learning to invest in DeFi, there are some basic things to get out of the way.

First is the Misconception.

Many people have always believed this to be the best way to invest in the crypto space. Buy the dip, wait for some time, then sell it off when the market goes green.

While this is a common practice, the hard truth remains that most people lose money with this route.

What's even sadder is that there are much better routes. Ones in which you can make more money even if there's a 50% dip tomorrow. Could that be true?

Well, let's see.

So Decentralized Finance? What's that?

DeFi is a blockchain-based digital finance system that provides financial services to everyone. It can provide these services without intermediaries like brokerages, exchanges, or banks.

Decentralized finance is reliant on public blockchains such as Ethereum.

It has access to services ranging from crypto trading, loans, and interest accounts, to other financial services. These are basically what you'd find with the Central financial bodies.

So to put it simply, Decentralized Finance gives financial freedom back to the people.

The truth is that there are many more things to talk about DeFi than this. The space is new, huge and filled with endless opportunities.

But then, let's look at ways to leverage this new technology.

1. Through Staking

Staking is the process of allocating your coins to support a blockchain network. And In exchange for that, you receive incentives for the coins you have put on the line.

The rewards vary depending on how long you decide to stake them.

The same is valid with DeFi staking. It involves locking one's crypto tokens into a smart contract to earn more of those tokens in return.

The tokens in question here are the native asset of that blockchain.

For example, in the case of Ethereum, users can lock up their ETH into the Ethereum 2.0 smart contract.

And in return, they will earn extra ETH as a reward for playing their part in enforcing its consensus rules.

This consensus mechanism means Ethereum has a system that verifies transactions on its ledger.

And a good way for them to verify transactions is through staking. So those who verify transactions are paid for their efforts in crypto.

Staking is one of the best DeFi investment strategies that allow you to get a considerable return regardless of the market situation.

2. Through Buying or Trading DeFi Tokens

Suppose you are more interested in a quick ROI. In that case, another way to invest in DeFi will be to buy or trade DeFi tokens experiencing a bullish run.

You can take advantage of the trend and profit from it as the price increases. Though, this requires some form of technical analysis skills.

But essentially, once you've made enough profit, you can sell off that DeFi token and look for another to repeat the same process. Please don't be greedy! Always discipline yourself and stick to a plan.

While this move seems smart, there's a big "But." Like any other thing that can come quick and has a high value, the cost is also high.

The cost in this context is the high volatility that comes with trading. Crypto market movements are very unpredictable, even in the best of times.

So, be sure to always apply risk management controls when dealing with trading your DeFi Tokens.

3. Through Yield Farming

Yield farming is one of the most critical drivers of decentralized financial growth.

It tends to be hard to understand at first, especially if you are new to crypto.

But to sum it up, it provides investors equal opportunities to increase their profits. Here, you do more than putting your held coins in a pool to facilitate transactions (staking).

Yield farming utilizes the concept of putting your crypto assets to work. Especially in a way that generates the highest yield possible while minimizing risks.

Here, you allow your coins to be used to facilitate transactions in a decentralized exchange platform like uniswap.

This process is what's known as providing liquidity in a liquidity pool. Your coins are used by this DeFi platform to let other users borrow or trade cryptos through "swaps."

It's best to think of this strategy as owning several small businesses. You lock your assets in these liquidity pools and get paid a percentage of all the transaction fees that the pool earns.

Imagine locking up your assets in three to four different DeFi platforms. And getting a transaction fee reward depending on how many of your assets are in there. That's a lot of money already!

However, there's one key thing to keep in mind. It's essential when yield farming to conduct thorough research on the platform in question.

This is to ensure it isn't a scam and its developers have no intentions of "rug pulling."

It's always recommended to select established platforms that already have positive reputations. And whose smart contracts have been externally audited.

Likes of such platforms are; Binance or PancakeSwap.

Key Take Away

This beginner's guide has covered some DeFi investment strategies. But, there are many more.

The DeFi ecosystem is growing and changing in sync with the traditional financial services sector.

And while it is true that this technology is still developing, now is logically the perfect time to take advantage of it.

DeFi is undoubtedly the future.