- Technical Jargon
- Uncertainty About the Unknown
- Concerns About Impermanent Loss
Are common obstacles preventing your deFi profits.
You can conquer these fears by clearly comprehending how DeFi generates profits, combined with persistent practice and patience.
Here are some valuable tips:
To begin, let’s address a fundamental question:
Where do DeFi yields come from?
Staking involves locking native tokens on a network to receive rewards. By staking tokens, users contribute to the security and operation of the network and, in return, earn additional tokens as rewards.
These rewards can be generated through inflationary token issuance, the project’s treasury, newly minted tokens, or other revenue streams specific to the DeFi project.
DeFi protocols generate yields by charging fees for the services they provide. For example, decentralized exchanges (DEXs) charge a fee for swapping tokens.
These fees contribute to the revenue of the protocol, which can be shared with users in various ways. Higher revenue can attract more users and improve liquidity, benefiting yield aggregators and stakers.
DeFi protocols generate yields from incentive programs by offering rewards to users who participate in specific activities. These incentives can take various forms, such as additional tokens, a share of transaction fees, or access to exclusive features.
DeFi protocols encourage users to engage with their platforms, contribute liquidity, or perform other desired actions by providing these rewards.
The specific mechanisms for generating yields from incentive programs can vary between protocols. Still, the goal is to create a mutually beneficial ecosystem where users are incentivized to participate and contribute to the platform’s growth.
When investors generate yield in the DeFi ecosystem, they put tokens or coins into decentralized apps (dApps) like lending and borrowing protocols, decentralized social media outlets, and decentralized exchanges (DEXs).
Technical names you should know:
- Liquidity Pools: Pools of funds users provide to facilitate trading and lending on decentralized platforms.
- AMM (Automated Market Maker): A decentralized exchange that uses algorithms to determine asset prices based on supply and demand.
- APY (Annual Percentage Yield): A measure of the return on an investment, including both interest and compounding effects, expressed as an annual rate.
- TVL (Total Value Locked): The total value of assets locked in a DeFi protocol or platform, often used to measure its popularity and success.
- Slippage: The difference between the expected price of a trade and the actual executed price due to market volatility or liquidity constraints.
- Stablecoins: Cryptocurrencies are designed to maintain a stable value by pegging their price to an external reference, such as a fiat currency.
- Yield Aggregators: Platforms that automatically allocate funds to different DeFi protocols to maximize yield or returns for users.
- Impermanent Loss: A temporary loss experienced by liquidity providers in automated market maker pools due to price volatility.
- Lending and Borrowing: Providing or borrowing assets on DeFi platforms, often with interest rates determined by supply and demand.
How to make money in DeFI.
1. Yield Farming: Stake your cryptocurrency assets on DeFi platforms. You can earn interest or additional tokens by providing liquidity to the market.
2. Lending: Lend your digital assets to others in exchange for interest payments. It allows you to earn passive income by leveraging your crypto holdings. Platforms like Aave and Compound allow you to lend tokens and earn an interest.
3. Staking: Lock your native tokens on a network to support its operations and security. In return, you earn additional tokens as rewards.
4. Arbitrage: Take advantage of price differences between different markets or exchanges. Buy assets at a lower price in one market and sell them at a higher price in another, profiting from the price discrepancy.
5. Liquidity Providing: Providers contribute funds to decentralized platforms, enabling smooth trading and lending operations. In return, they receive fees or rewards for their participation.
6. Incentive Programs: Incentive programs are rewards offered by DeFi protocols to encourage user participation and engagement. These rewards can take various forms, such as additional tokens, transaction fee shares, or exclusive features