How to Invest in DeFi? Beginner’s Guide to Making Money From DeFi

Decentralized finance (DeFi) is growing at an exponential pace. This innovative sector allows investors to make money through a variety of products and services – including but not limited to yield farming, staking, interest accounts, and more.

In this beginner’s guide, we explain how to invest in DeFi today so that you can start generating an attractive yield on your capital.

List of the Best Ways to Invest in DeFi 

Below, you will find a list of the best ways to invest in DeFi today:

1. Invest in DeFi Tokens – Overall Best Way to Invest in DeFi
2. DeFi Staking – Earn an Attractive APY for Locking Your Crypto Tokens
3. DeFi Yield Farming – Generate a Yield by Providing Liquidity to a DeFi Exchange
4. DeFi Interest Accounts – Deposit Crypto Tokens into a Savings Account to Earn Interest
5. DeFi Loans – Maximize Your Exposure to DeFi With a Secured Crypto Loan

We discuss the above DeFi investments in great detail throughout this guide.

Detailed Look at the Best Ways to Invest in DeFi in 2022

There are many ways that you can invest in DeFi from the comfort of home.

Each DeFi investment product and/or service will come with its own risks and potential rewards. As such, it is important to have a firm understanding of the respective DeFi investment before risking any funds.

In the sections below, we take a detailed look at the overall best ways to invest in DeFi in 2022.

1. Invest in DeFi Tokens – Overall Best Way to Invest in DeFi

We would argue that the overall best way to invest in DeFi in 2022 is by adding some top-rated DeFi tokens to your portfolio. Put simply, these are cryptocurrency projects that are directly involved in the decentralized finance sector. This could be from a number of different angles.

For example, some DeFi tokens are involved in providing loan services, while others offer a decentralized exchange. You then have DeFi tokens that offer algorithmic stablecoin technology and those that are building decentralized access to the Metaverse. Either way, by investing in a DeFi token of your choosing, you are gaining direct exposure to this sector.

One such example of a growing project from this space is DeFi Coin (DEFC). This digital currency backs the DeFi Swap exchange – which offers a wide spectrum of decentralized financial services. This includes everything from token swaps and yield farming to staking and NFTs. DeFi Coin itself comes with a number of interesting metrics.

First and foremost, when somebody sells DeFi Coin – whether that’s on a centralized or decentralized exchange, 10% will be taken from the transaction automatically. For example, if the trader sells $1,000 worth of DeFi Coin, $100 would be taxed. Of this $100, $50 would be distributed to existing DeFi Coin holders via a dividend program.

The other $50 would be added to the DeFi Coin liquidity pool. Crucially, by buying and holding DeFi Coin in the long run, you will benefit from the growth of the DeFi Swap exchange. And for as long as you hold, you will be entitled to your share of rolling dividend payments.

How to Invest in DeFi Coin

If you like the sound of DeFi Coin and wish to add this innovative digital currency to your portfolio today, you can do so by following the simple steps outlined below:

Step 1: Get a Wallet That Supports BSc Tokens

DeFi Coin is a crypto token that operates on top of the Binance Smart Chain (BSc). Therefore, in order to invest in DeFi Coin today, the first step is to ensure that you have a wallet that can connect to the BSc network.

The most popular options in the BSc marketplace are Trust Wallet and MetaMask. While both of these wallets come in an iOS and Android app, MetaMask is also available as a browser extension.

You can read more on:

• How to buy DeFi Coin with Trust Wallet
• How to buy DeFi Coin with MetaMask

Step 2: Transfer BNB into BSc Wallet 

Once you have chosen and installed a suitable wallet, you will then need to deposit some BNB tokens. This is because DeFi Coin is directly paired with BNB on the Binance Smart Chain.

Both Trust Wallet and MetaMask allow you to buy BNB with a credit/debit card directly from within the wallet. This is a convenient way to add BNB to your wallet, albeit, both of these providers use third-party payment processors – which means that fees can be high.

A great alternative here is to buy BNB at Binance. In doing so, you will pay an average fee of 2% when using a credit/debit card – although the specific fee will depend on your location.

Either way, if you use an external exchange to buy BNB, you will then need to transfer the tokens to your chosen BSc wallet.

Step 3: Connect BSc Wallet to DeFi Swap

If at this stage you have BNB in your wallet, you then proceed to invest in DeFi Coin via the DeFi Swap exchange. In choosing DeFi Swap to complete your purchase, you won’t need to open an account or provide any personal information.

Instead, you can invest in DeFi Coin on the DeFi Swap exchange simply by connecting your wallet.

Once you are on the DeFi Swap exchange, click on the ‘Connect to a Wallet’ button.

• If you are using MetaMask, click on the relevant option
• If using Trust Wallet, or any other BSc wallet for that matter, click on ‘WalletConnect’ and scan the QR code that appears on your screen

Irrespective of which wallet you are using, you will need to confirm authorization to the DeFi Swap exchange. This is a highly secure process and crucially – DeFi Swap will never have access to your private keys.

Step 4: Set Up Order and Invest in DeFi Coin

Finally, you can now set up an order to invest in DeFi Coin. First, ensure that ‘BNB’ and ‘DEFC’ are set as the ‘Swap From’ and ‘Swap to’ currency, respectively.

Essentially, your swap order should look like the image above. Next, next to where it says ‘BNB’, you will need to enter the number of tokens that you want to swap for DeFi Coin.

When you type in a figure, the corresponding number of DeFi Coin tokens will update based on the current exchange rate of BNB/DEFC.

After confirming the swap, a pop-up notification will appear on the wallet that is currently connected to DeFi Swap. Once you confirm authorization, the DeFi Swap smart contract will complete the conversion and subsequently add the DeFi Coin tokens to your wallet.

There is no guarantee that you will make money when investing in this or any DeFi product or service. Proceed at your own risk. 

2. DeFi Staking – Earn an Attractive APY for Locking Your Crypto Tokens

The next product that allows you to invest in DeFi from the comfort of home is staking. In a nutshell, staking requires you to lock your tokens into the blockchain network for a specific number of days. This allows the blockchain to keep the network decentralized and subsequently confirm and validate transactions without requiring the service of a third party.

Staking is also offered by projects to incentive people to hold their tokens in the long term, which helps reduce volatility levels for the respective ecosystem. Either way, by staking your tokens, you will earn an attractive rate of interest. The specific rate can, however, vary quite considerably depending on the token that you are staking.

For example, DeFi Coin allows holders to stake their tokens at an APY of up to 75%. This is because DeFi Coin is still in its growth stage, so it is required to offer a higher yield. On the other hand, established and large-cap projects like BNB will offer a much lower APY on staking agreements.

Nonetheless, you will often have a number of options when it comes to the staking term. For example, when staking tokens on DeFi Swap, you can choose from a term of 1, 3, 6, or 12 months. It is important to remember that when your tokens are locked in a staking term, you will not be able to access them.

This is because the tokens are locked in a smart contract – which cannot be adjusted or reversed. Therefore, make sure that you are comfortable locking your tokens away for the entire term. Another thing to note that is in most cases, the longer the term that you choose, the higher the APY that you will be paid.

Staking Example

To ensure that investing in DeFi staking is right for you, consider the example below:

• Let’s say that you decide to stake 10,000 DeFi Coin tokens
• You select a 6-month term on the DeFi Swap exchange – which yields an APY of 60%
• After six months have passed, your 10,000 DeFi Coin tokens are deposited back into your wallet
• You also receive your staking rewards, which amount to 3,000 DeFi Coin tokens
• As such, your total balance is now 13,000 DEFC

If you’re wondering how to calculate your rewards from the stated APY, this is relatively straightforward.

In the example above, we opted for a 60% APY, which means that had we staked the tokens for one year, we would have received 6,000 DEFC our original deposit of 10,000 DEFC. However, we selected a six-month term, and only receive 3,000 DEFC.

Effect of Volatility 

Before you invest in DeFi staking, you also need to consider the pros and cons of volatility risk. This is because when your tokens are released from the staking smart contract, you can be all but certain that their market value will have changed. Of course, this could either go in your favor or against you.

• Leading on from the previous example, we’ll say that when you deposited the 10,000 DeFi Coin tokens, 1 DEFC was worth $1.
• This means that your total investment at the time of the deposit amounted to $10,000.
• After six months, we’ll say that DEFC was trading at $2 per token.
• You received 13,000 DEFC backed after the six months had passed, so that’s a total value of $26,000.
• This translates into a profit of $16,000 from your original $10,000 investment.

However, DEFC could have been trading at a price below $1 after the six-month staking term had passed.

• For instance, let’s say that DeFi Coin was trading at $0.50 at the time you received your 13,000 tokens back.
• In this scenario, your total investment would have been worth $6,500 – meaning that from your original outlay of $10,000 – you have made a loss of $3,500.

Ultimately, just remember that while you will increase the number of tokens you own when you invest in DeFi staking, you also need to consider that by the time the term concludes, they might be trading at a lower price.

How to Invest in DeFi Staking 

For a quick overview of how to invest in DeFi staking, check out the walkthrough below:

• Step 1: Visit DeFi Swap – First, visit the DeFi Swap exchange and click on ‘Farm’.
• Step 2: Connect Wallet to DeFi Swap – Next, click on ‘Connect Wallet’. Choose your preferred wallet and authorize the connection to DeFi Swap.
• Step 3: Choose Staking Token – Now that your wallet is connected to DeFi Swap, you can choose the token that you wish to stake.
• Step 4: Select Staking Term – Choose your preferred staking term from 30, 90, 180, or 365 days.
• Step 5: Confirm Staking Agreement – The final step is to confirm the staking agreement via your connected wallet.

Once you have confirmed everything, your tokens will be deposited into the DeFi Swap smart contact. After your chosen term has passed, you will receive your initial deposit back alongside any staking rewards that you have generated.

Read More: You can read our full guide on staking here.

There is no guarantee that you will make money when investing in this or any DeFi product or service. Proceed at your own risk. 

3. DeFi Yield Farming – Generate a Yield by Providing Liquidity to a DeFi Exchange

Another popular way to invest in DeFi is via yield farming. This is somewhat similar to staking, insofar as you will be lending your tokens to a DeFi smart contract with the view of generating interest. However, yield farming is different in the sense that you will be depositing your tokens into a liquidity pool.

The liquidity pool in question will allow buyers and sellers to trade tokens in a decentralized pool. Each liquidity pool, therefore, consists of a trading pair – such as DEFC/BNB or BTC/BUSD.  As an investor, you will be required to deposit both tokens of the respective pair.

Not only that, but you need to provide equal amounts of each token as per the current market value of both projects. For example, let’s suppose that you are looking to add liquidity to the BNB/DEFC pair. We’ll say that at the time, BNB has a market value of $300 and DEFC at $1.

This means that for every 1 BNB that you deposit ($300), you would also need to transfer 300 DEFC ($300). In depositing $300 of each token, your total outlay is $600. In terms of the benefits of investing in DeFi yield farming, you will earn passive income for as long as the tokens are held by the respective trading pair.

This is because every time somebody buys and sells a token from the pair, they will pay a trading fee. And as a stakeholder of the respective liquidity pool, you will earn a percentage of the funds collected by the smart contract. The specific amount that you will receive will depend on a number of factors – which we discuss in more detail in the section below.

Example of Yield Farming  

There are quite a few variables to consider when assessing the potential gains from your yield farming endeavors. First, when you deposit tokens into a yield farming pair, you will own a percentage of the pool. This percentage is based on how many tokens you have deposited in comparison to others.

For example:

• We mentioned above that you deposited 1 BNB at a value of $300 and 300 DeFi Coin also at $300.
• We’ll now say that in total, there are 5 BNB and 1,500 DeFi Coin in the respective pool
• This means that you own 20% of the BNB/DEFC pool

So now that we know what your percentage of the yield farming pool is, we then need to assess how much you will make. Crucially, unlike staking, there is no fixed APY in the case of yield farming.

This is because it all depends on how much the pool collects in trading fees, what your percentage is, and whether the value of the tokens rises or falls.

• Nonetheless, let’s say that your chosen yield farming platform offers 2% of all collected trading fees.
• You own 20% of the pool
• After 30 days, the trading pair has collected the 4 BNB and 1,200 DeFi Coin
• Your share of this pool would amount to 0.8 BNB (20% of 4 BNB) and 240 DeFi Coin (20% of 1,200 DeFi Coin)

Another thing to note about yield farming is that your share of the respective trading pair is typically represented by LP (liquidity pool).

In order to withdraw your investment from the pool, you would need to swap your LP tokens back to the original coins that you deposited. The good news is that, unlike staking, there is rarely a need to lock your tokens away when engaging with a yield farming pool. As such, this offers a lot more flexibility when it comes to accessing your funds.

Impairment Loss 

One of the main risks that you need to consider before you invest in DeFi yield farming is that of impairment loss.

The main concept with impairment loss is that you can lose money when the value of the tokens being deposited into the yield farming pool decline.

More specifically, impairment loss happens if you make less money from yield farming than you would have done simply by keeping the tokens in a private wallet or exchange.

• For instance, let’s say that you keep your tokens in a DEFC/BNB pool for three months.
• In turn, you made an APY of 100% – so that’s an effective yield of 25% for your three-month term.
• However, during the same period, the two tokens increased in value by 45% in the open market.

As such, this is a prime example of impairment loss, as the process of yield farming actually resulted in you making less.

How to Invest in DeFi Yield Farming 

DeFi Swap supports a significant number of yield farming pools that can be activated at the click of a button.

When using DeFi Swap for this purpose, you will earn 0.25% of all trading fees collected from your chosen pair – proportionate to your share of the pool.

As DeFi Swap continues to increase its trading volumes, this can present a lucrative way to generate a passive income on your tokens.

To invest in a yield farming pool today via DeFi Swap – follow the quickfire guide below:

• Step 1: Visit DeFi Swap – First, visit the DeFi Swap exchange and click on ‘Pool’.
• Step 2: Connect Wallet to DeFi Swap – Next, click on ‘Connect Wallet’. Choose your preferred wallet and authorize the connection to DeFi Swap.
• Step 3: Choose Yield Farming Pair – Now that your wallet is connected to DeFi Swap, you can select the yield farming pair that you wish to provide liquidity for.
• Step 4: Enter Yield Farming Quantity – When you type in the number of tokens that you wish to deposit, the respective amount will update for the other coin. For example, you might type in 2 BNB and it will update with 1,200 DEFC.
• Step 5: Confirm Yield Farming Agreement – Finally, you will need to confirm the yield farming agreement via the wallet that is connected to DeFi Swap.

After confirming the investment via your wallet, the tokens will be deposited into the respective liquidity pool. For as long as the tokens remain in the pool, you will generate a passive income from any trading fees that are collected.

There is no guarantee that you will make money when investing in this or any DeFi product or service. Proceed at your own risk. 

4. DeFi Interest Accounts – Deposit Crypto Tokens into a Savings Account to Earn Interest

Next up on our list of the best ways to invest in DeFi is that of crypto interest accounts. This is a relatively new concept that follows the same principles of a conventional bank account that pays interest. That is to say, this DeFi product simply requires you to deposit your tokens into the provider’s wallet, and in turn – you will be paid a rate of interest.

In some cases, the rate of interest will be fixed. This means that you know exactly how much you will earn on your interest account deposits. With that said, some platforms offer variable rates that will change based on broader market conditions. In terms of lock-up periods, this will depend on your chosen provider.

Some platforms offer a number of different terms that can range from a flexible withdrawal agreement up to 12 months. In most cases – and just like staking, the longer the term, the more you will be paid. The interest that you earn is typically generated from third-party loans.

This means that your crypto tokens will be lent to other people, who in turn, will pay interest on the funds borrowed. It goes without saying that the risk that you face when opting for this DeFi product is that a large percentage of borrowers default on their loan. With that said, DeFi loan providers will usually require collateral from the borrower.

This means that if the value of the loan remains unpaid, the provider can simply sell the collateral that has been deposited. Moreover, if the collateral drops in value by a certain percentage, this will also result in the provider selling the tokens if the borrower does not add more funds.

When it comes to yields, the amount of interest that you can earn is often much lower in comparison to staking and yield farming. Nonetheless, you can be sure that APYs are significantly more competitive than what you will earn from a conventional bank account. In fact, it is even possible to earn double-digit APYs on stablecoins like USDT and BUSD in this marketplace.

Example of DeFi Interest Accounts 

If you’re completely new to crypto interest accounts, check out the example below to assess whether or not this DeFi investment product is right for you:

• Let’s say that you decide to invest Frax tokens into a crypto interest account
• Frax is a stablecoin, so in theory, it should remain at a near-value of $1 at all times
• Your chosen provider offers an APY of 12% on Frax via a three-month lock-up
• You deposit 10,000 tokens
• After the three-month term has passed, you receive your 10,000 Frax plus 300 tokens worth of interest
• Although you secured an APY of 12%, your interest amounts to 300 Frax because you opted for a three-month term (12% / 4).

As per the above example, crypto interest accounts offer a simple way to generate income on your funds. However, as we explain in the next section, interest accounts in this marketplace are typically offered by centralized platforms.

Risk of Centralization  

The most important part of the DeFi space is that you will be investing in yield-generating products and services through a decentralized operator. However, it is crucial to note that many platforms offering interest accounts are centralized.

This means that when you deposit funds into a crypto interest account, the provider will have full control over your tokens. Therefore, you will need to trust that the provider in question is legitimate and that it will pay what it owes you when you’ve decided to make a withdrawal.

This risk can be avoided by sticking with a truly decentralized DeFi platform. For instance, when you utilize the services offered by DeFi Swap, you will never be required to trust the platform. Instead, the tokens are deposited into a secure smart contract that cannot be manipulated or reversed.

This means that as soon as you wish to make a withdrawal, the smart contract can only deposit the tokens back into the wallet that you initially used to complete the investment.

At DeFi Swap – The Leading Decentralized Exchange for Staking and Yield Farming 

There is no guarantee that you will make money when investing in this or any DeFi product or service. Proceed at your own risk. 

5. DeFi Loans – Maximize Your Exposure to DeFi With a Secured Crypto Loan

Another area of the decentralized finance sector that is worth looking into is that of DeFi loans. This product allows you to borrow funds in real-time against the crypto tokens that you currently own. As such, you will be taking out a secure loan. However, unlike traditional loans offered by banks, there is no requirement to go through a credit check process.

Furthermore, you won’t need to provide any documents to prove your affordability and financial standing. In fact, DeFi loan platforms do not even require you to provide any personal information or contact details. On the contrary, your loan will be approved instantly at the click of a button.

In terms of how much you can borrow, this will depend on a number of factors. First, each DeFi platform will have its own LTV (Loan-to-Value) limits in place. This is the percentage that you can borrow against the value of your collateral. For example, let’s say that your chosen platform offers DeFi loans with an LTV of 80%.

This means that if you were to deposit $5,000 worth of crypto, you could borrow up to $4,000. This will be paid in crypto tokens, as true DeFi loan platforms do not get involved in fiat money. Nonetheless, you might be able to borrow a stablecoin like USDT – which you can easily convert to cash should you wish.

Another thing to bear in mind is that you will need to pay interest on your DeFi loans. Rates will vary depending on your chosen platform and the respective term that you agree to. With that said, oftentimes DeFi loan sites do not install conventional terms, meaning that you can repay the funds at your leisure.

However, if the value of your collateral drops by a certain percentage, you will be asked to add more tokens. If you don’t, then the DeFi loan platform will be forced to sell some of your collateral.

Increase Your Exposure to Crypto  

DeFi loans can be a great tool to consider if you are looking to increase the value of your exposure to the digital asset sector without cashing out your tokens. This is because you will still control the collateral that you deposit for as long as the loan remains outstanding. As such, if the value of the collateral increases, you will benefit from this.

Furthermore, the funds that you receive from a DeFi loan can subsequently be reinvested back into the crypto space. This will allow you to control a large amount of crypto – without needing to have capital at your disposal.

For example:

• Let’s say that you have $3,000 worth of AAVE
• At the time of the investment, AAVE is trading at $100
• You deposit this AAVE into a DeFi platform and take out a loan at 50% LTV
• You decide to take your loan in AAVE
• This means that you receive $1,500 worth of AAVE
• After two months, AAVE is trading at $140 – so that’s an increase of 40%

You decide to cash out your investment to benefit from the rise of AAVE’s value.

Your profit is as follows:

• On your original $3,000 deposit – this has increased by 40%. As such, your original investment is now worth $4,200 – so that’s a profit of $1,200
• On the $1,500 AAVE that you borrowed, this has also increased by 40%. This amounts to a new value of $2,100 – so a $600 profit
• In total, you’ve made a profit of $1,800 on this DeFi loan venture

Of course, you will also have paid some interest for the three months that your loan remained outstanding. Nonetheless, DeFi loan APRs can be very competitive – so in this example, you’ve made a decent amount of profit.

You do need to consider the risks of taking out a DeFi loan for the purpose of increasing your exposure to the crypto sector. After all, if the value of your collateral drops, then the DeFi loan platform might be forced to liquidate the tokens.

Furthermore, if the value of the tokens you borrowed drops, you will likely be in negative equity.

At DeFi Swap – The Leading Decentralized Exchange for Staking and Yield Farming 

There is no guarantee that you will make money when investing in this or any DeFi product or service. Proceed at your own risk.

Is DeFi a Good Investment?

Although DeFi is now a multi-billion dollar sector, this investment scene is still in its infancy. As such, there is plenty of growth left on the table if you are able to invest while the sector is young.

The main concept of DeFi is that it provides an avenue for people to invest funds without needing to go through a centralized provider – such as a bank or financial institution. Instead, investors can connect directly with other market participants.

If you are still unsure whether DeFi is the right investment space for you – consider some of the main benefits that we discuss in the sections below.

Above Average Yields  

Traditional investment products are becoming less and less attractive as the years pass by. For instance, in the US and Europe, rarely will savers be able to generate a yield of over 1% on conventional bank account deposits.

This means that by depositing funds into a savings account, you will not even be able to cover the rate of inflation. Considering that inflation has surpassed 7% in the US since the turn of 2022, this means that the value of your money will continue to decline.

In comparison, when you invest in DeFi, you have the potential to generate highly attractive yields on your funds. In fact, it is simple to outpace the rate of inflation by a considerable amount.

As a prime example, you can deposit DeFi Coin into a DeFi Swap staking agreement for 12 months and in turn, earn an APY of 75%. As noted earlier, you can even earn triple-digit returns on stablecoins that are pegged to the dollar.

No Financial Background Checks  

One of the major pillars of DeFi is that financial services should be accessible by all – irrespective of the individual’s location or background.

And therefore, irrespective of what your financial standing looks like, platforms like DeFi Swap will gladly meet your investment needs.

Crucially, when you invest via a DeFi platform, you will not be required to go through a financial background check of any sort. You will not even be required to provide any personal information or contact details.

Instead, all you need to do is connect your wallet to the respective platform and choose the DeFi investment product that you wish to access.

No Third Parties   

When you invest money in the traditional financial sector – whether that’s stocks, funds, or gold – you need to go through a third-party broker.

This means that the broker will be responsible for safekeeping your investments on your behalf. In turn, not only do you need to trust the broker in question but you will be charged an assortment of fees and commissions.

• This is in stark contrast to how DeFi works.
• After all, platforms like DeFi Swap are decentralized, which means that you can access financial services without going through an intermediary.
• Furthermore, and perhaps most importantly, you will not be required to deposit your tokens into the platform itself.
• Instead, the funds will be transferred into the underlying smart contract – which the DeFi provider will not be able to manipulate.

All in all, by investing in DeFi, you can access investment services directly without needing to utilize the services of a third party.

Small Market Capitalization    

According to leading data aggregation website CoinGecko, as of writing, the entire DeFi sector is still valued at less than $50 billion.

In the grand scheme of things, this is minute. And therefore, there has never been a better time to invest in DeFi – as this industry is still heavily undervalued.

CoinGecko also notes that at the turn of 2020, the DeFi sector carried a market capitalization of just $1.7 billion. This means that in just over two years, the DeFi space has increased in value by over 2,700%.

Conclusion

In summary, this guide has explained the best ways to invest in DeFi right now. We’ve covered everything from staking and yield farming to interest accounts and loans.

However, perhaps the best way to invest in decentralized finance is via a top-rated DeFi token.

DeFi Coin, for instance, backs the DeFi Swap exchange – which offers attractive APYs via staking and yield farming pools. Moreover, DeFi Coin taxes sellers at 10% – half of which is distributed to existing token holders via an immutable smart contract.

Therefore, long-term DeFi Coin holders are rewarded with ongoing dividend payments.

There is no guarantee that you will make money when investing in this or any DeFi product or service. Proceed at your own risk. 

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