Altcoins in general are dumb, most are functionally unregistered securities with a large insider pre-mine where the insiders eventually dump on retail to earn huge amounts of money.
Altcoins also exist because they can't be built on the Bitcoin network because, well Bitcoin is actually decentralized, moves slowly, and has a consensus mechanism built in which is why Bitcoin in my opinion is going to eat gold's lunch and become money.
I know I sound crazy, but I think Bitcoin is the invention of money. Altcoins are for those with a high-risk tolerance (gambling) and those who want to bet on projects as a way to make a massive ROI. Unless you have at least 0.3 BTC locked away, don't waste your money on alts. Buy BTC first.
Understanding how DeFi works is also a great way to get gaming coins which I do see a future in. Just ask anyone who's bought a digital product in games to know the long term value of being able to permanently own a digital item.
What is DeFi?
Users on a decentralized finance platform, known as "DeFi" interact with each other without the need of a central authority thanks to blockchain technology. The platforms provide the ability to swap tokens and offer a way for users to access financial services in a decentralized manner like crypto-backed loans.
DeFi platforms use decentralized technologies, such as DeFi tokens, smart contracts, and other blockchain technology to allow consumers to participate in the financial system without having to go through traditional routes to access lending, borrowing, investment, and trading
Users of DeFi platforms have a lot of power and control over their finances and often don't have to complete KYC requirements. The issue however is that due to these platforms being decentralized, their typically is no direct support beyond community outreach.
Is it risky to use a DeFi platform?
YES you idiot. It's risky AF.
There are numerous centralized finance platforms (CeFi) like NEXO, Youhodler, Blockfi (now bankrupt), and so forth that provide more of a traditional banking experience. There is always a risk with lending out your crypto and taking loans on both DeFi and CeFi platforms.
In reality, it is not worth lending out a valuable digital asset like Bitcoin to earn 1% interest (yet). Bitcoin will become so valuable that you'll be able to take loans out against your Bitcoin and won't need to sell it as it may very well become a bearer asset.
Defi is Ethereum
Another note, most DeFi platforms are built on Ethereum or a competitor to Ethereum and not Bitcoin. As such, there is no way to earn BTC. I would instead earn tokens, move them to an exchange then sell them or USD.
Also, DeFi platforms offering a high APY often do so because they are new platforms trying to attract new users. As such, a high APY is usually a red flag and you should be very cautious about investing any money on such a DeFi platform as they typically have not be audited or tested for long-term stability and performance.
Total locked value (TVL)
One term you need to be familiar with is total locked value. This is important because it represents the liquidity in a staking pool. The larger the staking pool, the higher the potential profits. New platforms have low TVL put a high APY.
However, a larger TVL is a honey pot for hackers who are incentivized to manipulate the smart contract that is controlling the protocol for the staking pool. A lot of platforms, particularly newer ones won't have any sort of insurance policy to protect you the end user.
How are you paid out?
When looking at a DeFi platform understand how you're being paid out. If you're exchanging your hard earned crypto like Bitcoin or Ethereum and then you're being paid interest in some platform specific token I would pass on that as it's not a fair trade to receive interest payments in an inflationary token.
The best DeFi platforms
DeFi provides a great opportunity to earn a high yield, take out loans, buy cryptocurrencies and more. It's also important to understand how new technology works so you can leverage it for your online business. Here are my top DeFi platforms:
- Aave - Lending and borrowing
- Uniswap - Market maker and liquidity
- Bancor - Exchange and yield farming
- Angle Protocol - Stablecoin liquidity provider
- Hats Finance - Decentralized cybersecurity
- Pool Together - Lottery and savings
- Loopring - Payments and trading
- Solace - Decentralized insurance
Aave - Lending and borrowing
Aave is an open-source liquidity provider that allows users to earn interest on their deposited tokens. It also lets users take out loans, using their deposited tokens as collateral. Aave is based on the Ethereum blockchain and uses the ERC20 token standard. Aave is powered by the Aave Protocol, which is an open-source protocol that is available to anyone.
The Aave Protocol is based on the idea of "pools," which are created when users deposit tokens into the protocol. These pools are then used to provide liquidity to users who take out loans. The Aave Protocol is designed to be highly flexible, allowing for various use cases. For example, developers can create their own pool tokens, which can be used to represent any asset class. This flexibility makes the Aave Protocol an ideal platform for various financial applications.
Aave is one of the most popular protocols on the Ethereum blockchain and is used by various applications. Several teams are also developing The Aave Protocol, making it an extremely active project. Last, numerous blockchains are supported, including Polygon, Avalanche, Fantom, Harmony, Arbitrum, and Ethereum network.
Uniswap - A top liquidity provider and automated market maker (AMM)
Uniswap is a top liquidity provider and automated market maker (AMM) on the Ethereum blockchain. It enables decentralized exchanges of ERC20 tokens and Ether (ETH). Unlike traditional businesses, Uniswap does not require order booking or matching. Instead, it uses an algorithm to calculate the price of each token based on its supply and demand.
This makes it easy to trade tokens without first finding a buyer or seller. Uniswap also provides liquidity to other decentralized exchanges (DEXs), which can help keep prices stable and trading volumes high. In addition, Uniswap charges a small fee on each trade, which goes to the protocol's liquidity providers.
This helps to incentivize people to provide liquidity to the platform and keep it running smoothly. Overall, Uniswap is a powerful tool for anyone looking to trade ERC20 tokens or ETH in a decentralized way.
Bancor - Exchange and yield farming
Bancor is a decentralized exchange (DEX) platform that allows users to buy and sell crypto assets without needing a third-party broker like Gemini or Coinbase. Instead, Bancor uses smart contracts to match buyers and sellers directly, executing trades automatically on the Ethereum blockchain.
This allows for 24/7 trading, with no need to wait for an order to be filled by a traditional exchange. In addition, Bancor charges meager fees for trades, making it an attractive option for those looking to save on transaction costs.
Recently, Bancor has also launched a yield farming program that allows users to earn interest on their holdings by staking them in the Bancor Network. This provides an additional way to generate income from your cryptocurrency holdings and contribute to the security of the Bancor Network.
With its 24/7 trading, low fees, and yield farming program, Bancor is quickly becoming a popular option for those looking to trade or invest in cryptocurrency.
Angle Protocol - Stablecoin liquidity provider
Angle Protocol is currently issuing agEUR, the most liquid Euro stablecoin on Ethereum and other chains. Angle Protocol aims to create a sustainable money layer for blockchains that can power the decentralized future. In order to achieve this, Angle Protocol focuses on creating liquidity for blockchain assets by connecting them to real-world fiat currencies.
In addition, Angle Protocol also aims to provide stability for blockchain assets by pegging them to real-world assets such as precious metals or commodities. As a result, Angle Protocol provides a much-needed service for the blockchain ecosystem that helps to make it more stable and liquid.
Angle Protocol's native token, agEUR, powers the protocol and its ecosystem. ANGLE tokens are used to pay fees on the Angle Protocol, which helps to incentivize liquidity providers and keep the system running smoothly. In addition, agEUR tokens are also used to vote on governance decisions within the Angle Protocol.
Get into crypto without exposing yourself to volatility, earn interest, and diversify your stablecoins away from the US Dollar. Leverage all of Angle's integrations and partner projects with this protocol.
Hats Finance - Decentralized cybersecurity
Hat Finance gets its name from the old concept of "black hat" and "white hat" regarding online activities. Black hat regarding hackers and those looking for exploits and white hat for those who follow the rules.
Hats Finance is a decentralized cybersecurity bug bounty protocol. This enables community members to give liquidity to their favorite DAO bug bounty, lowering hacking and exploit risks by stacking and farming $HAT tokens.
A "bounty vault" is created when a project's tokens are locked up in a hat, which can fill up to a certain proportion of the circulating supply. In doing so, hackers are incentivized to reveal the flaw to be rewarded with the $HAT tokens stored in the vault.
In the event of a detected vulnerability, a hacker will disclose it to the vault committee on-chain with a hash proof of the disclosure. Each vault has its own committee made up of the project's trusted technical team, and security experts and white hat hackers will be joining in the future. This group will review the vulnerability and grant or deny money to the hacker based on the vault's token allocation.
The project's token creates scalable security vaults in the hats. The bounty increases as the project and its token grow more popular.
Pool Together - Lottery and savings
PoolTogether is a new savings protocol that allows users to earn interest on their deposited funds while having a chance to win a weekly prize. The protocol is based on premium bonds, where savers are entered into a pool and have a chance to win a prize each week.
However, unlike premium bonds in the UK, Pool Together does not require users to pay fees or charges. Instead, the protocol uses an innovative form of cryptography known as "commit-reveal" to ensure that all deposited funds are accounted for.
This allows Pool Together to offer savers a much higher interest rate than traditional savings accounts while also providing a chance to win a prize each week. Players may join a game by purchasing saving tickets, which give them a chance to win a prize. After each week, a few winners are chosen from the pool and get their tickets back.
What sets this game apart is that players who don't win are also given their tickets back. Everyone keeps their money. Currently, Pool Together supports USDC, DAI, UNI, and COMP.
Loopring - Payments and trading
Loopring is a non-custodial, open-source, audited exchange and payment mechanism. Nobody in the Loopring community needs to trust anybody else, and zkRollup ensures that assets are always under users' control.
The looping protocol can settle 2,025 trades per second while maintaining the same degree of security as the underlying Ethereum blockchain. Combined with a unique construction called the zkRollup, this allows for off-chain transaction processing in a correct manner.
For comparison, prior versions of Loopring (and current versions of some other decentralized exchange protocols) can only settle two or three trades per second. Non-custodial exchanges may now match the performance of custodial alternatives thanks to Layer 2 scaling by Loopring.
By batch-processing thousands of requests off-chain, with verifiably correct execution via ZKPs, Loopring is changing the way individuals trade and send money. Ethereum's scaling performance is no longer an issue.
Most activities like trade and transfer settlement are off the Ethereum blockchain. This lowers gas usage and overall transaction costs, so it is essentially nothing.
Solace - Decentralized Insurance
As the cryptocurrency industry continues to grow and evolve, there is an increasing need for protection against smart contract exploits. Solace is a platform that provides comprehensive coverage for your funds across 180+ protocols. With a personalized single policy that dynamically updates as your portfolio changes, Solace gives you the peace of mind of knowing that your funds are safe from smart contract exploits.
The way Solace works is that it is an insurance protocol that protects DeFi investors. When you buy coverage, you mint an NFT called SPT. The SPT gives you, the verified owner, the right to claim for a loss event. Once claimed, the SPT will be reviewed by Solace. If it is determined that there is a financial loss, it authorizes the user to submit a claim. Once a claim is submitted, the original SPT is burned, and a new NFT called SCT is minted. The SCT can be redeemed for Ether.
How to check the safety of a DeFi platform?
There is always an inherent risk with newer platforms due to liquidity issues or the project being an outright rug pull. This is why I like to run any app, protocol, or website through DefiSafety.com. The Decentralized Finance Safety Scoring System from DeFiSafety is a comprehensive security grade based on transparency and compliance with best practices that assess Decentralized Finance products.
Technical risk is quite complicated with a decentralized protocol, but DeFi safety mitigates this complexity through their "contract scores" product. In addition, they have their own internal process quality review for a protocol's deployed smart contracts.
Their "Process Quality Reviews" (PQRs) are straightforward, standardized, and well-established, allowing consumers to evaluate the quality of different projects immediately. Their evaluations may be duplicated by reading the PQR documentation on their website.
Best DeFi Platforms for Cryptocurrency - Conclusion
What DeFi platform you want to use should depend on your needs and preferences. If you're looking for a decentralized exchange to buy Bitcoin, check out Bancor; if you're looking for an alternative savings account/lottery, Pool Together is an exciting choice.
You may need insurance coverage for your investments. Solace has you covered. If you want to get into lending and borrowing, you'll be keen to check out Aave. Whichever platform you choose, remember to always do your own research before investing in any crypto.