Although bitcoin is the leading currency in the field of cryptocurrencies, it is not the only currency and is definitely not going to be the one with the highest odds. In times of intense mobility, such as the one we are going through, it is not so rare for some currencies to multiply their price over a period of days or weeks.
For the adventurous who are “seduced” by the sirens of cryptos, it is an opportunity to win large sums. However, the risk of being the “last” to come to the party always lurks. Everyone loves parties, drinks and a cheerful atmosphere. It is only bad when you are not careful and you are carried away by euphoria.
Interest from DeFi
There is always a narrative in the field that promises quick profits. This time, the new fashion concerns DeFi (Decentralised Finance), the new automated financial services and specifically the “yield farming”.
What exactly is yield farming?
When you deposit money into a banking institution, you are essentially taking out a loan with the bank, for which you are receiving interest. A similar process is done in cryptocurrencies. By lending your coins to a specialised platform, you receive interest in return. And where does the platform find revenue? Simple. From the activity of its applications.
DeFi is a protocol with a digital application business plan, which is implemented automatically. Only instead of sharing the profits among the executives, the managements and the shareholders, they reward those who use them. One-way users are paid by having the token issued by the platform itself. The other is with cryptocurrencies they have lent, such as Ethereum or Tether.
But, what to do, since it can offer us a generous annual interest rate, but its price can sink further today, tomorrow or in a year? Passive borrowing and staking DeFi income are not guaranteed and actual returns will depend on the approach of each protocol. The risks range from the loss of promised returns due to slow trading, or market volatility, or even the total loss of guarantees.
And why not borrow regular dollars in the traditional bank and get interest, without suffering the uncertainty and possible unwanted emotions? Because interest is simply non-existent nowadays. In addition, not everyone has this ability. As we have seen in the case of Argentina, such are the restrictions that you cannot save on “hard currency” with traditional banking. With DeFi, though, you can. So far few have done it, because few know it.
Each platform has its own internal currency. These tokens can be traded freely on exchanges, but do not have the value-saving utility of bitcoin. In fact, few digital currencies aspire to become widely circulated or conserved. They just offer an alternative way of passive income. Of course, the real profit comes if the application proves successful and the price of the currency goes up quickly.
Exponential technologies are difficult to understand and are often underestimated. Watching the development of the bitcoin ecosystem is like watching the internet grow fast. The future is already here and it is exciting. It just is not quite evenly distributed, because most people are not yet aware of its properties. This is exactly where the investment opportunity lies. If DeFi is largely developed, anyone involved from now on, will be in a privileged position.