Decentralized finance, or DeFi, has been causing a stir in the financial industry.​​ This blockchain-based ecosystem has caught the attention of business moguls, banks, media, and more, so it’s no surprise that so many people are wondering how to invest in DeFi.
Read on to learn more about DeFi and how you can strategically invest in this innovative sector.
Getting Started With DeFi
DeFi refers to a financial system that does not rely on third parties or intermediaries to allow transactions and properly function. Through the use of smart contracts and blockchain transactions, individuals are given more control over their finances than ever before.
A common way of participating in DeFi is through cryptocurrency transactions, such as Bitcoin and Ethereum. But decentralized finance is certainly not limited to crypto. This has been proven through the growth of DeFi’s non-fungible tokens (NFTs).
Let’s take a look at the many ways to invest in DeFi.
How To Invest In DeFi: Methods
When it comes to investing in DeFi, the method you choose will depend on how you want to invest your assets. Here are a few options.
DeFi Makers And Takers
Any marketplace is going to feature two common players: makers and takers. Both are critical in a functioning market and are equally important in the world of DeFi.
In general, makers are always buying or selling, and their goal is to either sell at the best offer or buy at the best bid. Makers are creating a respective market for traders and providing liquidity for those traders to make exchanges without assets changing drastically in price.
On the other hand, takers remove this liquidity from the market by placing or “taking” market orders from makers to buy immediately. Simply put, the former makes an offer, while the latter takes it.
DeFi is fairly similar. Makers place limit orders on electronic lists of buy and sell orders, which creates liquidity and avoids rapid fluctuations of crypto pricing. Takers will then instantly buy or sell orders, removing part of the market’s liquidity.
While this method can be profitable, makers and takers can typically both expect to pay fees in the process. Crypto exchanges, like Vauld, keep these necessary fees as low as possible for the best user experience.
DeFi Lending
Lending crypto allows you to lock up your assets for a predetermined period. Crypto borrowers place their assets with an exchange in order to take out fiat currency. The interest they pay becomes interest that you, the lender, earn.
DeFi Trading
One way to become directly involved in the action of the market is to strategically trade crypto. Looking back at the explanation of makers and takers, the primary goal is to buy low and sell high.
This route can be risky, though, due to the volatility of crypto’s value. But it can yield high rewards if you know how to work the market.
DeFi Staking
Staking in DeFi is often confused with lending. While both offer the investor a high interest rate, staking requires a bit more participation.
Staking allows you to commit your assets to a proof-of-stake-based blockchain system and verify the transactions that occur. The complexity of staking is also significant compared to lending, which is made as easy as possible when you set up an account set up with Vauld.
Yield Farming
DeFi yield farming involves strategically lending or staking crypto in exchange for the best possible return on a user’s assets.
For example, as a yield farmer using Vauld, you may move your funds a few times every month. Where you end up placing your assets depends on which pools happen to be offering the best annual percentage yield (APY) at that moment.
If this sounds like another high-risk investment to you, you’re right. The pool with the best APY might be an extremely risky venture, but most yield farmers will still consider it when moving their funds around.
Automated Investment Plans (AIPs)
For those who prefer not to invest in such a risky way, Automated Investment Plans (AIPs) allow you to automatically engage in an investment strategy across a diversified portfolio. This omits the hassle of staking or searching for the best pool.
In other words, AIPs are investments that are scheduled automatically over time or based on specific conditions. For a simple experience, we at Vauld utilize AIPs to offer an advanced investment strategy that is available to everyone.
An innovation we are also proud to offer at Vauld is our AIP Token Basket. Someone who might be interested but not completely confident in DeFi investments can benefit from this feature because it helps easily mitigate risk and automatically build wealth.
How To Invest In DeFi: Major Steps
Once you have determined your investment method, the steps to begin investing are simple and only take a few clicks.
1) Download Your Crypto Wallet
Before you can purchase any crypto for investing, you need a crypto wallet for exchanges and safety. The most common wallets are known as hot wallets, but cold wallets serve a critical purpose as well.
The main difference is that a hot wallet is web-based, while cold wallets rely on offline pins and passwords rather than the internet, making cyberthreats less of an issue.
Many crypto exchanges will offer an online wallet, and some may even require you to use their wallet to invest. Check with the exchange you’re interested in partnering with to better understand what you will need and what they will provide.
2) Purchase Crypto Tokens
Next, you will want to decide which cryptocurrencies to purchase. This will mainly be determined by factors such as how much risk you are willing to take and which tokens currently offer the best interest rates.
Be sure to research how the market value of certain crypto has fared in the past, and don’t be afraid to diversify in order to manage risks. AIPs are a great way to accomplish this without overcomplicating things.
3) Choose Your Exchange
Finally, a crypto exchange, like Vauld, connects users to investment opportunities. Choosing the one that works best for you could mean the difference between successfully building your wealth and watching your assets plummet in value.
The exchange you partner with will also be the crypto community you become involved with moving forward. It’s ideal to pick one that can offer a range of advice and connect you with others interested in everything DeFi, like our Crypto Circle at Vauld.
Expert DeFi Tips
There are plenty of caveats to consider when beginning any investment journey, and this is especially true when becoming involved in such a new and rapidly growing industry. Here are some expert tips for how to invest in DeFi.
Watch Out For Fees
Depending on your specific endeavor, fees may be unavoidable. Still, these should not eat away at the bulk of your earnings.
Maker and taker fees, for example, are necessary in DeFi. At Vauld, these fees currently fall around 0.1% across the board to assure that our users can focus on growing their initial investment rather than calculating their losses in fees.
Other fees to look out for include deposit and withdrawal fees. Just like PayPal or Venmo might charge a fee for instant deposit into a traditional bank account, some exchanges charge fees for certain types of crypto deposits without any other choice.
For a seamless customer experience and to help users save, we do not charge these fees at Vauld. In fact, we do not have any withdrawal limits or deposit maximum limits, and our deposit minimum is only $1 worth of tokens.
Stay Confident With AIPs
As we mentioned, AIPs take away the hassle that might come with trying to figure out the next best investment strategy. At Vauld, automatically purchasing crypto based on the conditions you set is as easy as making an account, selecting “AIP”, and setting your conditions.
And to manage risks, AIP Token Baskets are available to Vauld users as well. This collection of two or more tokens aims to achieve the particular investment goals of individual users.
Investing In DeFi With Vauld
Investing in DeFi is not for everyone, as it can be complex and comes with inherent risks. Choosing your method wisely, however, can mitigate these risks and promote a more successful wealth-building strategy.
For the best way to invest in DeFi, choose Vauld. With Vauld, you can assemble your AIP Token Baskets with up to five different digital assets and customize the rest based on your own goals.
Ready to begin investing in DeFi the right way? Sign up with Vauld today and learn the difference that the right crypto exchange can make.
