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How To Invest In The DeFi Space

2022-06-29

Main Takeaways:

  • Decentralized finance (DeFi) is flexible, fast, pseudonymous, and most importantly, open to all. 

  • DeFi coins provide crypto users with access to a number of bank services such as loans, lending, and insurance on the blockchain.

  • DeFi aims to create open-source, permissionless, and transparent financial markets that are inclusive and accessible.

You’ve probably heard of the term DeFi thrown around in conversations about crypto and blockchain. But what exactly is DeFi, and how does it impact our everyday finances? 

Decentralized finance (DeFi) is a sector that has the potential to disrupt the traditional financial industry with blockchain-based financial applications and services. 

Now that the DeFi space has witnessed a staggering growth in the past two years, there are DeFi alternatives for many traditional finance services, and many more are emerging rapidly.  

Keep on reading to learn about the basics of DeFi, its potential, and how you can add DeFi coins to your portfolio with Binance.

What is DeFi?

Short for decentralized finance, DeFi refers to an ecosystem of financial applications built on top of blockchain networks. DeFi uses cryptocurrencies and smart contracts to provide transparent financial services that can operate without any central authority. DeFi is open for anyone to join, as long as they have a crypto wallet and some cryptocurrencies. Moreover, most DeFi ecosystems have their own coin that powers their unique native blockchain network. 

What Are DeFi Coins? 

DeFi coins represent a class of cryptocurrencies native to automated, decentralized platforms that use smart contracts. These coins give its holder access to a range of financial applications and services built on the blockchain. DeFi coins also have various utilities in their native networks. For example, some DeFi coins act as governance tokens, granting voting rights to and management power to users who hold them, and in many cases, holders can stake their coins to receive rewards. 

Why is DeFi important?

DeFi has the potential to create open-source, permissionless and fair financial markets that are inclusive and accessible to anyone with an internet connection. The transactions are transparent and verified by other users on the network. In addition, data on the blockchain are tamper-proof, secure and auditable. Users can maintain full control over their assets and interact with the DeFi ecosystem via peer-to-peer (P2P), decentralized apps (DApps). 

Use Cases of DeFi

Here are some of the most notable ways people are engaging with DeFi today: 

Borrowing and lending: Open lending protocols make borrowing and lending cheaper, faster, and available to more people. Moreover, decentralized borrowing and lending have many advantages. For example, you can settle transactions instantly, collateralize digital assets, and there are no credit checks. 

Asset management: Many DeFi protocols offer tools to help users manage their assets. As a result, you can earn interest and rewards. Moreover, DeFi allows you to keep your personal data private.

Decentralized exchanges (DEX): These platforms let you trade digital assets without needing a trusted intermediary, like an exchange, to hold your funds. The advantages of a DEX include lower fees and users have total control over their assets.

Stablecoins: A class of cryptocurrency tied to a real-world asset to reduce volatility, stablecoins are intimately weaved into the DeFi space. As cryptocurrency prices can fluctuate rapidly at times, stablecoins allow users to prote avoid losses in periods of increased market volatility. To minimize risk, always use stable coins backed 1:1 with equivalent fiat currency.

Blockchain games: Decentralized gaming is one of the more popular applications of the blockchain ecosystem. Popular play-to-earn gaming DApps like Axie Infinity rewards players with exciting gameplay and financial incentives, turning playtime into a revenue stream.

Benefits of DeFi

Flexible and fast 

You can make trades and move your assets wherever you want, without having to wait for bank transfers or pay conventional bank fees. Moreover, transactions are in real-time, and interest rates are updated multiple times every few minutes.

Permissionless and inclusive 

One of the main benefits of DeFi is the easy access to financial services. Anyone with a crypto wallet and an internet connection can access DeFi services.

Transparent

Thanks to blockchain technology, DeFi data is tamper-proof, secure, and auditable. Every transaction on the blockchain can be seen and verified by other users on the network. 

Users can maintain control of their assets

DeFi applications do not need any intermediaries or arbitrators. Users can maintain control over their funds at all times within the ecosystem through non-custodial crypto wallets or via smart contract-based escrow – the escrow holds the deposited tokens until the payment conditions are satisfied. 

DeFi coins provide users access to a range of financial services built on the blockchain. We’ve listed the top 10 DeFi coins you can consider adding to your crypto portfolio:

  1. Uniswap (UNI), at a price of $4.88 and at a market cap of $3,378.18M* 

  2. Maker (MKR), at a price of $1,515.00 and at a market cap of $1,485.08M*

  3. Pancake Swap (CAKE), at a price of $3.99 and at a market cap of $1,181.99M*

  4. Aave (AAVE), at a price of $80.60 and at a market cap of $1,035.05M*

  5. THORChain (RUNE), at a price of $3.12 and at a market cap of $2,476.54M*

  6. Klaytn (KLAY), at a price of $0.35 and at a market cap of $1,011.53M*

  7. Convex Finance (CVX), at a price of $12.00 and at a market cap of $733.23M*

  8. Celo (CELO), at a price of $1.57 and at a market cap of $689.53M*

  9. Curve (CRV), at a price of $1.35 and at a market cap of $624.578M*

  10. Loopring (LCR), at a price of $0.41 and at a market cap of $555.17M*

* As of May 13th, 2022.

* This list is ranked by market cap and does not constitute a recommendation or endorsement by Binance to buy or sell any currency.

How To Buy DeFi Coins on Binance In 2 Steps

Interested in buying DeFi coins to diversify your crypto portfolio? Get started in minutes on Binance, the largest cryptocurrency exchange by trading volume and user base. Follow our two-step guide to buying DeFi coins on Binance below:

Step 1: Put in a fiat deposit via an e-wallet transfer or bank transfer on Binance. Make sure to check the available fiat channels for your preferred currencies. For more information, see an in-depth guide on “How to Deposit USD via SWIFT

Optional: Convert the fiat currencies to BUSD or USDT so that you can trade a greater variety of coins.

Step 2: Buy the DeFi coin of your choice through a user spot wallet purchase or with a credit/debit card.

Conclusion

Much of the technology in the DeFi space is designed to improve the traditional finance system. This has the potential to create more open, free, and fair financial markets that are accessible to anyone with access to the Internet.

With the evolving innovations in the crypto and blockchain space, DeFi applications will continue to grow and improve their financial structures, potentially offering new products and services. 

However, as DeFi is still in the beginning stages, it may still be prone to vulnerabilities. As always remember to DYOR before buying and committing to any DeFi coins. 

Ready to start your crypto journey with Binance? 

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Disclaimer: Cryptocurrency investment is subject to high market risk. Binance is not responsible for any of your trading losses. The statements made in this article are for educational purposes only and should not be considered financial advice or an investment recommendation.

Read the following articles for more information: 

(Academy) The Complete Beginner's Guide to Decentralized Finance (DeFi)