This is the 6th issue of "What is Decentralized Finance (DeFi)?". If you missed the first 5, check them out below. This series will also be indexed under my master index of educational crypto content (at some point) - "Learn Crypto Stuff".
- Understanding DeFi
- Yield Farming
- Collateralized Borrowing/Lending
- Impermanent Loss
- Decentralized Exchanges (DEX's) & Aggregators
The idea with this series is to educate people that are new to cryptocurrency or new to DeFi on how it works. Decentralized finance can definitely be intimidating if you've never done anything with cryptocurrency before aside from just holding or trading it. Another reason that people can find it intimidating, or confusing, is that it does require a little bit of technical know-how to get started.
Have no fear though, NiftyPhill is here to help you learn the ways of the financial system of the future! I also need to preface this by saying I am not an exert nor am I a financial advisor. I'm a guy that has been playing with cryptocurrency since 2015 and has done a ton of different things with it so I'm speaking purely from experience.
Now that we've covered some of the core features of DeFi, I think it's time to move into more complex things. When you think of staking a crypto asset like LEO, you think it's locked up and unable to be accessed for X amount of time. Usually when you stake an asset, you are doing it because there's some kind of incentive, like yield payment. Take HBD on Hive for example. You can stake your HBD in Hive Savings and earn 20% APR, but you have to wait 3 days to withdraw those funds.
Liquid Staking is becoming a really hot topic lately, and it's an extremely powerful aspect of DeFi. It gives you the ability to stake your assets like ETH, MATIC, DOT, and many more to earn a yield but you also receive a new token. Looking at LIDO specifically, you can stake ETH and earn 4.0% APR and you also receive stETH at a 1 to 1 ratio. This essentially gives you the ability to continue using your staked asset across different apps.
So you stake 1 ETH in the platform, and you receive 1 stETH in return. At any time, you can redeem that stETH for your staked ETH. You might be wondering why you would care to receive stETH, and that's a fair question. The answer is that you can use that stETH in different DeFi apps to earn even more crypto. Whether that be by providing liquidity to a trading pool, depositing to a lending platform, or whatever you decide to use it for.
Curve has a liquidity pool where you can pair ETH with stETH and earn over 6% APR right now. The major advantage with this particular pool is that not only are you earning more yield, but you should have less risk because of the mechanics of stETH. Provided there's no issues with stETH, you're essentially just staking ETH because stETH can be redeemed at any time 1:1.
There's other platforms like Aave and Compound that allow you to provide stETH as collateral for loans as well. So you can stake your ETH on LIDO, then use your stETH to take out a loan in USDC. Now you have staked ETH earning yield, plus you have access to liquidity in the form of USDC to trade with or do whatever you please. These synthetic assets obviously come with risks, but if you're looking to really get into DeFi... This is something interesting to play with.
Before messing with any of this, it's crucial to do your own research by understanding how it works. I encourage you to take a look at the documentation of any app you're planning on interacting with. Investing blindly isn't a smart move, ever. That's gambling. We're not here to gamble. We're here to use our programmable money to earn more money in the least risky way with the highest reward.
I guess I speak for most people when I say that. Maybe you are here to gamble. If so, good luck. The rest of us are here to learn about the financial system of the future before everyone else. We're here to help build the foundation for the next generation of users to join in on the decentralized economy. There's so much that can be done with this technology that it's unfathomable.
The market may be down, and the fear might be high... But this is the time to learn. It's the time to earn. It's time to build our stacks and make sure that when the next bull market comes, we're ready. DeFi is one of the best ways to maximize on your assets, you just have to be willing to do the research and learn the best ways to use it.
Post written by: @l337m45732 aka NiftyPhill.
Posted Using LeoFinance Beta