Hello everyone, how are you doing? I welcome you once again to one of my blogs in this community, on today's, We shall be discussing Things to consider before investing in a Defi, this shall be a guide for both beginners and as well experts who can add one or two to their DeFi's Knowledge.
I will be teaching you how to carry on a Defi Research before investing, and as well, I will outline the MUST KNOWs first, then break every outline down. Stay sharp, as this will be one of the most crucial pieces of information you will ever read regarding Defi.
For the sake of making it simpler, I will be explaining the highlighted point below;
- How to Conduct a Proper DEFI Research
- How to Stake
- How to Farm
- How to Tell the Difference Between a DEX and a CEX
To conduct proper research in a Defi project, you have to observe the following first, which are ;
- The token's usefulness
- The concept of its tokenomics
- The Project Roadmap
- The Community
- The projects Investors and their partners
The Token's Usefulness: - This is related to how important the token is in its ecosystem, what is it required of? You could also check the token's APY to consider Its importance in its ecosystem.
The concept of its tokenomics: - This relates to the token's economics, The token's usefulness, How the protocol makes money, and When will the team members be able to sell their tickets? and as well as how the first tokens were distributed. This information can be found in a token's whitepaper
The Project Roadmap:
This entails a detailed plan that the token has devised for itself. Incoming news will cause the token's price to rise. A more efficient way to earn money and interact with other ecosystems and exchanges, this allows users to see the upcoming benefits of the particular project.
The community:- These are the individuals who make up the community's population, but they also include those who hold, buy, and sell the tokens. An active community signifies a price increase in the project, and an intelligent community makes the most of a token's utility.
The projects Investors and its partners: - These are the individuals who believe in the token and consider it to be a good investment. They are the initial investors.NOTE that the investors must be well-known and credible to make a difference to the platform, and Their Partners must be the best as well.
Once you follow all the five points listed on how to make a proper Defi research, then you get to be sure of the project you are getting yourself into, and as well know the perfect guides, and where to look to be sure of credibility from the Defi project.
Staking can be quite difficult for small crypto earners, it's expensive as it is difficult to arrive at a consensus as only the miner with the highest amount of coin wins the validation.
The mechanism used to stake is the proof-of-stake. Consensus, changes the way blocks are normally verified unlike in Proof of work because cryptocurrency validators now share the task of verifying each transaction.
In Crypto staking, the Validators stake their own crypto after having met a requirement for employers to participate in exchange for the chance to validate new transactions, update the blockchain, and earn a block reward. Becoming a validator is quite difficult, and not cheap. For example, becoming one costs about 30ETH ($130,000), and these are as well based on requirements.
So, how do you stake?
If you don't have that kind of money, you can participate in a staking service where everyone serves as a validator at the same time, which is mostly for users without many assets and who plan to earn block rewards as well.
Take yield farming as a process in which you are trying to plant a tree, in return for it to grow so you could reap the Interest on its returns.
Yield farming is the practice of lending one's money by staking a particular cryptocurrency in exchange for interest and other benefits. It is a staking mechanism that involves, LENDING AND BORROWING of your own assets, I will explain what I mean by this.
Yield farming tends to work by first making it possible for an investor to stake one‘s coins in a lending protocol via a decentralized app, or dApp.
And the users who engage in yield farming, are also known as liquidity providers, i.e, they lend their funds by depositing them in a smart contract also known as (a pool of funds). Doing this, they have lent their assets for a particular period, with expectations of a return at the end of their farming period, you could stake for as long as you are willing to as this implies the amount you are willing to recoup at the end of your investment.
As you are all familiar with the fact that cryptocurrency transactions are carried out through exchanges, whereby we have two types of exchanges which are CEX and DEX.
- CEX stands for Centralized Exchange.
- DEX stands for Decentralized Exchange.
Centralized Exchange - These are where you Buy & Sell Cryptocurrency with the third-party transaction monitoring your assets, examples are Binance and KuCoin.
While
Decentralized Exchange - This is where you Swap and bridge crypto without a third party monitoring the transaction. For instance, uniswap and Pancakes swap.
Here are the key differences between a centralized and a decentralized exchange.
| Centralized Cryptocurrency Exchange | Decentralized Cryptocurrency Exchange |
|---|---|
| The platform has the most authority | The user holds the most power |
| Hacker danger | There is no risk of hacking or any other threats |
| Fees are charged for using the platform | Zero or very low fees |
| Simple to control | difficult to understand |
| Authorities must grant a license | does not necessitate a license |
Thank you, everyone, for visiting my blog, I hope you have gained a thing or two knowledge regarding Defi, this is not the end of the guidelines, as I still hope on sharing more ideas regarding Defi with you in my next article.
Thanks for coming, I hope to see a great deal of you next time.
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