How to start with DeFi
What is DeFi?
Decentralized Finance has been a hot topic since 2018. The concept of DeFi is based on accelerating freedom in conducting transactions as well as letting go of the intermediaries which control every single action of the users without bringing the required value.
The first projects to be deemed as DeFi were MakerDAO, Compound, and Uniswap. Since then, many more DeFi services and projects have entered the market . DeFi has become a collective term for financial services and products not managed by a central institution but by rules written in program code executed decentrally.
How to enter DeFi
Before entering the DeFi world, you should think about how much money you want to invest in.
- Convert your fiat money to cryptocurrencies using exchanges
Cryptocurrency Exchange Platforms make it possible for the users to buy, sell or trade cryptocurrencies. We have two types of exchange platforms. Some platforms are centralized like Binance and some decentralized like Dodo. To get your fiat (bank) money converted, you always need to start in a centralized exchange.
Centralized exchanges or CEXs are controlled by a third party which takes commissions and transaction fees but decentralized exchanges or DEXs are peer to peer marketplaces without any intermediaries. In DEXs users don’t have to compromise the custody of their assets and the orders are executed using smart contracts. Each platform has its own protocol or mining system. They issue the user’s public key and hold it.
2. Transfer your digital assets to your wallet.
Cryptocurrency wallets store your public and private key. Public key is for data encryption and it represents an address to receive tokens. You can share it with everyone and it is like your debit card number. On the other hand, private keys are for decryption and they represent the ownership of cryptocurrencies. They are used to unlock and spend the tokens you have custody over. Private key is like the password you use to get into your online banking account and you shouldn’t share it with anyone else. It is important to know that cryptocurrency wallets do not actually hold your tokens; they just grant access to your funds. Crypto wallets provide independent access to the digital assets and safeguard the funds.
There are two main types of crypto wallets. One is referred to as a “hot wallet” and the other is called a “cold wallet”. Hot wallets are considered the ones which are accessible via browser extension, mobile applications or desktop software. They are easy to access but more vulnerable than the other type. MetaMask is an example of an online wallet. Another example would be Trustwallet which has both mobile application and desktop software. Cold wallets are the hardware or paper ones. They are considered the most secure option but there is a greater risk of loss for both wallet types if you lose your private keys.
3. Choose the chain and the protocols
With the emergence of Blockchain technology, we have entered the second era of the internet. It is the internet of value or the trust protocol. In a blockchain, software protocols make it possible for the users to operate securely without trusting each other.
There are so many different chains out there that you can choose from. Ethereum, Binance smart chain, Bitcoin, Solana, Polygon, etc. each one has different conditions and gas fees.
4. Keep checking on your investments
Make sure to keep checking on your investments. Staking pools might get redundant or upgraded. It is necessary to check your funds every now and then to make sure they are safe.
Security measures in DeFi investing
Security is always the most important aspect when it comes to DeFi investing. Pay attention to the risks and red flags when you are conducting your research. If the yields are unreasonably high, chances are that you are dealing with a scam project. There are some projects with lower yields such as Compound or AAVE which are less risky.
Before jumping in a DeFi project check some factors to make sure it is legit. If the founders have a track record of success, are transparent and easy to access using social media; it looks like a good project. DeFi projects which are backed by famous Venture Capital companies are promising as well.
If you are not tech-savvy and you can not check how decentralized the protocol is or if the code is audited, read the reviews of other investors in the related forums and clubs. It would be helpful to see if the protocol has been hacked before or if the yield has been consistent. The source of the yield, the impermanent loss risk and the period of time that the project has been around should be taken into account as well.
Decentralized Finance is solving many problems which are intertwined with society and culture. It removes the centralized control of the intermediaries, creates more interoperability among financial ecosystems in the world and starts the global financial inclusion. With DeFi anyone, regardless of the political and religious background can take part in the international commerce. Moreover, investing in DeFi brings more interest rates for the investors than keeping the money in centralized bank accounts.
Paycer’s goal is to aggregate DeFi investments multi-chain and make them available to users without the need for their own wallet nor the expertise. This should allow anyone to generate a passive income in a world where banks no longer pay interest. Hence the Paycer team is developing a bridge protocol for DeFi and TradFi to combine the best of both worlds and make it available for retail clients #CeDeFi. Apart from the technical matters and the creation of a super easy to use final product. The goal is also to create a regulatory framework that allows the legal operation of a DeFi platform within the EU first and subsequently in other regions.
Currently, a DeFi platform is already available on paycer.finance on which Paycer tokens PCR can be claimed and staked. More features will go live soon. At the moment on Polygon but other blockchains will be integrated in the near future. Paycer is also working on a banking partnership to be able to combine DeFi with a traditional bank account. In addition to the development of the DeFi platform, the development of the final consumer product is also in progress.
Be sure to follow Paycer on social media for all the latest updates on product development. We have further exciting announcements to share very soon.
- Harvey, Campbell, et al. DeFi and the Future of Finance. Wiley, 2021.
- Ly, Wei. “How to get started in DeFi| Coinmonks.” Medium, 22 October 2021, https://medium.com/coinmonks/how-to-get-started-in-defi-c0de6337b7aa. Accessed 4 July 2022.