If you’ve ever scrolled through Twitter, kept up to date with financial news, or simply walked outside and seen recent billboards about digital assets, you would have likely come across terms like cryptocurrency, blockchain, and NFTs, all of which are components in decentralized finance. DeFi, as it’s more commonly referred to, is a blanket term that covers a large number of projects in blockchain that don’t rely on the standard mechanisms typically imposed in the traditional world of finance.
The applications one finds in DeFi are built on blockchain based technology, typically implementing smart contracts that fully decentralize and automate functions within the applications themselves. There are various blockchain networks within DeFi, some of which you’ve likely heard of such as Ethereum, Tron and Binance Smart Chain, which attract more traders each day. However, to some who are completely new to the space, the steep learning curve they face is akin to deciphering hieroglyphics on an Egyptian pyramid.
In this article, we’ll discuss the different aspects of DeFi and how CoinBurp alleviates the stress of taking your first steps into the rapidly expanding universe of decentralized finance.
Why DeFi is Attractive to Traders
The dream of sipping margaritas on a beach while our digital assets steadily grow themselves is a dream shared by many. With passive income opportunities such as Staking and Yield Farming, it is no surprise so many crypto users have made the transition to DeFi.
In simple terms, “staking” rewards users with more of a specific token by holding them. This provides the token being staked with more market liquidity, which increases the overall market cap for the project and rewards these users for locking their tokens.
Yield farming, also known as liquidity mining, also rewards users with high-interest in exchange for locking their tokens to provide liquid trading for the ecosystem’s community. However, it is a fair bit more complicated than staking, as yield farming adds tokens to liquidity pools through the advent of liquidity providers (LP). Some liquidity pools reward yield farmers with multiple tokens which can then be used to earn more rewards from other liquidity pools. To maximize profits, yield farmers will move their capital to several protocols in order to achieve the highest ROI possible.
Another key aspect of DeFi that benefits traders of the ecosystem is the Decentralized Autonomous Organization (DAO) governance that projects employ. Rather than a governing body that looks down on its constituents, token stakers are the government themselves. They collectively decide on the direction of a project through voting, giving all holders an equal voice within the community.
Barriers in the Defi Ecosystem
Unfortunately, there is no universal manual that a first-time user can turn to when entering the DeFi space. And without a patient mentor nearby, this leaves most investors to learn the hard way about the multitude of tokens, decentralized exchanges (DEX), and wallet options to select from.
Non-custodial wallets such as MetaMask interact with Ethereum, while other faster cost-efficient networks like Binance Smart Chain are a popular choice for most. However, many security protocols must be considered when opening up a crypto wallet. Apart from your password, seed phrases are given to new wallet owners that should be recorded and stored in a place that is 100% secure. The “mnemonic phrase” consists of 12 random words that appear in a specific order and must be entered in that same order if required.
If you happen to forget your password or need to import your wallet to another server, a lost seed phrase will result in a loss of whatever funds you have in your wallet. Therefore, it is crucial for new users to write down their seed phrase and store it using the correct security measures, either offline, or hand written, and this enforces the wallet owner to be fully accountable for their own security.
Adding funds (tokens) to your wallet isn’t as simple as making a standard bank deposit. Each token has a unique code assigned to it known as a token address or contract. Tokens can be purchased by connecting your wallet to DEXs such as Pancakeswap, Uniswap, KuCoin, and others. Having the correct contract address is paramount when purchasing DeFi tokens due to the multiple copycat tokens that can trick people into buying the wrong cryptocurrency. And as you may have guessed, there is no return policy on mistakenly purchased tokens. This factor reiterates the fact that users must keep very cautious and secure, and they have full ownership of responsibility for their wallets, tokens and security.
NFTs: The Evolution of Digital Assets
Non-Fungible Tokens (NFTs) are an irreplaceable, immutable DeFi asset class that has experienced a spectacular rise in recent years. In a world where unauthorised replication of online information is rampant, NFTs provide creators of all talents a way to monetise their products and retain their value, without the threat of being replicated without permission.
NFTs can be held or featured on open marketplace platforms such as OpenSea and Rarible, where other collectors can make offers to purchase or trade with them. More recently, NFTs have found their way into industries like gaming, giving them far more utility in the marketplace and further boosting their value.
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CoinBurp is the cryptocurrency platform partner for the $BURP ecosystem and suite of DeFi tools. The tokens are not issued or controlled by CoinBurp.
Cryptocurrencies and crypto tokens are generally not regulated and investors do not have access to recourse or compensation schemes such as, for example, in the UK, the Financial Ombudsman Service or the Financial Services Compensation Scheme. Investing in cryptocurrencies and purchasing crypto tokens can be high risk and investors should carefully evaluate their appetite for risk and their understanding of trading cryptocurrencies prior to entering into a transaction.