10 Ways to Invest in DeFi in 2022

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10 Ways to Invest in DeFi in 2022
10 Ways to Invest in DeFi in 2022

Decentralised Finance (DeFi) coins have found their way into the minds of many cryptocurrency investors and people outside of the crypto community who have a genuine interest in entering it for the very first time. Specifically, the utility and importance of these DeFi coins cannot be ignored or understated.

DeFi platforms have provided users with ways to borrow, save, lend or trade crypto without any traditional bureaucracies found within the financial markets. This level of popularity is making the top DeFi coins a solid option to invest in in the eyes of many.

In this article, we will be discussing the 10 best ways to invest in DeFi in 2022.

What is DeFi?

DeFi is an acronym that stands for “Decentralized Finance”, and its core idea is to establish a peer-to-peer financial system. DeFi operates on blockchain technologies, most often the Ethereum network. Its distinguishing feature is its independence from traditional banks, brokers, and other intermediaries.

Instead of waiting for approval from a bank or another institution, lending, borrowing, trading, and more can be done through open-source protocols on a decentralized financial network. There are no back-offices or layers of management to process your request — only you and the smart contract.

10 Ways to Invest in DeFi in 2022

1. Invest in DeFi Coin

A simple and popular way to invest in decentralized finance is to buy the best DeFi coins for your portfolio. This means that you will be investing in a DeFi project by holding its native digital currency.

Like all crypto tokens, the DeFi coins that you buy will be listed on crypto exchanges – some offer a bespoke DeFi portfolio as a way to invest in DeFi crypto assets, which we’ll review further down this list.

Holding DeFi crypto, the value of your investment will go up and down throughout the day – based on the market forces of demand and supply. According to CoinMarketCap, there are now over 540 DeFi tokens that you can buy. Each token and project will focus on a specific area of the decentralized finance industry, so you will need to do some research to pick the right coin for your portfolio.

One undervalued project currently is DeFi Coin (DEFC) – which launched in 2021 and aims to become the go-to hub for all things decentralized finance. DeFi Coin is the native token of the DeFi Swap exchange, a decentralized exchange which offers a variety of decentralized applications (dApps) and tools.

For example, DeFi Swap allows users to buy and sell digital tokens without requiring a centralized entity. The platform also offers staking and yield farming services, which come alongside high-interest yields. DeFi Coin itself is built on top of the Binance Smart Chain, and it carries an innovative taxation system that penalizes short-term market speculators.

The underlying smart contract does this by taxing sell orders at 10%. For instance, if you were to sell $5,000 worth of DeFi Coin on the open market, $500 would be taxed, leaving you with $4,500. This $500 is then split into two and subsequently distributed between existing token holders and the DeFi Coin liquidity pool. As such, long-term investors are rewarded for their loyalty.

2. DeFi Staking

Another popular method is to use a platform that supports crypto staking. The main concept of this way of investing in DeFi is that you will ‘lock’ your tokens for a certain time period. In turn, you will generate interest on the tokens you have deposited. DeFi staking is, therefore, a passive way to make your tokens work for you.

There are actually two ways in which you can achieve this. First, you can stake your tokens on a PoS (Proof-of-Stake) blockchain like Solana or Cardano. The tokens will then be locked into the respective blockchain and subsequently used to verify transactions. However, it must be noted that when you go direct with a PoS blockchain, it doesn’t tend to be the highest yield.

Instead, it’s much better to use a third-party staking platform that not only has a good reputation – but offers a high APY. In doing so, you will deposit your tokens into the provider’s smart contract, which, in turn, will be used to fund liquidity pools and loans. One of the best decentralized finance platforms for this purpose is DeFi Swap.

As a prime example, you can stake the platform’s native DeFi Coin and earn up to 75% on a 1-year lock-up term. If this is too long for you, DeFi Swap also offers 1, 3, and 6-month terms, albeit at a lower yield. Nonetheless, there is no requirement to register an account, provide any personal information, or upload KYC documents when using DeFi Swap for staking.

3. DeFi Savings Accounts 

You may also consider crypto savings accounts as a way to invest in DeFi. The process entails depositing your idle crypto tokens into a savings account and in return, you generate interest. This concept is much the same as a traditional checking or savings account that pays interest on USD or EUR deposits.

Unlike traditional USD and EUR deposits, DeFi savings accounts pay a high yield. This will depend on a variety of factors – such as the DeFi platform in question, which tokens you wish to save, and if you commit to a lock-up period. Some DeFi accounts pay higher rates when you stake their native token.

4. DeFi Yield Farming

Next up on our list of the best ways to invest in DeFi is yield farming. This works in a somewhat similar way to the previously discussed staking. This is because you will be lending your idle tokens to a decentralized exchange of your choosing. However, the key difference is that you will be providing liquidity to the exchange.

Moreover, as liquidity allows buyers and sellers to trade without a third party, you will need to provide tokens for a specific trading pair. For instance, let’s say that you wish to add liquidity to CAKE/BNB. This means that you will need to deposit an equal amount of Pancakeswap (CAKE) and BNB in monetary terms.

In other words, if you add $1,000 worth of BNB, you will also need to add $1,000 worth of CAKE. In doing so, this will allow people of the respective exchange to swap BNB for CAKE in a decentralized manner – and vice-versa. Each buyer and seller that uses the respective liquidity pool will subsequently pay a trading fee.

And, as you have contributed liquidity to the pool, you will be entitled to a share of any trading fees collected. For example, let’s say that you deposit $2,000 in crypto, equally split between CAKE and BNB. In total, the pool for CAKE/BNB has $20,000 in liquidity. This means that your stake in the pool is 10%.

And therefore, if the pool collects $200 in trading fees on day one, your share will amount to $20. If you’re looking for the best place to invest in DeFi farming pools, consider DeFi Swap. As noted earlier, this DEX offers high-interest yields across both farming and staking in a user-friendly and trusted environment.

5. Invest in DeFi Stocks

If you’re looking at how to invest in DeFi without actually touching cryptocurrency tokens, you’re in luck. That is to say, you can now gain exposure to the DeFi industry via the traditional stock markets. In a nutshell, you look to invest in stocks that are in some way, shape, or form involved in the growth of decentralized finance.

In doing so, you won’t need to buy cryptocurrency to speculate on DeFi, nor will you need to worry about exchanges or wallets. Instead, you simply need to open an account with a regulated stockbroker and purchase your chosen number of shares. One of the best trading platforms for this purpose is eToro.

This is because you can invest in DeFi stocks by depositing a minimum of just $10. Moreover, $10 is the minimum stock trade requirement, as eToro supports fractional shares. And best of all, regardless of whether your chosen DeFi stock is listed in the US or an international exchange, eToro will not charge you any trading commissions.

6. Secured DeFi Loans

A core segment of the DeFi investment scene is that of crypto loans. Unlike traditional loans, you will not be going through a bank or financial institution. On the contrary, you can obtain a loan via a leading DeFi platform – meaning no third parties. Moreover, DeFi loans can be taken out instantly without the need for a credit check or any documentation.

This is because, in order to get a DeFi loan, all you need to do is deposit some collateral in the form of crypto tokens. Now, in terms of how to utilize DeFi loans from an investment perspective, the concept allows you to obtain leverage. For example, let’s suppose that you deposit $5,000 worth of Ethereum tokens into a DeFi loan site that offers an LTV of 50%.

This means that in return, you can borrow funds up to 50% of the value of your collateral – so that’s $2,500. This $2,500 can then be used to invest in other DeFi projects – such as tokens, stocks, or yield farming. Furthermore, and perhaps most importantly, you still retain full ownership of the $5,000 worth of Ethereum that you deposited.

Therefore, if the value of Ethereum increases while the tokens are locked as collateral, you will still reap the rewards. As a result, crypto loans offer one of the best ways to raise finance when investing in DeFi.

7. Get a DeFi Wallet

If you’re looking to invest in decentralized finance as part of a long-term strategy, then it is crucial that you get yourself a suitable DeFi wallet. In doing so, you will be able to store your crypto tokens in a non-custodial manner – just as they should be in the DeFi space. After all, non-custodial wallets ensure that you are the only person that has access to your private keys.

In comparison, when you keep your crypto investments in a centralized platform – the exchange in question will control your private keys and thus – your digital assets.

8. Invest in DeFi Smart Portfolio

If you wish to invest in DeFi but you are a complete beginner that has little to no experience – then you might want to consider an option that requires personal zero input. And we found that one of the best options in this respect is to invest in the decentralized finance smart portfolio offered by eToro.

By investing in a smart portfolio at the heavily regulated platform eToro, you can gain exposure to DeFi without needing to choose your own assets or markets. This is because, through a single trade, you will be investing in a ready-made portfolio that focuses on leading DeFi coins.

This includes everything from Compound, Yearn.finance, and Decentraland to Basic Attention Token, Maker, and Chainlink.

9. Hold Stablecoins

One of the main issues that inexperienced investors have with the DeFi space is that often – volatility levels can be extremely high. This is because, on the one hand, it’s great being able to earn double or even triple-digit APYs on your idle crypto tokens. However, if the value of the respective tokens witnesses a major decline, you might end up losing money.

This is where stablecoins come in. Put simply, by opening a DeFi interest account that supports stablecoins, you can enjoy the benefits of high yields without worrying about volatility. This is because stablecoins are pegged to conventional fiat currencies like the US dollar or euro. USD Coin, for instance, is always worth $1 – give or take a minute fractional percentage.

With that being said, stablecoins are not totally risk-free – as we saw with the recent Terra USD saga. For those unaware, Terra USD lost its peg to the US dollar and even hit lows of sub$0.20. Nonetheless, by focusing on solid stablecoins like DAI or USD Coin, you can earn a highly attractive interest rate of 12% at leading platform Aqru. No lock-up periods are required.

10. Invest in NFTs

The final option to consider from our list of DeFi investments is that of non-fungible tokens – or NFTs. For those unaware, NFTs represent unique digital tokens that prove ownership of an item. This could be anything from a house or soundtrack to an art collection. Either way, the NFT space is one of the fastest-growing segments of the DeFi industry.

After all, when you buy an NFT and add it to your wallet, you are the only person that has access to the underlying item. Moreover, by sticking with DeFi wallets – as discussed earlier, you will retain full control of your private keys.

Conclusion

Investing in decentralised finance (DeFi) can be a brilliant idea for a variety of different reasons. 

Remember to do a lot of research on how to invest in DeFi, and go over as many DeFi exchanges as possible. You can also engage in DeFi lending or DeFi Farming but do so at your own risk.