Last updated on July 5, 2022
The DeFi market is on fire at the moment with new platforms and features emerging weekly. Today’s market includes a plethora of yield generation features and p2p options to drive ROIs. DeFi is one of the hottest blockchain technologies in existence. What is DeFi and what makes it so special? Here are some of the top features that every DeFi trader should know in 2022
DeFi (decentralized finance) seeks to convert traditional financial services into decentralized applications. By doing so, DeFi networks can provide more efficiency, cost savings, and security. Consequently, DeFi is one of the fastest-growing sectors in the blockchain market. Reports show that as of March 2022, there is $79.1 billion in value locked in decentralized finance.
In DeFi’s early days, these platforms focused on duplicating centralized systems. Over the last couple of years, developers have branched out into completely new services and protocols to provide low-risk wealth generation options to the masses. This increase in features has fueled adoption.
DeFi Statistics Tell a Tale
A quick glimpse into some key DeFi statistics reveals a market on the rise. There is currently around $80 billion of value locked in DeFi. Analysts predict this number to rise an additional billion and hit $19 billion by 2024. The same report predicts that DeFi will grow to over $65 billion by 2026.
All of this growth is great for the industry, but can leave new investors a bit confused. Some new terms and features are unique to the sector. Additionally, there is a technical learning curve when making the jump from centralized to DeFi platforms.
The growing selection of options has left some traders at a loss in terms of what features are the best to meet their needs. There are more DeFi options than ever. You can stake, farm, lend, liquidity mine, and much more. Luckily, you won’t need to take the day off work to research the best features to look for in a platform. Here are the top DeFi features and services every trader should know in 2022.
Many DeFi platforms operate as, or incorporate some form of, a DEX (decentralized exchange). These networks eliminate the need for expensive centralized exchanges and enable traders to swap assets directly. In many instances, DEXs eliminate the trading book as well.
Instead, off-chain oracles provide accurate pricing data with less slippage. Smart contract called AMMs (automated market makers) enable traders to trade directly with smart contracts to improve responsiveness.
DEXs provide another layer of security to traders because they operate privately. You don’t need to register and provide third parties with your personal information to use their services. This approach prevents any future risks associated with data leaks.
Additionally, these platforms operate in a non-custodial manner. This designation means that the exchange doesn’t require you to send your crypto to its wallets to trade. Instead, you can conduct trades with your crypto safely in your possession until the moment the trade executes.
This structure is better for the trader for many reasons. For one, they are never separated from their assets. If a hacker attacks the DEX, they don’t gain access to their holdings. Hackers much prefer attacking CEXs with large centralized hot wallets.
Additionally, you are safe from rug pulls or delays due to network maintenances or upgrades. Network upgrades can take hours or days and during that time you are unable to trade on custodial platforms. This can result in missed opportunities.
Some of the top DeFi DEXs in the market today include Uniswap, PancakeSwap, and SushiSwap. There are also in-protocol DEXs that enable users to connect to a third-party exchange from their wallet or conduct direct chain to chain swaps known as atomic swaps. Both of these methods save traders’ fees and improve security.
The META DEX is an example of a high-performance protocol designed to fit within a larger DeFi ecosystem. The platform provides scalability to the market. It also enables META 1 Coin holders to trade their stablecoins for other popular tokens in the market. The META DEX leverages the META blockchain to achieve transaction throughput on par with the NASDAQ.
Staking your coins is one of the best ways to create a passive income stream. Staking can come in many forms but in the DeFi sector, it’s the act of locking your cryptocurrency into a smart contract in exchange for rewards. Unlike trading, you don’t need to invest time in researching market conditions or other technical indicators. For these reasons, staking is considered a better option for new users.
Staking is simple and requires very little technical understanding to do. Additionally, there is very little risk of losing your staked asset versus trading. You can increase your rewards by increasing the number of tokens your stake. You can also add more rewards by staking for longer periods.
Most staking protocols offer a staking calculator function. This handy tool will let you see what your rewards will be and when you will receive them. Your rewards can come in the form of cryptocurrencies like ETH, or custom rewards tokens such as Xsushi. The latter enables you to then take your rewards and yield farm to improve your ROI.
In the META 1 ecosystem, users’ rewards are paid out in META 1 stablecoins. These rewards can be added back into the next staking period to enjoy compounding returns. You can also trade these tokens for other popular coins or fiat currency using the METANOMICs ecosystem.
Yield Farming is another popular feature found on many DeFi networks today. Yield farmers provide liquidity to large smart contracts called farming pools. In exchange for their participation, they are paid a yield, or dividend, on their farmed crypto. This dividend is paid in cryptocurrency.
There are a variety of different farming systems in use today. The most popular issue participants LP tokens. The token represents the farming pool. It increases in value as the total liquidity of the pool rises. It means that the more people that invest in the yield farming pool, the higher the value of the pool token.
This strategy enables users to benefit from their farming rewards twofold. They earn a yield on their initial tokens and they gain from the appreciation of the pool’s token. Like staking protocols, many of these protocols payout returns in the same token that users farm. The best options enable you to automatically farm these rewards using the platform’s features.
Another feature worth seeking out is Airdrops. Before the introduction of DeFi, Airdrops were rewards that platforms released to users directly. These rewards are deposited in your wallet without the need to do anything extra. The integration of the Airdrop strategy into the DeFi sector has had some interesting effects.
DeFi Airdrops are usually integrated directly into the platform’s fee structure. For example, a network may have a 10% flat fee on all transactions. Half of this fee could go to operation costs and the other half could be redistributed to token holders via Airdrops. Automating the process provides a lasting incentive for HODLers.
Airdrops have taken on more value with the integration of NFTs (non-fungible tokens) into the market. These unique digital assets can operate as unique collectibles, gaming assets, artwork, property ownership, and much more. Firms can now combine NFTs with airdrops to provide a valuable service to their users. Imagine the joy of receiving a custom NFT airdrop directly in your wallet.
Peer-to-Peer lending services are an essential part of the DeFi ecosystem. These protocols connect users securely and efficiently. There are a lot of different types of p2p lending systems in place today. Some networks let borrowers set their terms and lenders bid to meet them, while others have lenders offer their loans on a marketplace to borrowers.
Regardless of the structure, most networks leverage large yield generating lending pools and over-collateralization requirements to prevent lender losses. Notably, there has been a recent increase in the integration of credit-based, under collateralized, lending platforms in the DeFi sector as of late. These systems seek to compete directly with their centralized counterparts.
Benefits for All
P2P lending protocols bring some serious benefits to the market. For one, they eliminate the gatekeepers from the lending equation and enable borrowers to access funding immediately. If you have ever walked into the bank and asked for a loan, you can attest to it being a humbling feeling.
The bank will require you to jump through a lot of hopes and there is no guarantee that even with their criteria met they will approve your loan. DeFi lending services take human emotion out of the equation. They operate as pure code that has no bias or preset notions about borrowers. These systems use a combination of blockchain technology and encryption to improve the lending market across the board.
In most DeFi lending protocols, the networks integrate large lending pools. Lenders can deposit or borrow from these pools. Borrowers can then take loans from these pools. The borrowers pay interest on their loans that go back into the pool. The interest rate varies depending on the repayment schedule the borrower selects.
This interest is then divided between the lender and the lending pool. This strategy enables P2P lending platforms to secure lenders against losses and late payments. There are also lending protocols that incorporate an additional security lending pool that pays out high yields. This secondary pool provides another layer of security against defaults.
Another fun feature common in the marketplace is crypto savings accounts. These protocols operate like your traditional banking account in that you can deposit your funding and receive interest based on the amount. Unlike your local bank branch, there is no centralized organization operating this account.
Instead, DeFi networks eliminate all human intervention. Smart contracts are preprogrammed to handle the core processes of these accounts. By removing the middlemen from the equation, users can secure higher APYs. For example, your bank pays you around .25% APY on your savings on average. In comparison, DeFi bank accounts can payout as high as 12%.
Notably, platforms such as META1 provide debit card services. These cards operate like traditional bank cards and can be used to make purchases anywhere that shows the VISA logo. They can accomplish this task by instantly converting your purchase value from crypto to fiat. Since the merchants only receive fiat currency, there are no extra steps required on their end to complete the transaction.
Most DeFi networks incorporate some form of community governance. Community governance protocols protect investors in many ways. Primarily, they ensure that the network develops in a manner that is conducive to further growth.
Most community governance mechanisms introduce a governance token. Users hold these tokens to become eligible to vote and put forth proposals. The more governance tokens in your network wallet, the more weight your vote carries. This strategy ensures that only those with vested interests get a say in the platform’s future.
Another interesting feature to look out for is no-loss lotteries. These protocols leverage interest-earning liquidity pools to provide you with unlimited chances to win prizes. To participate in a no-loss lottery, you deposit tokens into a prize pool. You are then issued tickets.
This prize pool operates continuously. As long as you don’t withdraw from the pool, you are always eligible to win prizes. You can remove your deposit whenever you like and there is no early withdrawal penalty. However, you will no longer be eligible for prizes once you exit the pool.
Top DeFi Features to Consider in 2022
It doesn’t take long to see why the DeFi sector is on the rise in 2022. These features are just a couple of the most popular options in the market today. You can expect this list to expand over the coming weeks as more features, services, and platforms enter the market. For now, you are ready to configure your DeFi investment strategy accordingly.