The decentralized finance industry continues to attract mainstream attention. Decentralized protocols help users put their crypto assets to work to let them earn interest, yield, and more. Getting started in this industry may seem daunting at first, but this step-by-step guide will help you get started.
Understanding The DeFi Concept
DeFi, or decentralized finance, is an alternative way of accessing financial services and products. Instead of dealing with humans and institutions, users interface with smart contracts and protocols, providing non-custodial opportunities. The term non-custodial is essential as it indicates you remain in control over your funds at all times. Transactions occur between you and the blockchain directly, without third parties.
Although DeFi protocols can provide appealing returns, profits, and interest, the industry remains highly experimental. Great risk can come with great reward, but that outcome is not guaranteed when going in blind. Therefore, conducting the necessary research into the different options is paramount, and using the right tools can make a big difference.
Step 1: Set Up Your Wallet
Some initial research into decentralized finance is mandatory before making any financial commitments. Figuring out which network you want to use is an excellent place to start. Every network or blockchain has a unique asset that can be stored in non-custodial wallets.
Figuring out which currency you want to use will let you set up a corresponding wallet – like MetaMask, Trust Wallet, or other solutions – where you can store funds. Moreover, that wallet is crucial to interface with DeFi protocols directly.
Another wallet option to consider is BlockWallet, a non-custodial Ethereum browser extension wallet enabling interaction with privacy smart contracts. On-chain privacy is beneficial when dealing with decentralized finance protocols, and BlockWallet will enable DeFi web3 integration and compatibility with Metamask Snaps Plugins soon.
Step 2: Acquire Crypto Assets
Venturing into the DeFi world is not possible without owning supported crypto assets. Therefore, to engage in DeFi, you will need to acquire an eligible crypto asset, including Ethereum, Solana, Terra, Cardano, Tron, or any of the other options. Bitcoin and decentralized finance are less common options, although the network is home to projects like Money On Chain. However, most of the DeFi activity revolves around alternative ecosystems that are not Bitcoin.
It is not possible to use your credit or debit card to become part of decentralized finance. More specifically, you will need to acquire the crypto asset you want to use through a centralized exchange, which may support various payment methods. Then, after buying the crypto assets, you need to move the funds from the exchange to a crypto wallet you control.
Step 3: Pick Your Trading Platform
Finding the right trading platform for your DeFi asset may be trickier than you imagine. The decentralized finance industry is home to numerous DEXes, or decentralized exchanges. These trading solutions rely on smart contracts to remove third parties from the equation. A decentralized exchange has no order book but an automated market maker (AMM) mechanism to execute trades instantly.
Moreover, a decentralized trading platform can provide various features for users to make money. A common option is to provide liquidity to a trading pool and earn a share of the trading fees. It is a passive revenue stream, known as liquidity mining, and can prove appealing. However, it also carries a risk, as users need to provide both assets of a trading pair as liquidity. If the balance shifts more toward one of the two assets while the asset price changes, you may have fewer asset one or asset two coins than your initial deposit.
Other features to look for in a DEX include trading tools. Taking HyperDex as an example, the platform provides algo trading to help users automate their trading activity with high-profit potential. The underpinning algorithm has been battle-tested over multiple years, and users can expect returns of over 15% per year. Moreover, users can upgrade their algo trading to a Cube to increase profits.
What makes the approach by Hyperdex different from other trading platforms is its assessing system. More specifically, Hyperdex’s algorithm can adapt quicker to changing market conditions, ensuring users can remain in profit under any circumstance. Crypto assets are very volatile, and adapting to changing sentiment is crucial in DeFi trading.
Step 4 : Use Notifications
One often overlooked tool by DeFi users is the option to use notifications. More specifically, the Open DeFi Notification Protocol, powered by Orbs, gives users mobile notifications regarding on-chain events. That can include price changes, volume and liquidity adjustments, new coin launches, and much more. It is a powerful tool for DeFi projects to increase awareness for their changes, updates, and new developments.
From a DeFi trading viewpoint, the Open DeFi Notification Protocol is a valuable ally. Being notified about price changes, stop-loss limits, near liquidations, and more across various networks can avoid a negative profit impact. Additionally, the protocol supports DEX-AMMS by default. Using such a tool and automated trading will give users real-time insights into how their DeFi trading performs and new opportunities.
Closing Thoughts
Venturing into the DeFi trading world may seem difficult, but the processes have been streamlined over the years. Moreover, non-custodial platforms now offer more advanced solutions, including algo trading. There are also decentralized mobile notifications to stay informed on market conditions and new developments, making the information far more accessible.
Taking the necessary step to prepare remains crucial in DeFi trading. However, once everything is set up, you can automate the lion’s share of the trading aspect these days. The industry offers many exciting opportunities, and that situation will only improve over the coming years.
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