Will DeFi Investment Ever Become Simple Enough for the Rest of Us?

Decentralized Finance (DeFi), although a relatively new industry, has seen incredible growth in a relatively short amount of time. An industry that was valued at $700 million in December 2019 was worth $13 billion just one year later. With statistics like those, it’s fair to assume that DeFi isn’t going anywhere anytime soon.

 But, while story after story of people getting rich from DeFi investments keep cropping up in the news, what exactly is DeFi, and how do people invest in it?

 Within this article, we’ll be taking a look behind the curtain, explaining exactly what DeFi is, how to invest, common problems investors come across, and how the industry is turning to new tech startups to remediate its problems.

Let’s get right into it.

What Is DeFi?

DeFi is an emerging technology that uses the same ledgers as blockchain. Due to these, financial services don’t have to have a middle man, eliminating banks and giving power back to its users. Instead of holding money in a bank, your money will be in your DeFi wallet.

Anyone that has an internet connection can quickly and easily register on a DeFi platform, representing the democratization of finance for everyone. Instead of waiting for banks to process transactions, the DeFi technology also makes trading instant, transfers taking seconds or minutes instead of hours and days.

In short, DeFi is about allowing everyone, no matter who they are, to access finance. DeFi platforms are accessible to everyone and cut out any middlemen.

How Does DeFi Investing Work?

Although it uses a different system, DeFi investing bears many similarities with traditional financing. There are various forms of investing that are commonly associated with DeFi.

The two primary forms are:

●    Cryptocurrencies

●    Staking

 What exactly are these?

Cryptocurrency

A hot word on everyone’s tongue over the past few years, cryptocurrency is a market that has blown up. With incredible returns and a diverse set of tech apps that allow for easy investing, it’s no wonder that many people are now familiar with this system.

As it uses blockchain, it doesn’t rely on any middle institutions, like banks or governments, making it a bit of a controversial topic. While some banks are completely against cryptocurrency as they see it as destabilizing their currency, many are now adopting crypto into their daily practices. Huge businesses like Paypal, Mastercard, and Visa are all turning their sights on crypto.

Investing in crypto is the process of exchanging your currency for a digital one. If the digital currency’s value goes up, you’re making a profit.

Staking

If the cryptocurrency you’re investing in allows staking, then you’ll be able to commit a certain amount of coins over a certain amount of time and then receive passive income on them. By staking, you help to stabilize the currency, ensuring its long-term longevity.

Many DeFi platforms work with some form of staking, with an investor putting down coins with the hope that they go over uptime. Additionally, considering thatstaking can reward users with between 1-20% interest, this is an innovative new form of creating a passive income.

 While these are some of the main forms of investing on DeFi platforms, it isn’t all sunshine and rainbows. Due to the volatility of crypto, many see their investments disappear overnight.

Problems With DeFi

One of the largest problems currently impacting DeFi projects is when people execute what is known as a scam wick. If you’re not in the DeFi space, you’ve most likely never heard of this phrase, so we’ll cover what this is.

In DeFi, many people set stop-loss orders on a range of their tradable assets. This is when they believe the value of an asset will go down. Let’s say they believe the price of a coin will drop from $100 to $90. Just in case, to quite literally ‘stop’ their losses, they’ll place a stop-loss order at $110. If the price of the coin reaches $110, their stop loss notification will be triggered.

As the price rises, more people will be notified of their stop losses, causing a knock-on effect of more and more people buying and driving the price up rapidly. Scammers will purposely place huge orders on a coin to drive up the price, triggering people’s stop losses and then causing further buying panic. Once the price rises, they’ll sell their shares, and profit, while those that bought are left with a currency that plummets back down in value.

Scam wicks are notoriously inflicted within DeFi, as the vast majority of DeFi projects draw data from one singular exchange.

But, don’t panic; as a trader, there are ways you can protect yourself and your DeFi assets.

How Do I Protect Myself From Scam Wicks?

Scam wicks are an intelligent system, meaning that they require innovative solutions to prevent. In recent years, DeFi investment platforms have been trying to combat these issues. None has been more successful thanHyperDex, a DeFi asset management platform founded early in 2021.

While the majority of DeFi ecosystems require their investors to act alone, leaving them open to dramatic shifts in the market and potential scam wicks, HyperDex uses a Cube system to group its investors.

Instead of investing alone, you’ll enter into one of three cubes, each of which forms different investing strategies, risks, and predicted returns. By opting to enter into one of these cubes, you’ll be pooling your funds with other users, preventing mass-market shifts due to the sheer quality held within the cube.

Not only does this innovative system protect HyperDex users, but it also ensures that even beginner users are able to invest in DeFi. Without having to know the ins and outs of every trade, this passive cube system will help you get a return on investment without lifting a finger.

All an investor will need to do is read through the conditions of each cube and select the one that best aligns with their investing goals.

Final Thoughts

Due to its novelty, many find DeFi a challenging form of investing to wrap their head around. In an unfamiliar system, they fall prey to market manipulation, with more seasoned investors launching scam wicks to trigger their stop losses.

However, by moving towards innovative new technology, like HyperDex, even beginner investors can actively invest in this ecosystem. Without the need for advanced knowledge, HyperDex’s cube system allows investors — no matter their level or location — to invest with 100% certainty. This lowers the bar for investors, letting everyone get involved with DeFi.

As we move onward into this digital age, we must make use of the very best tools around us to keep up with the ever-advancing progress of the financial ecosystem.