DeFi is one of the hottest topics in crypto right now. And it’s no surprise.
According to Defi Pulse’s stats, the total value locked in decentralized finance solutions has almost reached $7 billion.
For comparison, the DeFi industry’s size was under $500 million a year ago and grew by nearly 900% in 2020 only.
But should you invest in DeFi solutions? And if so, how can you do that?
What Is Decentralized Finance (DeFi)?
Decentralized finance or DeFi could best be described as a movement where DApp (decentralized application) creators provide users access to blockchain-based finance solutions.
However, contrary to the traditional finance industry where such services are operated in a centralized way, DeFi solutions utilize a decentralized, blockchain-based infrastructure, using smart contracts to replace the middlemen.
For example, to apply for a loan, banks require several documents from you, which they later verify to determine whether you are eligible.
While this process is rather tedious and takes several days to complete, borrowing money via a DeFi DApp takes only a few minutes (or seconds).
Instead of doing the above, the DeFi solution places your collateral (the coins you are using to borrow funds) in a smart contract. It then automatically provides you the loan while delivering interest to the lenders via smart contracts.
And the best?
Neither participants have to go through the strict Know Your Customer (KYC), and credit checks banks usually do.
Also, the decentralized nature of DeFi solutions allows participants to conduct transactions between each other without surrendering custody of their funds.
Apart from lending, crypto enthusiasts can also earn interest on their funds by staking their coins to support blockchain networks utilizing a form of the Proof-of-Stake (PoS) consensus mechanism.
Other examples of DeFi applications include:
- Decentralized exchanges (DEXs)
- Payment services
- Insurance products
- Prediction markets
- Decentralized identity solutions
- Asset tokenization
Participating vs. Investing in DeFi
Many crypto enthusiasts actively participate in the DeFi space, using decentralized solutions to replace traditional finance services.
However, DeFi participation is not for everyone, and some may find investing – without active involvement in the space – a better option to suit their needs.
And we should be completely okay with this as you don’t have to be actively participating in something to support (or invest in) it.
For example, not all Tesla investors own a car from the company but still contribute to its growth by purchasing its stocks.
Whichever option you choose, you should know that both active participants and investors support the DeFi space and contribute to the industry’s growth.
Of course, what must be noted, is that as exchanges expand their assortment of DeFi tokens with more users depositing their tokens into their exchange accounts, there is a risk of centralization with the exchange amassing quite some voting power in DeFi-settings. It is therefore important to know if and how the exchange participates in such processes.
Invest in DeFi With AAX
You can invest in DeFi solutions as you do with “standard” cryptocurrency projects by purchasing and holding the project’s coin.
AAX, the institutional-grade cryptocurrency exchange based on LSEG technology, acts as a hub for DeFi investments.
AAX continuously analyzes the decentralized finance industry’s projects and adds the most promising ones as new listings each month.
In addition to the above tokens, AAX users can trade over 20 cryptocurrencies on the exchange’s platform at competitive fees.
Crypto enthusiasts can also invest in AAB, AAX’s native token that powers the institutional-grade platform of the digital asset exchange.
Growing with AAX’s success, AAB surged by 280% in a little over a month (from $0.14 to $0.53), potentially continuing its increase in price as the cryptocurrency exchange expands its market share in the future.
Trade and Invest in DeFi with AAX
AAX is the world’s first digital asset exchange to be powered by LSEG Technology. Offering OTC, spot, futures, and savings products, it provides a highly secure, deeply liquid and ultra-low latency trading environment; and a meeting point between crypto and global finance.