The Difference Between DE-FI Earnings

in #de-fi3 months ago

Hey JessI-FI

The decentralised finance genie is out of the bottle, and it's only going to get bigger, better, scammyier, crazier and wonderful all in one. The creation of the crypto yield curve is something the market needs for it to mature into a real asset class. Bitcoin gave us the chance to own our money without 3rd party risk, counterparty backing and no rules or regulations.

We've cut out the need for a bank account for storing your capital, and you are now able to become your own safety deposit box.

It was truly one of the greatest discoveries of the last decade; now, with decentralised finance, you can become your own bank. You no longer need to have fancy bankers take your unsecured deposit and abuse that money, make massive profits and pay you a pittance.

You can now do it all yourself, cut out the middle man, make far better profits and always maintain control over your money. Granted the current DE-FI space is buggy, full of pitfalls, and clunky to use, but you can see where the overall direction is going.

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Earning in the DE-FI space

While many are focused on the percentage return you can get in DE-FI, it's only one element of the process of putting your capital to work. DE-FI returns come in three main forms, that I have seen and each with their own pros and cons.

I've managed to spread my DE-FI/CE-FI across all three return types as I may be taking a lower yield somewhere else but what I get paid in good offset that lower return as you have more purchasing power should be the asset you are farming and earning moves up in price along with your nominal stake increase.

For example, you may be staking a coin like AWC and earning 17% APR, but the coin doesn't move in price much, but the percentage of stake payment is high. Alternatively, you could earn a 4% return on BTC, but its price movement makes the 4% return worth far more.

As a DE-FI user, you need to weigh up these ebbs and flows in profits and try to work out what the real yield is you're getting and rebalance your portfolio or monthly allocations accordingly.

Interest

If you're collateralizing loans with your crypto, you're paid back in interest for allocating that capital to someone else, similar to the way a bank makes money. The persons on the other end pay back their loan with interest and you are rewarded as the person who backed the group of loans.

Here you are paid back in the asset you provided, and this could be anything from Bitcoin, Stable coins to altcoins all with their various rates.

For me, I prefer Bitcoin as I would like to be paid in the worlds most artificially scarce asset even if the price doesn't move much, this is the primary coin I want to accumulate since it is so finite.

Inflation

This one has been getting most of the attention in DE-FI with the high return rate you can get with these staking coins. The thing is with staking coins you are paid in brand new inflation. You are rewarded for locking up liquidity and providing a floor on the price of the coin, but you're getting newly minted coins increasing the supply.

Depending on the staking coin's tokenomics it may be best to consistently sell into the demand that new investors bring as you don't know where the top will be and how long an all-time high will last.

New inflation yields can also quickly be arbitrated down as more people jump into stake and compete for the daily inflation pool, whereas with loans you have an agreed on a rate of return.

The fluctuating returns can work in your favour or against you and should be monitored constantly to get the best return.

Fees

Fees are a new form of DE-FI and what has kicked off this frenzy as this was normally reserved fro exchanges to profit from the various trading users do on and off-chain. However, the growing popularity of DEX (Decentralised Exchanges) have given ordinary crypto holders like you and me the ability to become market makers and earn a profit.

Users provide liquidity on both sides of a market lets say BTC and ETH, and as trades are made between this pair, anyone who provides capital for the liquidity pool gets a portion of the fees.

The returns here can vary dramatically you will be paid in fees based on both assets. Since you compete with other investors for the daily fee allocation, as people move in and out of the liquidity pool or daily trade volume changes, you make more or less depending on those factors.

This one is rather complex, and with fees for on-chain transactions could also affect your yield.

Earning a mixed bag

Mixing up your DE-FI/CE-FI between these 3 earning avenues may add to the complexity but helps you spread risk, leverage various return rates, get paid in assets that hold different values in the market and do your head in most days.

I would recommend breaking out a good old excel sheet or using something like a blockfolio to try and keep track of your returns. This will help you see in which avenues to cut and which avenues to push harder to get the best returns each month.

Have your say

What do you good people of HIVE think?

So have at it my Jessies! If you don't have something to comment, comment "I am a Jessie."

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Going to look in to the interest option I think with BTC seeing as that's the grand daddy. Already have leases running on Hive and delegating for returns here so think accumulating as many sats as possible will be a worthwhile venture!

Interest paid on the worlds rarest digital asset you can count me in every time, seeing my celsius and blockfi payments each week and month respectively make me abnormally happy

Haha! Abnormally happy! I need to get on some of that happiness that only passive sat stacking can give you

microdosing on orange pills is the only thing keeping me sane at the moment

In your post I can see that your knowledge on the subject is quite extensive, I would need to find more information to enter this world, thank you for sharing such interesting information.

Take your time it took me a while to get the hang out it read up watch YouTube videos and get to understand how each one works and their pros and cons and also losing money and messing around with these tools so I have first hand experience

Investment is all about making profits. So, it's necessary that one carefully studies investment strategies so as to adopt the best and most profitable

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It also depends on your definition of profits, some want more USD based value some want more stake and some are looking at overall percentage returns, depending on what you look for or define as profit that will change your strategy on which type of DE-Fi earnings you want to compete for or how you allocate your capital between the 3 types

Whatever the case, just ensure you are making gains.

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Thanks for this awesome post with breakdown of important De-Fi differences... It will be useful for a lot of beginners!

De-Fi is changing slowly the crypto world at the moment, but will do that with traditional finances very soon... Yes, it is still risky and there are possibilities of hacking, but it's getting better with every next project...



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Absolutely, and I am sure this is only the first batch of ideas that will come out of trying to establish a yield curve and the time value of crypto as we do with stocks, bonds, debt etc. Still hella risky and HODL'ing is a great strategy for those but I think putting a small portion to work is a good idea just to get your feet wet

Have been following your articles for a few weeks now... this is another useful read for a complete cryptocurrency novice (like me!)

Every time I try to find out more info or research a topic my head usually ends up spinning trying to make sense of all the different terms and understanding how each 'set-up' works.

I have no interest in trading crypto (buy low sell high etc) but I do like the idea of earning interest (similar to how dlease works)

I see you mention a couple of different sites for interest (celcius, crypto, and blockfi) is there one you would recommend over the others?

Am I right in thinking that all 3 are centralised exchanges?