DeFi stands for Decentralized finance. To this day, we have always used Centralized finance, where a central authority controls money flow. Banks and the government control it. That’s a type of system that is based on trust. The alternative to that is Decentralized finance or DeFi.
In that system, we don’t have banks and governments. On the other side, there are pieces of code that run and act as a central authority. And they are open to anyone. They don’t require you to trust them. They’re a piece of code running a program. If you wanted, you could read through it and verify it’s not going to scam you. They are also censorship-resistant, and lastly, they are much, much cheaper than traditional CeFi.
Decentralized finance is built on three main things: Cryptography, Blockchain technology, and Smart Contracts. DeFi is a relatively new thing in the crypto space. It is a sector of the cryptocurrency industry consisting of numerous financial services. These services are run through decentralized organizations, and they differ from centralized alternatives. Ethereum’s network has made this possible.
The lending and trading sector are the main functions that DeFi serves today, but this part of the industry is growing exponentially every day. Do you want to start investing in DeFi? Keep reading this article, and you will learn how you can get involved in DeFi, how to buy DeFi tokens, which are the best exchanges for that, and much more.
What you'll learn 👉
How do you get involved in DeFi?
The majority of DeFi protocols are built on top of the Ethereum network. But the number of networks with support for smart contracts is increasing day by day, so now there are a lot of DeFi protocols built on other networks, such as Binance Smart Chain. Before you do anything and use services on DeFi, you must choose the network you want to use.
Most large protocols today support different blockchains, and the main differences between them are often the amount of the transaction fees and the difficulty of using the user interface. By using a wallet extension like MetaMask, you have the ability to access networks like Etheruem, Polygon, and Binance Smart Chain. And all you need to switch a network is to change only a few specific parameters.
We have to point out that this is an experimental space and that it is very risk-averse. Fraudulent projects, rug pulls, exit scams, and many other scams are very common, so before you put your money in it, do your research about the protocol you want to invest in.
How to Buy DeFi Tokens
Each network has its token, and on top of this network, DeFi applications are built. You can easily find identifiable these tokens on exchanges through the ticker symbol they use, like ETH for Etherium, MATIC for Polygon, and so on. To pay fees for transactions on these networks (blockchains), you’ll first need to buy some of those tokens. Then you will be able to move funds around.
Centralized exchanges (buying for fiat)
Centralized exchanges are online platforms where you can buy and sell various cryptocurrencies. What does it mean when someone says that exchange is “centralized”? In the term “centralized” exchange, centralization refers to using a third party or middle man who helps you conduct your transactions. Buyers, like sellers, trust this third party to handle their assets. Just like in a bank, where customers trust the bank to hold their money.
Centralized exchanges provide more flexibility than DeFi service when changing fiat to crypto-assets and vice versa. Conversion between fiat currency and cryptocurrency in most cases requires a centralized entity, and decentralized services do not offer that flexibly with fiat.
- Binance
Binance is the largest cryptocurrency CEX in the world, taking into account the daily trading volume of cryptocurrencies on the exchange. It provides you with the possibility to buy various DeFi coins. You can send some crypto from your wallet to your Binance account, or you can deposit fiat and then trade it for some DeFi. They have 13 DeFi tokens that you can trade. Binance recommends the use of Trust Wallet (mobile) and Metamask (desktop).
- Kucoin
Kucoin is a much smaller exchange than Binance, but still a worthy opponent. This exchange has a slightly shorter list of available payment methods for fiat currencies than Binance, but it satisfies the needs of most of its users. KuCoin Platform has 18 DeFi projects that you can trade on it.
- Gate.io
Gate.io has listed +45 DeFi projects on their exchange, and the list of new DeFi seems to be growing by the day. On Gate.io, you can buy crypto and DeFi directly for fiat via credit card or bank transfers. It has slightly higher fees than Binance and KuCoin.
- Kraken
Kraken offers a smaller number of DeFi tokens than exchanges that we mentioned above. Still, it is a pretty good exchange, and it is available worldwide (except for New York). You can use several fiat currencies on the exchange, deposits, and withdrawals funds via bank, Swift, and Sepa.
DEXes (trading against other cryptocoins and stablecoins)
Decentralized Exchanges or DEXs are alternatives to centralized exchanges. Like CEX, they serve the same purpose, to connect cryptocurrency buyers and sellers. But the foundation of DEX is different:
– They are non-custodial (on a DEX platform user remains in control of their wallet’s private keys all the time)
– There is no intermediary or custodian (peer-2-peer, they rely on smart contracts to execute trading orders)
– They don’t require any personal information from users (no KYC)
There are 3 types of DEXs: AMMs or Automated market makers, Order books DEXs, and DEX aggregators.
To use them, you will need one of the wallets that support web3.0 browsing. Most popular ones are MetaMask, Trust Wallet, TokenPocket, Coinbase Wallet, Crypto.com DeFi Wallet, Phantom, Math Wallet etc. Here is a full list of the best defi wallets you can use to get involved in DeFi world.
- Uniswap (on ETH)
UniSwap is an open-source project build on top of the Ethereum blockchain, and it is used for creating liquidity and trading ERC-20 tokens. If you want to use UniSwap, you’ll need to create an Ethereum Wallet and buy some ETH. Once you complete that, go to the app to swap tokens or to provide liquidity.
You paid a gas fee for each transaction you made with some ETH. Fees in most cases are 0,3%.
- Pancakeswap (on BSC)
PancakeSwap is a leading AMM platform built on top of Binance Smart Chain (BSC) and offers faster transactions and lower fees than DeFi projects on top of ETH. This exchange is backed by a token called CAKE, a BEP-20 token listed on the BSC. PancakeSwap users can choose from various wallets listed like WalletConnect, MathWallet, TokenPocket, Trust Wallet, and MetaMask. MetaMask is an ERC-20 wallet, but it can be reconfigured to store BEP-20 assets.
Traders on PancakeSwap pay a small fee of 0.2%, range between $0.04 – $0.20 in most cases.
- Sushiswap (ETH, Polygon)
SushiSwap is Decentralized Exchange running on the ETH blockchain. To use SushiSwap, first of all, you need to acquire some ETH. According to SushiSwap, 20+ wallets support the SUSHI token, including Binance, Coinbase, Trust Wallet, MetaMusk, and Ledger. Fees in most cases are 0,3%.
- Raydium (Solana)
Raydium is DEX built on the Solana blockchain as an Automated Market Maker protocol. Users can choose from various wallets listed like Ledger, Solong, MathWallet, Sollet, and more.
Raydium Exchange charges 0.25% per transaction for takers and makers.
- Spiritswap (Fantom)
SpiritSwap is a Decentralized Exchange with high-performance trading and ensures that users enjoy a seamless experience. It is running on the Fantom Opera network. Fantom is well known for its high performance, security, and unmatched speed. You can use the MetaMusk wallet.
For every swap, there is a fee, and you will be charged 0,3%.
Binance: Where the World Trades DeFi Tokens
FAST: Binance is an outstanding matching engine that ensures that your crypto trading experience is very reliable and quick, with up to 1,4M orders per second.
SECURE and TRUSTED: They have millions of users worldwide who give their trust to them. Binance uses top-of-the-class systems to ensure that crypto funds on your account are secured and protected.
LIQUID: Binance is the most liquid Centralized cryptocurrency exchange in the world, with the largest volumes across multiple crypto pairs.
SIMPLE: It allows you to trade fast and secure with UNI,CAKE, SUSHI, YFI, LINK, XVS, AAVE, MKR, REN, COMP, 1INCH, and SXP for 150+ cryptocurrencies.
What to Do After I Buy DeFi tokens
Store your DeFi tokens safely on your crypto wallet. Depending on the exchange (DEX or CEX) you want to use and the decentralized token you wish to trade, do some research and choose one of the wallets suggested above that meets your needs. After that, you can quickly transfer value to anyone and anywhere, safe and fast, all around the world.
Here are some popular articles that can help you in your research:
– Top 10 Binance Smart Chain Projects – Best BSC DeFi Projects
– Binance Review 2021 – Is Binance Legit and Trustworthy?
– Best DeFi Bridges: Move Assets from ETH to BSC, Polygon & Vice Versa
– Best Yield Aggregators on BSC – Top DeFi Yield Farms
– Best DeFi Coins 2021 – DeFi Projects Worth Investing In
– Best Low Cap DeFi Coins [2021] – Best Upcoming DeFi Projects
FAQs
How to Invest in DeFi
Using DeFi is easier than you may think. You don’t need to create an account, wait to get approved, or confirm your identity (no KYC). All that you’ll need is to send ETH to an Ethereum wallet to get started (or the others we mentioned above). One of the wallets you can use with DeFi programs is MetaMask. It has a Chrome extension that enables you to connect to DeFi platforms via your browser easily.
How to Use DeFi
Once you’ve sent your tokens to your wallet, you can use DeFi in just a few clicks. After you go to a DeFi website you want to use, you’ll need to connect that wallet to the website. Once you do that, you can manage your crypto assets straight from the program’s front-end interface.
Where to Buy DeFi Tokens
Lots of exchanges allow you to buy and sell DeFi cryptocurrencies. We have mentioned some of them above and the features to help you decide which exchange to use.
How Much Money Do I Need to Use DeFi?
Ethereum transaction fees (gas fees) can get really expensive. To make a transaction on Ethereum, you will probably need to pay approximately $5. For trading and lending, at peak periods, you may need to pay over $20.
If you are not managing at least several thousand USD because of these high fees, it doesn’t make sense to use DeFi. Luckily, layer 2 solutions like BSC, Polygon, Solana significantly reduce gas fees so that you can spend a much smaller amount of money. You can start putting your capital to work with practically any amount of money.
How to buy DeFi token indexes
You can buy and trade on some of the exchanges mentioned above through apps like Zapper or Zerion (on Ethereum blockchain) or purchase them through a wallet like Argent.
How to buy DeFi Indexes using Argent
One of the simplest ways to buy DeFi is through the Argent wallet. Here are step-by-step instructions on how to do it.
Step I Getting started
First, you will need to install the Argent wallet and set up your account. After that, you will need to store enough assets in your wallet to trade and pay gas fees. For this, you can use ETH, DAI, USDT, or USDC.
Step II Find token
To open the token list, click the ‘Exchange’ button on the wallet screen. Type in the name of the token you wish to trade.
Step III Choose tokens to trade
After you select the token you wish to buy, tap the ‘Buy/Sell’ button. Then, ‘Buy with Tokens.’ When the trading screen is opened, you can decide which of the tokens that you have in your wallet you’d like to use for the trade.
Step IV Enter the amount to trade
The next step is to enter the amount you would like to trade. The best rate for you will be determined automatically by the Argent wallet. Before you continue to the final step, tap ‘Preview Trade.’
Step V Review and complete
On the review screen, you can see the best rate determined from 10 DEX. Don’t forget that there is a gas fee for trading as this wallet uses the Ethereum blockchain. Argent doesn’t make a profit from this. There is a transparent fee of 0.5% for trades in Argent.
When you’d like to finish the process, click ‘Buy now.’ Once the trade is successfully completed, the tokens will appear in your wallet.
What are the risks of using DeFi?
The first important downside of DeFi indexes is losing some control over the tokens in your portfolio. If you determine that a token is disagreed or overvalued, you may not have any recourse to modify it. On the other side, you could end up gaining exposure to a token that explodes in value you might not have anticipated. The second downside you need to be aware of with DeFi indexes is oracle risk and smart contract.
Can you buy DeFi on Coinbase
Coinbase does have some DeFi coins listed on its platform. Coinbase wallet can be used to access Web3.0 and DeFi apps.
How do you make money with DeFi
Four of the most common means of making money in DeFi are Staking, Liquidity, Yield farming, and Lending.
Is Coinbase a DeFi wallet
Coinbase Wallet is a non-custodial wallet. The wallet supports a large variety of cryptocurrencies. Coinbase Wallet enables its users to interact with many DeFi apps and exchanges without centralized control.
