DeFi has always been one of the hottest topics in the crypto world. In recent days there have been many new tokens in the DeFi world. Until it was all Ethereum and Uniswap I did not pay enough attention to this. But now after the launch of CUB tokens, I started exploring this and have been trying to understand this in simple terms.
Passive income from DeFi
There are 4 ways in which one can get passive income from DeFi. Staking, Providing liquidity, Yield farming, and lending. These are some of the terminologies I have been hearing frequently when it comes to investment through DeFi. Each one of these is unique in its own ways and also involves risks of we don't know what we are doing.
Staking
This is the most common thing we see in the DeFi world. Many blockchains had this feature even before this fancy term DeFi was popular. There are many blockchains giving rewards for staking. I don't know why this feature is trending now especially after the term DeFi got popular.
But yeah people can purchase tokens and stake them to receive staking rewards. The staking rewards are not controlled by anyone but instead by the contract itself making it decentralized. This is one of the advantages we get from blockchain technology.
Providing liquidity
This is the second passive income opportunity that DeFi provides us. I did not grasp this easy and there are still many things unknown to me regarding providing liquidity. So, I would like to talk about this only on a high level.
I did try to provide liquidity for CUB - BUSD pair in Binance smart chain. This is my first experience with providing liquidity. I heard that there is also a high risk involved in providing liquidity because if the value of the coin is dropping it may not be a profit for us. So people providing liquidity should be careful about this.
Yield farming
This is the next fancy term used in the DeFi world where we can use the liquidity pool to farm some rewards. Whenever we add tokens to the liquidity pool, we get assigned some number of LP tokens for the token pair. Then these LP tokens can be staked to receive rewards. This is what people call yield farming.
I learned this as well while doing it on Binance Smart Chain. I was hesitant to give it a try on uniswap because of the huge gas fees. Compared to ETH gas fees it is far better in Binance Smart Chain at least for now. The APR from these yield farming and staking are usually very high because of the risk that is involved.
Lending
This is the next thing that I hear when it comes to DeFi. Honestly, I did not reach much on this topic but from what I understand, it is more link lending our tokens for some APR in a decentralized manner and the advantage here is that we don't have to worry if the lendee would pay us back or not as it is controlled in a decentralized manner.
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Nice and very useful post my friend. I hope it will change the way we invest on cryptos.
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We need more of these unsophisticated explanations to help new users understand complex concepts of how blockchain operates. Well done!
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Cool post @bala41288. Love the easy explanation of these terms. Most of the times I get stuck in the technical mumbo jumbo that I miss the actual point. This is clear and precise.
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Liquidy risk is there...because you know the people who put their cryptos or stable coins in the pool can remove their coins and this can effect the price of the coins in the pool, so there is some inherit risk.
Very cleany explained for beginners, I get confused because I am not in DEFI other than locking some CUB tokens, happy about it, although I could have waited more with the price of CUB down to 2.6$...anyway(:
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I like to add some things - research on timelock and rug pull. Evidently, you have to check if the protocal has its smart contracts audited and timelocked where they you know can't sell off the tokens you invested, which is a rug pull, sort of scam, its becoming commen.
I read that Leofinance is TImelocking soon, getting smart contract audited, once its done, its satisfies basic standards of safety for people to invest.
Although I am tried of DEFI, I hear about it and mostly get outrun...but its ok.
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Bala, I am with you with not understanding these fancy #defi terms :)
When you look at the bottom line this is money breeds money as is in the real world. Except this world is much more volatile and you need to realize that your investment can lose value overnight.
Good luck, everybody :)
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Simple, direct and to the point, I love this explanation, I will go for the replanting, it looks like a good option and liquidity too, but you have to take a loss.
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Beautiful post Bala!!! Now I have learned better some things that I did not understand before
Another curators choice blog that has been duplicated on other blogging sites.
Google has indexed your copy/paste version of this blog on the publish0x domain, while the LeoFinance version remains unindexed.
For the good of the LeoFinance.io domain, please consider only posting original content here and if you insist on using publish0x then rewrite the post and only link 1 way.
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Are you saying that we shouldn't cross post the blogs to other blogging sites? I'm the author of both the articles so it shouldn't be considered a copy paste. I have also heard people saying this is good for Leofinance because there is a backlink to Leofinance from Publish0x.
If this cross posting is wrong then Exxp, engrave and all shouldn't exist. Even sometimes Hive.blog gets indexed in google before Leofinance.io right?
Can you please provide me more details?