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DeFi offers new earning opportunities completely absent in traditional finance

Seven billion and more: A lot of money has flowed into the pockets of crypto trading platforms in the past year alone. More than half of that amount went to Binance.

What if we told you that this money could be yours in the near future? This is exactly one of the goals of DeFi: it is no longer just a single player dominating, but in each user can create their own space and take home a slice of this big cake.

Before we get into the details of this opportunity, one thing needs to be clear: so far, Binance and similar platforms continue to be indispensable for the cryptocurrency market. This world needs a solid infrastructure to be home to billions of people… If Elon Musk decides one morning to change the Twitter logo to the logo of Dogecoin and encourages the entire planet to hit the “buy” button, a solid infrastructure is needed that won’t collapse. hope of becoming rich. Managing billions of users and trillions of dollars is not easy, it requires a lot of effort and investment. Therefore, it is welcomed that the market is growing and profitable as it pushes more organizations to invest in infrastructure and makes the infrastructure more stable and efficient.

Once this is clear, let’s analyze the aspects that distinguish DeFi – or decentralized – platforms from centralized ones. Let’s start by saying when it comes to trading, most volumes are via derivative instruments. In fact, the majority of users are not interested in keeping the asset as is, but in taking advantage of price fluctuations. This has led to the emergence of derivative instruments, among which the most common futures transactions. Included advantages include the possibility of operating with leverage, i.e. the ability to run operations with a larger capital than is available, thereby increasing earnings as well as risks.

What DeFi does is innovate in three specific areas based on these assumptions.

The first distinguishing feature, as it is easy to understand, all transactions take place on the blockchain. This is not a trivial fact, as it has already been covered in the previous article, as it allows the trader to always be in control of his assets. If you have to invest your capital first to operate on a traditional platform, with all the risks involved, this step disappears in DeFi. User interacts directly with “smart contract”, eliminating counterparty risk. Obviously, the risk of hacker attacks and possible fraud remains, so you should always be mindful of the decentralized platform you use.

The second innovation brought by DeFi is perhaps the most interesting and profitable, as it offers an opportunity to earn that did not exist before. It should be noted that one of the current limitations of the blockchain is the difficulty of managing a large number of transactions at the same time; this is not a trivial feature when it comes to trading. In fact, traditional platforms use an “order book” model.; in other words, each user has the possibility to enter orders that will be used by other traders to buy or sell. The problem with this model is that it generates a very high number of trades and is exacerbated by the recent emergence of automated bots that add and change their orders all the time according to market conditions. Therefore, it is clearly seen current blockchain technology is still too immature to handle such a large amount of transactionsAlthough significant steps forward have been made and there are already platforms that are successfully operating in this direction, see DYDX.

To overcome this problem, a new trading model has been created, based on the liquidity of the platform, no longer on the order book. The most famous example is GMX, which allows its users to act as counterparties by providing capital to be used by traders. As you can imagine, the order book disappears and the platform takes the current market price well, giving traders the opportunity to trade with leverage.

The interesting aspect of this model is that the earning opportunity is no longer just for trading, but also for make your capital available for commission. It should be noted that this operation is not without risk, as the profits of the traders correspond to the direct loss of the liquidity providers and it is still too young for a definitive assessment of the model. However, it cannot be denied that the results obtained so far are significant. Over 150 million commissions and over 46% returns in the last 7 months.

Finally, the last thing to consider is distribution of profits from commissions. In the DeFi world, these are redistributed in ways that vary depending on the type of platform, if in traditional platforms all of this falls into the core of the company that launches the platform. In this article, we will not go into details on how the distribution of profits varies according to the situation, what interests us is to understand the possibility of earning passive income by holding the platform token. Like a company’s dividends.

As a result, what to expect in the near future is the development of increasingly robust DeFi solutions that allow users to get a slice of that $7 billion; this figure may increase exponentially in the coming years as the entire industry grows.

Alberto Cuculachi is an entrepreneur, popularizer and university professor in Marketing and Business Development. He has been following the blockchain world since 2013 and founded his YouTube channel DeFi Talks in 2021. It has reached more than half a million people in more than 100 different countries through its channels in the past year. Today, he is engaged in creating useful educational content and tools to make the world of crypto and DeFi accessible to all.

Alessio Vilmercati is a 22-year-old investor and DeFi enthusiast with a Business and Management degree. In 2022, he obtained his Blockchain Technology & Management certificate at the Blockchain Management School in Rome. Predominantly in the world of DeFi, Alessio devotes himself to reviewing dApps every day, looking for new opportunities every day. As an open supporter of this technology and its future application in the traditional world, DeFi Talks collaborates with the YouTube channel.

Federico Chironi is a 23-year-old trader and DeFi enthusiast with a Business Administration degree; He then chose to continue his education with a Master’s degree in Blockchain Technology and Management at the Blockchain Management School in 2021. He has been studying and investing in the blockchain world, especially in the DeFi sector, since 2020. Decentralized Finance, which will bring it in the coming years, has recently been doing outreach activities on the subject in cooperation with the YouTube channel DeFi Talks.

Luigi Travaglini is a popularizer and technical advisor in the cryptocurrency industry. He intersects with the crypto world between 2014 and 2015, then becomes passionate and never breaks himself off. Combining his academic career with a long technical study in the field of blockchain, he started to provide training and assistance services in 2018.

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