If you haven’t dabbled in Decentralized Finance (DeFi) yet, here is my #1 reason to try:
Your money goes a lot farther than it would in traditional finance (tradFi).
I’m not talking about cryptocurrencies. I’m talking regular money like US dollars. You can invest without worrying about crypto’s crazy price swings.
But even if you want to, you might not be able to. Most of DeFi runs on the Ethereum blockchain where a single transaction can cost $200!
Below I show you 2 cheap options on how to try using DeFi for the first time.
Legal disclaimer: This is not financial advice.
That said… In DeFi you can earn 10%-20% on your US dollars with very high certainty. Far better than your “high interest” savings account giving you 1% per year. Or the 1–2% you get from bonds. Or an average 10% in the US stock market, which isn’t even guaranteed.
Here are two places that I think are best for someone to try for the first time.
Terra is the 2nd biggest blockchain that can support defi. There’s $19 billion worth of money in there right now.
And Anchor is the most popular defi project on Terra.
What it does is simple:
You deposit US dollar stable coins.
Your money grows at 20% per year.
20% is amazing. If you want to know how it’s even possible and the risks involved, check out my other article.
To use Anchor, you just need UST. That’s the US dollar stable coin on the Terra blockchain. You deposit it into Anchor and that’s it. You can withdraw at any time. When the time comes, just click on a button that says “withdraw”.
Getting set up for the first time is the hard part.
These are the major steps:
Watch my video to go through all those steps in 8 minutes.
Aave is one of the biggest defi apps. Its site looks a little easier to follow, but still not so intuitive.
For starters you can lend your stablecoins to earn an interest rate several times more than your bank will ever give you.
When you lend money on Aave, your money goes into a pool so that other people can borrow it. You earn a variable interest rate, meaning it changes everyday. Right now, it’s at 7% for Tether (USDT). From my experience, variable rates on USDT ended up giving me close to 10% after a year.
The big picture is simple. All you need to do is deposit your stable coins and that’s it.
There are many USD stablecoins on Aave: DAI, USDC and USDT. Even though they’re all pegged to the US dollar, they have different interest rates. Right now USDT happens to be the highest.
The actual steps involved in using Aave:
When it comes time to withdraw, Aave has an extra step. You need to withdraw rewards tokens. Aave’s interest rate has two components. When I said USDT had a 7% interest rate, that was made up of roughly 3.7% base interest plus another bonus 3.3% paid out in MATIC tokens. Those need to be withdrawn separately.
Here’s a video run through of using Aave.com for the first time. https://youtu.be/goGUtGTAtM0
Defi is a lot more than just depositing stablecoins into Terra or Aave.
Borrow on Aave:
You can take things a step further. Try borrowing money. Aave allows collateralized loans. If you have already invested in MATIC and you want to hold it for the long run, you can deposit those into Aave just like you would with USDT. You’ll earn interest in MATIC.
But by depositing, you earn the right to borrow other coins. You can borrow USDT. When you borrow, you also earn reward tokens in MATIC. Taking that into consideration, the net interest rate now is about 1%. Better than a mortgage rate.
So you can let your MATIC earn a small interest rate while you use it as collateral to borrow USDT. You can then deposit that USDT back into Aave to earn interest.
The only risk here is liquidation. If the price of MATIC drops below a certain threshold, your MATIC can get partially sold off to protect the lenders’ USDT you borrowed. The key is to borrow an amount that’s well below that threshold.
Try Binance smart chain
Binance Smart Chain (BSC) was the reigning #2 blockchain in terms of total value locked until Terra surpassed it recently. It is slightly more expensive to use than Polygon or Terra, but still very cheap.
But it has way more defi and dapp options to choose from:
Pancakeswap is the largest decentralized exchange (dex) on BSC. You can try to earn money as a liquidity provider.
Beefy Finance is a yield aggregator where you can see many defi investing options on one page.
Venus.io is a defi app that is much like Aave. There are many more variations of lending.
Whatever you do, stay safe. Do not ever tell anyone your wallet seed phrase. Don’t share your screen with strangers. Don’t trust strangers that message you, especially if they say they are customer support.
My thoughts on DeFi
I spent countless hours playing with DeFi. But even for me, a techie, defi was hard to understand in the beginning. Just navigating any defi web app was confusing enough.
A few people around me want to try it but don’t feel comfortable trying.
That’s why I want to build something that simplifies the entire process. A user of DeFi should not have to try so hard to figure out how all this works. It should be easy enough as online banking.
Follow me to be one of the first to try:
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