DeFi-stacking

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DeFi-stacking is passive earning in decentralised financial systems. It is done by storing coins and tokens in appropriate pools.

 

CONTENTS

  • How DeFi-stacking is different from conventional
  • What are the risks for investing in deFi-stacking
  • The reasons for high returns and how they are determined
  • Floating and fixed rates
  • What coins and tokens can be used
  • DeFi stacking offerings on Binance
  • Other popular platforms with DeFi steaking
  • How much to earn
  • Reviews and comments

DeFi or decentralised finance are blockchain-based services and applications. In the future, they are supposed to be an alternative to the existing banking system. With the help of new technologies, more people and organisations will have access to decentralised lending, innovative platforms for investments.

 

The entire infrastructure in this case is controlled by smart contracts, not intermediaries. Already now, DeFi users can generate passive income from coins and carry out transactions with significantly reduced fees. According to Defipulse, 8.9 million Etherium tokens are blocked in DeFi, and the total value of all tokens in the system is $56.39 billion.

 

DeFi-stacking or passive income from decentralised finance is divided into two types:

 

Liquidity mining (Yield Farming).  Holders of a network token (this could be Etherium, BNB, MATIC, etc.) lend it out to other participants in the system, receiving a fee at a floating or fixed rate. Whereas in traditional financial environments, liquidity pools are created by banks, funds and business angels, here this role is available to any holder. Typically, the rate is calculated according to the funds frozen by the smart contract – the more coins you give, the lower the rate.

Lending. On platforms like Maker DAO and Compound, you can make quick loans against Etherium collateral. On the second platform, borrowers can also earn money – any lending transaction generates additional tokens that are used to pay for exchange services.

How DeFi-stacking differs from conventional

In classic stacking, remuneration is paid directly by the blockchain for keeping the funds in your own wallet. Here, there are no third parties involved in the transaction and the money is always at your fingertips. In DeFi, there are counterparties – people and organisations who take your coins for interest. The security of the transaction is ensured by the smart contract and depends entirely on the presence or absence of vulnerabilities in it.Differences between Proof of Stake and DeFi Staking.

 

Additional differences:

 

DeFi's returns are significantly higher and the entry threshold is lower. Regular PoS usually does not earn more than 10% p.a., moreover you need to run your own validator node (or give 5-10% income to third party validators).

Interest on Yield Farming accrues every day and is immediately available for reinvestment. Normally, this is between a few days to a month.

PoS guarantees returns and the only risks are a drop in the value of the coin and blockchain hacking. In YF, there are no such guarantees, but rather additional risks.

What are the risks for those investing in steak

Technical problems in the operation of smart contracts. For example, as a result of a major rush and influx of users, the system failed to manage to peg the price of stablcoin to the dollar, and DAI instantly increased by 10%. This caused Maker's liquidity to drop by 99%. A similar situation happened with Sushiswap.

The popularity of DeFi projects increased the load on the ether platform, causing transaction fees to rise from $2-3 to $14. Such spikes can severely cut into revenue and increase the payback period for small amounts of investment. 

There is always the risk of a hacker attack and the loss of all investor funds. Although this risk is more to do with your wallet than the DeFi service.

New protocols lure with high returns in the hope of gaining market share right off the bat. In reality, a project offering hundreds of returns can easily turn out to be fraudulent (technically, it is easy to run and available to anyone, because open source code can be used as a basis for a ready-made solution).

Loss of value of the asset invested in the protocol due to the high volatility of cryptocurrencies.

The reasons for high returns and how they are determined

The point is that coins don't lie dead weight in a hodler's wallet for minimal interest, but work as an active investment instrument with customizable transaction terms. By increasing the possible risks, the investor increases the returns, which is not possible in classic staking.

 

A conservative strategy with the current market situation can yield about 12% per annum. With an aggressive approach, one should invest in untested protocols and new cryptocurrencies with high volatility.

This is not uncommon to see offers of hundreds of percent p.a., but without prior due diligence and an understanding of the market situation given existing protocols, it is overly dangerous to respond to them. In the experience of Alex Tolkachev (author of the RBC Tocenomica project), a proper combination of both strategies in a period of up to three weeks can bring an annual return of 40%.

 

Floating and fixed rates

With floating and fixed rates as a diagram, an investor can withdraw his money at any time. The interest can rise or fall depending on market conditions. This option is suitable for those who are willing to monitor the market regularly to be able to close a position on time in case of a downtrend.

 

On the other hand, the fixed option locks assets for a predetermined period and does not require daily monitoring. In fact it is similar to bank deposit – the interest is higher, but if you withdraw your money before the deadline, you will not receive any interest. The final amount may even be less than the deposit.

 

Which coins and tokens can be used

Most protocols work with the same assets used as collateral. These include:

 

Ethereum, BNB and other network coins;

CAKE, SUSHI, 1INCH and other DeFi service coins;

DAI;

USDT, renBTC, USDC, WBTC and other tokens with centralised storage;

ATokens, cTokens and other money market interest tokens.

In order to invest in other coins, intermediaries (e.g. Binance exchange) are used or a suitable asset is bought in advance.

 

DeFi stacking offerings on Binance

Binance launched its own DeFi platform in 2020. Initially it only worked with DAI, later Kava was added to it. DeFi stacking window on the Binance exchange.Currently, 11 assets can be invested, including:

Tether,

Binance Coin,

USD Coin,

Binance USD,

Swipe,

Chainlink,

Ethereum,

Venus,

Hard,

Bitcoin.

This way, users do not have to purchase tokens from decentralised projects, nor do they need to understand the specifics of the applications of particular developers.Adding funds to a steak on Binance.

 

When selecting a service and token, the minimum amount, term (floating or fixed), expected annual yield are displayed. The highest interest is offered on HARD – 10%, the lowest – on ETH – 1.73%. 

 

Important! Binance is not responsible for possible losses caused by third party companies and services. You use this instrument at your own risk.

When adding the asset, specifying the type of rate, the term, the amount to be blocked, check all calculations (start and end dates, interest, etc.) If everything is satisfactory, they confirm the purchase. You can track the statistics in Earn Wallet, section DeFi-stacking.Tracking returns by DeFi-stacking a wallet.

 

Applications for unblocking funds are accepted every day until 11-00 in Moscow (if you submit it at 11-02, you will have to wait two days). Usual processing time is one day. In case of a fixed rate, the funds will return to the spot balance automatically at the end of the agreement period.

 

For beginners, this is a convenient and easy service to get acquainted with the operation of non-centralised financial assets and gain your first investment experience.

 

Other popular platforms with DeFi-stacking

MakerDAO. More than 50% of blockchain Ethereum is found here. The main plus of the platform is that anyone can create their own token by investing ether to back it up. These tokens are subsequently borrowed by the platform's customers, who act as a bank. Stablecoin DAI is used in more than 400 applications and services. The collateral value of each DAI is higher than the value of the token.

Compound. Operates on a similar principle to MakerDAO. The main advantage is cTokens. They are additionally created when a deposit is made in proportion to its size, and can be applied as collateral for a loan. This way, the money can be spent even while it is generating interest. Although all smart contracts have been repeatedly tested and found to be safe, there is a possibility of losing control of the wallets governing all deposits.

Curve Finance. DEX exchange for the exchange of stabelcoins. It is based on Ethereum. Since 2020, users can invest their money in the exchange's liquidity pool, with maximum returns of up to 300% p.a. in some areas. Such high rates were possible on the wave of popularity of De-Fi, when Curve provided liquidity to many new wave projects (including Compound).

SushiSwap. The exchange was an improved version of the already existing UniSwap. When users deposit money into the liquidity site, they receive Sushi tokens. They earn a proportional return on the profits of the entire protocol. Even if you stop investing, Sushi will still continue to pay interest.

PancakeSwap. The largest DEX, powered by Binance Smart Chain with a large selection of pools and the ability to stake your own CAKE token.

Venus.io. An analogue of MakerDAO and Compound implemented on Binance Smart Chain.

How much you can earn from it

As in many other investment niches, it is impossible to give an exact answer. The possible return is made up of many interdependent factors:

  • investment strategy,
  • the choice of platforms and assets,
  • type of bet,
  • market situation,
  • the availability of experience and expertise in the subject,
  • the amount of available funds.

Unlike an ordinary PoS, earnings can amount to several hundred per annum (given favourable circumstances). However, as a result of mistakes and various force majeure factors, you can lose all your money.