How To Invest In DeFi

How To Invest In DeFi: Decentralized Finance (DeFi) is the most-talked-about disruptor in the financial services industry. It’s based on blockchain, the technology behind cryptocurrency like bitcoin and Ethereum’s Ether, and it permits users to access financial services without going through traditional channels.

Gone are the days when brokerage firms and commercial banks controlled every avenue to borrow and lend funds or speculate on certain assets. DeFi takes the intermediaries out of the equation, relying instead on blockchain smart contracts. 

DeFi carries certain benefits that are unavailable to consumers in the mainstream financial services world – transactions are faster and less expensive, there is no minimum transaction amount, and there is absolutely no paperwork involved in the process. 

However, no paperwork doesn’t mean no accountability. Blockchain technology makes transactions fully transparent. More importantly, there is a secure audit trail that keeps transactions and accounts accurate and organized. 

What Are The Risks Of DeFi? 

Of course, DeFi and the underlying blockchain are not without flaws. One of the biggest disadvantages is that transactions cannot be reversed. That’s bad news for anyone prone to typos and transposed figures.

The second issue that gives prospective DeFi users pause is the possibility of a hack. There have been instances in which consumers realized significant losses as a result of sophisticated cybercriminals. 

How Fast Is DeFi Growing? 

The DeFi industry has been around since 2013, but it really took off in 2020. That year marked an uptick in both centralized and decentralized financial protocols based in the Ethereum blockchain.

In December of 2019, the DeFi industry was home to a total of $700 million. By December 31, 2020, that figure went up to $13 billion, and some reports indicate it has already surpassed $40 billion in 2021. 

How To Invest In DeFi? 

Clearly, DeFi has a place in the future of finance, and many investors are curious about getting involved. That brings up an important question: how to invest in decentralized finance? 

Step 1: Set Up A Coinbase Account

Before you can invest in DeFi, you must own cryptocurrency. In this case, Ethereum’s Ether is the best option. Begin by setting up a Coinbase account – and don’t worry. There are no startup or maintenance fees to worry about. 

You can access Coinbase through the mobile app or online at Coinbase.com. Choose “Get Started.” You will be asked to provide the following personal information: 

• Full Name (as listed on your government-issued identification documents)
• Email Address 
• Password
• State (as listed on your government-issued identification documents) 

Once you have verified your email address, you will add and verify your phone number. Then you will be asked some additional questions. These include: 

• How will you use Coinbase? 
• Where are your funds sourced from? 
• What is your current occupation? 
• Who is your current employer? 
• What are the last four digits of your social security number? 

You will receive instructions on how to verify your identity, and then you can link a payment method. Once that is done, the setup is complete. You are ready to transfer funds into your Coinbase account, so you can purchase cryptocurrency. 

Step 2: Buy Ethereum

Coinbase makes the process of buying cryptocurrency simple.

For the purpose of investing in DeFi, choose the Buy/Sell option, and then select Ethereum.

Choose the amount you wish to purchase, review your order, and click “Buy Ethereum.” That’s it – you now own cryptocurrency, and you are ready to invest in DeFi. 

Step 3: Set Up TokenSets Account

Setting up a new TokenSets account is easier than creating your digital wallet with Coinbase.

The two platforms have a partnership that makes it possible to log in directly from Coinbase Wallet (and Wallet Link).

Alternatively, you can create your account by entering basic information and verifying your email address. 

Step 4: Transfer Ethereum To TokenSets

Moving Ethereum from Coinbase to TokenSets requires a link between the two. This is referred to as a Web3 account.

Your account has a public web address that begins with the characters 0x – for example: 0x89205A3A3b2A69De6Dbf7f01ED13B2108B2c43e7. 

Copy your web address and paste it into the appropriate field on the transfer screen. Typing the address manually is not recommended, as sending your cryptocurrency to the wrong address is often irreversible.

The transaction may take a few minutes to complete. You will know everything has gone through properly when you see the cryptocurrency in your Web3 account. 

Step 5: Buy DeFi Pulse Index at TokenSets Using Ethereum

Once your Ethereum is accessible from your Web3 account, you can trade. A popular option is the DeFi Pulse Index, which is composed of a select group of DeFi tokens. As of early May 2021, the DeFi Pulse Index includes the following: 

• Uniswap
• Aave
• Maker
• Compound
• Synthetix
• Sushi
• Yearn
• REN
• Balancer
• Loopring
• Kyber
• Cream
• Harvest
• mStable Governance

Each of these meets stringent criteria for inclusion, and the DeFi Pulse Index is weighted by their capitalization. DeFi Pulse Index has a market cap of approximately $176.67 million. Since its October 2020 launch, it has gone from $78 to more than $600. 

To invest in the DeFi Pulse Index, navigate to the Index’s page on TokenSets. You will see the option to buy, and then you can choose the amount and payment method.

Once you have approved the transaction, no further action is required. You can leave your shares alone to (hopefully) grow, or you can sell at any time by following the same steps. 

Invest in DeFi: The Bottom Line

DeFi is growing, and those who invested over the past six months have seen significant returns. Proponents of this new direction in the financial world believe DeFi is the market’s future, and growth will continue to trend upwards at a rapid rate. 

However, no investment is risk-free, and for the time being, DeFi is considered particularly high-risk. Its rapid rise brings back images of other big bubbles that eventually burst, resulting in big losses. As you invest in DeFi, keep the risks in mind. High-risk can mean high rewards but be prepared for the possibility of losing some principal. 

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.