While it might look exceptionally complex on the surface, the traditional banking system operates on one elementary principle: It accepts money from depositors, and then lends those funds to borrowers. Banks operate as intermediaries between depositors and borrowers, facilitating the process of matching funds with creditworthy consumers.
Banks pay depositors interest, and they charge borrowers a higher rate for the loaned amount. The difference between interest received from borrowers and interest paid to depositors is the bank’s revenue. Granted, commercial banks have gotten into a long list of additional services that generate other revenue streams, but the foundation of modern banking remains the same as it has always been.
Decentralized Finance or DeFi is intended to take the middleman out of the equation. Instead of putting money into banks and borrowing from banks, consumers come together anonymously via blockchain transactions. Smart contracts based in Ethereum’s blockchain have been getting the most attention, and DeFi transactions benefit users because they generate passive income (for lenders) and cost less per transaction (for borrowers).
The DeFi industry as a whole is growing at an astonishing rate – from $700 million at the end of 2019 to $13 billion at the end of 2020. To date in 2021, experts estimate the DeFi market to be worth $40 billion or more. That means tremendous opportunity for investors who are willing to take a chance on this growing technology.
Of course, those who aren’t familiar with blockchain-related products and services are a bit out of their element in terms of what and how to buy. The two biggest questions are these: What is a DeFi Index, and where can I buy DeFi Pulse Index?
What Is A DeFi Index?
Until relatively recently, those who wanted to invest in the potential of DeFi had to buy individual DeFi tokens. Examples include Uniswap (UNI), ChainLink Token (LINK), and Wrapped BTC (WBTC). However, that isn’t particularly convenient, and it can be tricky for those unfamiliar with the DeFi market.
In response to the proven demand for DeFi investment options, several DeFi indexes were launched. The concept behind these indexes is the same as more traditional indexes. Instead of putting investors in the difficult position of choosing one among many possible investments, the index collects a basket of assets to give investors instant diversification with every share.
Buying shares of DeFi index funds gives investors exposure to the potential of the DeFi market without a need to have a deep understanding of the advantages and disadvantages of each token.
What Is The DeFi Pulse Index?
The DeFi Pulse Index was the first index in the DeFi market that isn’t considered derivative or synthetic. Investors own the tokens that make up the index’s assets. The DeFi Pulse Index started with ten of the most popular Ethereum-based DeFi tokens, and it is weighted based on the capitalization of each of the tokens.
When evaluating tokens for possible inclusion in the index, the DeFi Pulse Index looks at the following criteria:
- Tokens must have a relationship to DeFi
- Tokens must be bearer assets
- Tokens must be listed on Ethereum
- Tokens must be functional for a minimum period of time before inclusion in the DeFi Pulse Index
- Tokens must have a somewhat predictable total supply over the next five years
- Tokens must have a minimum supply in circulation – roughly five percent of the five-year supply
- Tokens must not be synthetic or wrapped tokens
- Tokens must not represent physical world assets, options, or futures
- Tokens must not represent claims to other tokens on blockchains outside of Ethereum
The specificity of inclusion criteria is intended to reduce risk and increase the likelihood of returns for investors. However, as with any investment, the DeFi Pulse Index is not guaranteed and may lose value, taking investors’ principal with it.
Is DeFi Pulse Index Safe?
Predictions surrounding the future of DeFi – and the DeFi Pulse Index by association – are highly dependent on who is making them. For the moment, DeFi is in a period of rapid growth, which indicates that investors have an opportunity to realize returns. That is particularly true for those who choose a carefully structured index like the DeFi Pulse Index. It automatically delivers diversification within the DeFi market.
However, the DeFi Pulse Index – and any investment in DeFi – is considered high-risk. The industry is new and unproven. While it appears to be on its way to mainstream adoption, there is no way of knowing how the future of DeFi will unfold.
Those who buy DeFi Pulse now should consider a high-risk, high-reward scenario. Yes, getting in on the ground floor of disruptive technology can be extremely lucrative, but the whole project can crash and burn without warning. So, with that in mind, the answer to the question is DeFi Pulse Index safe is not especially. However, neither was bitcoin, and early bitcoin investors have realized exceptional returns.
How Do I Invest In The Index DeFi
Investing in anything DeFi related, including the DeFi Pulse Index, works in a similar manner to traditional investments through an online or in-person broker.
The difference is that you can’t go through the same platforms and firms to invest in DeFi indexes. Instead, you must open an account with one of the specialized services that deals in the DeFi market.
Where Can I Buy DeFi Pulse Index?
One of the most popular platforms for purchasing the DeFi Pulse Index is TokenSets. If you don’t already have an account, creating one is fast and easy. Once logged in, you can visit the DeFi Pulse Index page to take a closer look at data like market cap, holdings, and performance. When you are ready to move forward, click the “Buy” button and input your purchase amount.
Note that you do have to pay with cryptocurrency, for example, DAI, USDC (U.S. Dollar Coin), ETH (Ethereum’s Ether), or USDT (Tether). Once you have reviewed and approved the transaction, there is nothing else to do except wait and watch for returns.
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.