If you follow the news about the cryptocurrency market you’ve no doubt been reading about how rapidly the Decentralized Finance (DeFi) market grew in 2020.
This market is often referred to as the crypto finance market and it has the potential to become the next great crypto boom.
The DeFi growth is based on decentralized borrowing, lending, and asset trading on the blockchain through the use of smart contracts. This is very likely going to be a huge market and it’s the great disruptor that traditional banks need to worry about.
DeFi technology is beginning to turn the traditional banking system on its head. The banks that don’t quickly develop blockchain technology to compete will soon rapidly lose customers.
Already, DeFi crypto exchanges, such as Abra, Voyager, Blockchain, Celsius, and others pay far more interest on deposits than you’ll see from banks. Earning 8% to 10% on USD stablecoin deposits is typical, while many offer 4% to 6% on BTC, ETH, and other cryptocurrencies. Investors get to earn interest on their holdings.
A quick and easy way to take advantage of some of the higher interest rates offered by DeFi exchanges is to move some of your money from your regular savings account (probably earning less than 1% per year) into one of the stablecoins in a DeFi exchange.
Stablecoin examples include Tether (USDT), the Gemini Dollar (GUSD), the US Dollar coin (USDC), and the True US Dollar (TUSD).
The DeFi tokens are the place to be when looking for the expected huge gains in the coming years. But they’re riskier than the stablecoins and you want to invest only what you’re prepared to lose. The prices could go to zero or they could head for the moon.
Investment opportunity
Overall, DeFi prices got ahead of themselves in 2020 as the fear of missing out (FOMO) pulled in too much money too quickly. But a decline in prices shook off some of the excesses and it looks like a good investment opportunity in the latter part of 2020
Picking the right DeFi tokens is the next challenge, just as it was in 2017 when so many ICOs came to the market. The trouble then, as now for DeFi tokens, is that it’s like walking through a minefield trying to avoid the ones that will blow up.
Instead of picking a few DeFi tokens yourself, hoping you picked the correct ones, you can buy an index fund of the top tokens which have been vetted by knowledgeable people. One such index is the DeFi Pulse index fund (DPI), which holds 10 DeFi tokens and it is rebalanced monthly.
DPI can be purchased through several DeFi exchanges, including tokensets.com. This is one of my recommendations that I include in my crypto portfolio that I share with subscribers to my weekly Crypto Wealth Protocol newsletter. In the newsletter I also walked readers through the process of setting up an account and starting their first purchase.
Now is a great time to invest in cryptocurrencies, including DeFi tokens. Don’t delay the decision to buy since prices will likely be much higher in 2021.
If you’d like to learn more about cryptocurrencies, crypto exchanges and the state of the crypto market, sign up for a free trial of my weekly Crypto Wealth Protocol newsletter.
