Those who join the crypto market should be ready to use as many advanced investment tools as possible to achieve consistent returns. Relying on a single strategy while trying to earn money in this sophisticated financial sector seems to be an inadequate approach that rarely produces satisfying results. Retail trading looks like the best option for newcomers, but a variety of DeFi (decentralized finance) protocols offer a diverse lineup of money-making opportunities for everyone.
Investors without any prior experience often miss out on excellent investment avenues or lose their savings. According to a survey conducted by Preply, over 60% of cryptocurrency investors do not understand decentralization and blockchain technology. The overlap between the uninformed and those who lose money is statistically quite high. We want to help you learn more about the DeFi sector and its many protocols.
Contemporary centralized institutions like investment banks, stock exchanges, CEX companies, and brokerage service providers offer a convenient way of engaging with financial instruments. They have functional UIs and strong customer support run by experts in their fields. They appear trustworthy and reliable. The problem is that they are often not.
Since all centralized entities take your funds into custody, you have to have faith in their integrity and safety. One of the most prominent examples of centralization going wrong is the infamous 2013 Forex Scandal when it was revealed that multiple brokers, banks, and other financial institutions colluded to manipulate the market.
The cryptocurrency industry allows participants to work with exchange platforms that do not need to hold user funds. Self-custody is the biggest advantage of trading using decentralized finance instruments. Some benefits of centralization had to be abandoned:
Despite these issues, the growing popularity of DEXs indicates that people are strongly interested in self-custody and independent finance governed democratically. By the end of 2022, over 6.5 million people were using DeFi services. While this number is roughly 10% lower compared to 2021, the overall trend is positive as the hype settles down and only actual users remain active.
Modern retail traders and investors have access to a rich variety of different decentralized financial instruments that have matured over the last decade. Protocols, depending on their core functionality and purpose, give users ways to earn crypto passively, participate in governance, directly trade with other market participants, and more.
Some benefits of DeFi trading include:
The current rapid development of the sector and the maturation of existing services should not be discounted. Some fluctuations in user counts and TVL are expected and may instill doubt even in the most dedicated supporter of the crypto industry. However, future trends in DeFi trading may bring something new to the table or significantly improve already impressive financial products.
Let’s talk about some numbers to think about if you are interested in decentralized finance. Monthly trading volumes have been averaging $177.5 billion in the first half of 2024. The average 30-day yield from the top five biggest pools (LIDO, Ether.fi, Rocket Pool, MakerDAO, and Binance Staked ETH) during the same period is 3.88% with MakerDAO reaching 7.17% in the middle of 2024. These are healthy numbers even if they are not as impressive as some enthusiasts would like them to be.
The crypto industry has produced several great projects that spearhead the development of the sector and create a strong foundation upon which a much bigger ecosystem can be built. We will discuss a couple of excellent cases that illustrate this point perfectly.
This protocol appeared on the stage back in 2014 created by Rune Christensen and some of his friends. Initially, it was just a concept that turned into a functional Ethereum Dapp only in 2017 and made a good impression on investors as the first true stablecoin that managed to stick to the US dollar quite well despite ETH price fluctuations.
The protocol is governed by the public through its DAO and funded by the Maker Foundation headquartered in Copenhagen. In 2020, Bloomberg cited $DAI, the protocol’s native token, as the best cryptocurrency in terms of adoption.
As of the time of writing, TVL was close to $4.8 billion and the $DAI’s market cap was close to $1.67 billion. Both metrics have decreased notably since the beginning of the year. Nevertheless, high trading volumes (over $110 million daily) and growing liquidity give a good impression.
As the biggest DEX platform in the world by all metrics, Uniswap is an excellent example of a decentralized project done right. Instead of employing traditional market makers, it uses liquidity pools and fully automatic MMs. Modern investors see this particular setup as nothing special, but it was a significant change of pace back in 2018 when it was first launched.
The third iteration of the source code has been used to build exchanges for different blockchains including Ethereum, Arbitrum, Polygon, and many others. It is one of the most reliable DEXs in the industry thanks to regular audits and the open-source nature of the development process.
In August 2024, Uniswap V3 Ethereum processed roughly $540 million daily controlling over 13% of the total trading volume. Other forks were also quite productive with 5 different DEXs from this family routinely cracking the Top 20 ranking by daily trading volume.
Several factors should be considered when picking the right trading Dapp. According to a survey conducted by CoinGecko, brand recognition of DeFi protocols is very high among investors yet usage is low. Over 60% of all crypto users have heard about Uniswap or Bancor, yet less than 10% of the respondents said that they have traded on these platforms.
It means that there is still a lot to learn for a retail trader with limited exposure to the DeFi ecosystem. Picking a reliable platform will be easier if you know what to look for.
Looking at other parameters and factors can be beneficial too. For example, if you use a specific wallet, you should look into platforms that are easily compatible with it. Metamask is supported by all DeFi protocols deployed on the Ethereum network, but other solutions may not be as universal.
With CoinGecko tracking 51 DEXs and Alchemy having 151 such Dapps on its list, picking something without many trials and errors seems impossible. Indeed, dodging mistakes should not be your goal, but it is a good idea to have a framework allowing you to identify good choices.
We propose using the step-by-step guide below:
Trading on DeFi platforms can be highly effective and bring incredible profits if you find the right place to conduct your in-market activities while using a good analytical system based on fundamental and technical analysis.
It can be a good idea to consider other features such as compatibility with third-party providers offering valuable instruments like portfolio tracking, AI-assisted asset management, automation, and more. Do not make decisions without conducting thorough research on the whole sector.
Determining the best in the industry can be quite challenging since many protocols offer very similar services, security features, and multi-chain capabilities. Popularity and performance can be good metrics. We want to give you a very short list of interesting platforms that appear to be excellent choices compared to the industry’s average.
The whole crypto industry experiences fluctuations in user counts, prices, market capitalization, volatility, and many other metrics. Simultaneously, it persists through all the highs and lows. Decentralized platforms offer an alternative to outdated centralized monetary systems and promise financial freedom and independence to people regardless of their background, culture, or ethnicity. The democratization of finance alone will keep DeFi running indefinitely.
This year has not been kind to the DeFi sector with user counts dropping and TVLs contracting together with the falling prices. We have experienced this before. It is a cooldown period. We cannot promise that you will make money on any investment in this part of the crypto market. However, we are certain that some investments will pay off dearly!
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