DeFipedia Answers
Our DeFi experts share their knowledge and answer your questions about decentralized finance, covering topics like dApps, DEXs, DAOs, yield farming & staking, DeFi protocols, and more.
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What You Need to Know About Trading Cryptocurrency Algorithmically
Crypto algorithmic trading is a passive crypto trading strategy that involves using bots. Under this system of trading cryptocurrencies, the trader leverages specific computer programs designed to adhere to fixed rules/algorithms and automatically take up profitable trading positions. Every trading strategy involves determining what to purchase when to buy or sell it, and how much to pay. This approach to trading allows traders to predefine their rules surrounding these parameters and take advantage of market swings to make quick profits on autopilot. The trading software or trading bot carries out transactions on behalf of the user, buying, selling, or holding cryptocurrency based on the pre-programmed computer instructions. By removing the "human factor," traders can still make trades and profit round the clock without needing to rest or getting emotionally invested. How to Create a Crypto Trading Algorithm Different methods are available for creating a crypto trading bot. You can either go it alone, by getting access to an open-source crypto bot that is immediately usable after downloading and installing it. This helps keep costs and development time to a minimum and only requires a small amount of technical knowledge, which is needed. Another way to approach this is to start from square one, by putting together a strong team of developers, and then begin to work on the code. Whichever step you choose to create your customized crypto trading algorithm, it is important to note the following steps: The programming language to be deployedAccess to all the exchanges you want your bot to work onBuild the type of crypto trading bot you want to make use ofDetermine the architecture and use-case of the crypto trading botTesting and deployment process Best Tools for Crypto Algorithmic Trading Some of the top crypto platforms offering bot trading services include: 3CommasBitsgapCryptoHopperPionexShrimpy.ioTradeSanta These platforms offer different perks, trading fees, and other benefits for their services. Traders should always do their research before trading or using the services of any platform.
Asked 4 months ago
What Is Liquid Staking and How Does It Work?
Liquid staking entails outsourcing your tokens to a service that stakes them on your behalf without the risk of losing funds. When you make use of a liquid staking service like Lido staking, you don't lose access to your funds even while they are staked. This is the main difference between this and regular staking: the staked funds are not locked up or inaccessible. Instead, liquid staking platforms use an escrow to hold the funds. You can remove your assets from the protocol anytime you please or sell them if you wish. Both of these options are unavailable with regular DeFi staking. With liquidity staking, users can enjoy the benefits of staking cryptocurrency at a lower risk level since they can still control their assets. How Does Liquid Staking Work? By delegating the staking process via liquid staking, users can avoid most pitfalls associated with regular staking, such as centralization, illiquidity, and complexity. When you stake on a liquid staking protocol, you receive a derivative token or a tokenized version of your staked asset. For instance, you may deposit ETH into a smart contract via a third-party application (deposit contract). In exchange, you will be given a tokenized version of Ethereum or wrapped ETH. This freshly created token stands in place of your ETH. It may now be moved, saved, spent, or exchanged just as you would any other "free" token. With this approach to staking, the wrapped token allows the user to maintain their token's liquidity with the freedom of transferring it as they please while earning the token's staking rewards all at once. The liquid staking strategy creates a fair balance between staking risks, rewards, and ease.
Asked 4 months ago
What Is Protocol Owned Liquidity?
Protocol-owned liquidity was pioneered by Olympus DAO to provide liquidity to decentralized exchange tokens. What Is Olympus DAO? Olympus DAO is a decentralized autonomous organization (DAO) dedicated to building and maintaining the OHM; Olympus DAO’s native token. The goal of Olympus DAO is to create a cryptocurrency-backed global stablecoin reserve currency asset that is: DecentralizedCommunity-ownedCensorship-resistantDeeply liquidAsset-backed (not by USD)Used widely in Web3 Also called a “non pegged stablecoin,” OHM aims to be less volatile than other cryptos even though it is not pegged to fiat money. OHM’s value tends to float based on the underlying treasury’s value, determined by the DAO. The ultimate goal of Olympus DAO is for OHM to become a crypto-native currency that can be used as an alternative to fiat currency, specifically the USD. How Does Olympus DAO Own Its Liquidity? Instead of renting its liquidity like other decentralized finance (DeFi) protocols, Olympus owns its liquidity. How so? Unlike other DeFi protocols like Curve and Uniswap, Olympus doesn't depend on its users to provide liquidity to the protocol. Instead, it uses bonding and staking of tokens to encourage users to sell and/or deposit their collateral to the Olympus treasury. In return, they get discounted OHM tokens. Olympus currently holds 99.32% of its liquidity. By owning the vast majority of it, Olympus protects the value of its tokens and keeps the protocol liquid. It also grows its treasury even further through the rewards from its liquidity protocol tokens, thereby further raising the reserve's floor value, and the value of OHM.
Asked 4 months ago
Liquidity Pool vs. Staking: Which Is Better?
What Is a Liquidity Pool? A liquidity pool is an algorithmically defined storage of assets that facilitates the exchange of tokens on DEXs without a central entity. Cryptocurrencies in liquidity pools are locked in smart contracts and released when users trade using the exchange. Users of decentralized exchange do not trade directly with each other. They trade with liquidity pools by adding one token and taking out an amount of another token. When there is a discrepancy in the price, arbitragers quickly spot the opportunity and buy tokens from other DEXs or centralized exchanges for resale. Even though this happens often, the token price in the pool may be different from the price on a centralized exchange. Hence, DeFi researchers often talk about impermanent loss. The pool may rebalance and bring the price back to an equivalent amount on other exchanges. Most of the funds in liquidity pools are provided by liquidity providers who profit from tokens issued as rewards from the fees paid to the DEX by traders. Liquidity mining or yield farming is the supply of assets to pools to earn mining rewards. What Is Staking? Staking allows holders of DeFi tokens to earn passive income by leaving them with validators on the platform in exchange for the rewards distributed on the network for transaction validation. We can call staking the time deposit of DeFi because it often attracts an APR or APY, which is paid for by leaving the funds for a fixed period. While the funds are locked, the staker can earn and claim the rewards whenever they wish. These rewards are usually accessible from the user wallets and can be compounded by staking, an option that pops up whenever the user tries to claim tokens. Validators on proof-of-stake networks use the funds staked to validate transactions and ensure the security and integrity of their respective blockchains. BSC, Polkadot, and Cosmos are examples of networks that pay users for staking their tokens. Which Is Better? One major difference between staking and yield farming is that the latter pays higher rewards of up to thousands of percentages in APY. During the Olympus DAO era, some protocols paid as high as a trillion percent in APY. Such numbers are unsustainable, and the respective projects have since crashed significantly. Most projects try to pay as much as possible to liquidity providers on DEXs to build their community. Those who profit most from liquidity mining are the ones who joined on time. Others who came in the end may experience some risks if the platform suddenly stops gaining momentum. It is also advisable to store rewards in stablecoins to minimize losses. While yield farming is great and can be highly profitable, staking has more upsides, especially if the token staked is one of the blue-chip crypto assets like Ethereum or Polkadot. The APY for these tokens is low, and you must meet the minimum staking requirements, which is a bit of a barrier to entry.
Asked 4 months ago
Is It Possible to Make Money Using dApps?
How Do dApps Work? dApps run on blockchain networks to connect users directly. Simply put, a blockchain is a distributed ledger where every user keeps a copy of the transactions. With blockchain as the underlying technology, dApp users do not rely on intermediaries to interact with dApps. The difference between dApps and smart contracts is that, in addition to a smart contract, dApps contain frontends for user interaction. A dApp works by connecting it to a web3 wallet like MetaMask or TrustWallet. How Do dApps Make Money? Once you have created a dApp, you can use it to generate money in several different ways, including: Conducting Crowd Sales and Launching Tokens The most common dApp business model is funding it via crowd sales and token issuance. However, to conduct a successful token launch, consider the core functionality of your dApp, access to a blockchain, and profit distribution mechanism to investors. Charging Transaction Fees You can charge transaction fees on the functionalities of your dApp. To a large extent, this is the most effective way of monetizing your dApp. Offering Subscription and Memberships Services You can also monetize your dApp by integrating a subscription functionality, where your users periodically pay for the services offered. Better still, you can make your subscription usage-based—charging users according to their consumption rates. Running Ads Although running online and in-app ads on dApps may not be a common strategy for making money, it’s still an effective method to explore. Inviting and Accepting Donations If you have a social dApp, this is the best way of making money with it. Simply integrate a donate button with your dApp and include a funding stream for sustainability. Creating Digital Products/Collectibles You can also make money using dApps by creating digital collectibles to engage your users. Collectibles generate a revenue stream and give you a recall value among your customers. Participating in Referral Marketing People frequently associate referral marketing with e-commerce sites because referral marketing is the e-commerce game changer. But you can replicate this success in the DeFi space. Even in its infancy stage, several DeFi applications offer links to boost their websites. As a dApp owner, you will be rewarded by such companies according to the clicks and traffic you generate.
Asked 4 months ago
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