Our DeFi experts demystify and explain decentralized finance, how it works, and how to capitalize on its growth potential.
What Is TradFi
TradFi, short for traditional finance, refers to the mainstream financial system that consists of retail banks, commercial banks, investment banks, other financial institutions, and fintech companies. A few popular examples of TradFi institutions are Goldman Sachs, JP Morgan, Morgan Stanley, Bank of America, PayPal, and Wise. They are mostly brick-and-mortar organizations that offer banking and financial services which have been around for years. Although most TradFi providers have digitized their operations and services, they are characterized by a high degree of centralization, government regulations, compliance, KYC, and high barriers to entry. As a new wave of non-traditional finance emerges, it’s important to define TradFi and understand how it stands apart. How Is TradFi Regulated? TradFi is regulated by the government and the central bank in most countries. TradFi institutions have to comply with the rules and regulations mandated by the authorities. Depending on the sector and scale of business, the tax requirements vary. It is also mandatory for TradFi institutions to submit audit reports annually. While the red tape is often too stringent for new players to enter, it is also efficient in nurturing the growth of the economy in the desired course. This is given that the policymakers know what they’re doing. For example, the government wants to empower women in rural areas. As a means, the central bank can ask banks to offer loans to rural women at low-interest rates. The regulations help curb money laundering, corruption, and terrorism, among other illicit activities. How TradFi compares to other Finance DeFi vs. TradFi DeFi (decentralized finance) refers to the peer-to-peer financial infrastructure built on blockchains. DeFi uses a distributed ledger system to verify and authorize transactions, removing middlemen like banks and governments from the picture. Let’s take a quick look at the key differences between the two: In DeFi, a blockchain protocol or a community issues money. In TradFi, the central bank issues money.In DeFi, smart contracts authorize the transaction of money between two parties. In TradFi, banks facilitate the transactions. Anybody can give/get DeFi loans as long as they fulfill the collateralization requirements. Banks offer traditional sources of finance after checking the applicant’s financial statements and credit score. You can start investing on DeFi platforms in a few steps. With digitization, TradFi investing has opened up to a large section of people as well. But it still requires KYC and documentation. CeFi vs. TradFi CeFi (centralized finance) merges the yield benefits of DeFi with the user experience and security of TradFi. It offers opportunities to invest in cryptocurrencies and digital assets using crypto-based accounts that are similar to traditional savings accounts. However, the APYs vary significantly. On CeFi platforms, you can borrow money against your crypto holdings, just like how you would avail a collateral-backed loan from a bank. Unlike TradFi, this requires little to no paperwork. While TradFi deposits are sometimes eligible for government-backed insurance, that is not the case with CeFi deposits. Being a relatively new sector, it is riskier. Traditional Finance vs. Behavioral Finance Behavioral finance studies the psychological influences and biases behind the behavior of investors, financial practitioners, and other market participants. Traditional Finance and Entrepreneurial Finance Entrepreneurial finance consists of the resource allocation for new ventures, addressing some of the key challenges faced by entrepreneurs like fundraising and valuation. What Role Does TradFi Have In Cryptocurrency? Industries have to keep pace with the latest technology to prove themselves relevant in the long run. Blockchain and cryptocurrencies mark today’s biggest financial revolution. TradFi organizations and platforms, including banks, will have no choice but to adopt cryptocurrencies eventually, bringing them to the mainstream. Since TradFi is under the watch of the government, this will pave the way for the positive regulation of the crypto industry. In key sectors like insurance and lending, they can work together, blending innovation, accountability, and speed. Benefits of TradFi Only businesses with licenses and accreditation can provide TradFi services. In the event they lapse, customers can raise complaints and get compensation. The red tape makes it difficult for scammers and fraudulent participants to get in. TradFi cooperates with the government to track illegal spending and investments. In DeFi, this will be hard as transactions are anonymous. Governments can implement developmental policies by joining hands with TradFi institutions. TradFi has its set of limitations. The excess regulations and government intervention hamper growth and innovation in the industry. It also prevents a large section of people from accessing financial services. In the coming years, TradFi, blockchain technology, and cryptocurrencies will hopefully find a common ground to build an advanced financial infrastructure feasible for all.
Decentralized financeAn Introduction to Money Flow IndexWhat Is Money Flow Index (MFI)? Like an RSI indicator, the Money Flow Index (MFI) shows high and low bounds between two extreme values in an indicator shown under the chart. The indicator uses volume and price data to establish a range from which traders can make critical trading decisions. The MFI is based on the idea that the volume alone isn’t indicative of the market’s overall state. Hence, investors should also consider how the market responds to price changes. Putting price and volume data together gives a better representation of the market sentiment, and it is measured in values between 0 and 100. On a typical trading chart, the MFI is plotted as a line that oscillates between 0 and 100. A rise in the MFI curve or index represents a growing buying pressure, while a drop in the curve or index value indicates increased selling pressure. The Money Flow Index represents the inflow and outflow of money into an asset over a period of time. When the MFI shows a buying pressure, it indicates a positive money flow, while a selling pressure indicates a negative money flow. The positive and negative money flows give the money flow ratio used in the computation of the MFI. These values are important in understanding how to trade DeFi assets even though it originates from traditional stocks and commodities trading. DeFi traders, stock traders, financial analysts, and quantitative analysts use the Money Flow Index. When prices move in the opposite direction of an indicator, a divergence is established. The MFI is one of the best indicators of this trend that often marks market reversals. If the MFI is falling below 80 points and the price of an asset such as Bitcoin keeps rising, it could hint at a possible reversal of the price to a downside. If the MFI is pulling back from the low of 20 while the asset's price keeps falling, it could be a sign of a potential reversal, marking the beginning of an increase in the price of the asset. Another point where the MFI is used is when successive highs are suddenly broken to establish a new high. If the price of Ethereum starts at a high of $4,000 before moving down to $2,500 and then back to $3,950, a move to a new high of $3,900 shows a rejection of the uptrend and an imminent downtrend in the asset price. The Money Flow Index shows the dominant market sentiment at a given period. It provides insights on how much of the asset under consideration is traded and how it is being traded. With the MFI, traders can conveniently understand market buy and sell pressures as quick and straightforward numbers. It is used to help traders spot upcoming changes in the market trend, which helps them to plan better moves to protect their portfolios. It is a tool for timing the market and spotting reversals, failures, swings, divergence, etc. An increasing selling pressure, for example, can inform a trader to short the asset to prevent losses. The opposite goes for a rising buying pressure which indicates a potential uptrend. Similarities between MFI and RSI Both the MFI and the RSI are bounded indicators oscillating between numerical values of 0 and 100.The RSI and the MFI can be used to spot positive and negative divergence, which helps traders assess the momentum of an asset. Calculations of the RSI and MFI both consider the momentum of the asset under consideration. The RSI and MFI are both momentum oscillators marking high and low bounds in two extreme values.The RSI and MFI are not the best indicators to determine entry but can serve as excellent tools for trend confirmation. Differences between MFI and RSI While the RSI has oversold and overbought readings at 30 and 70, the MFI has oversold and overbought readings at 20 and 80 or 10 and 90.Calculations of MFI differ from RSI in the addition of volume, which is weighed when calculating MFI.The RSI and MFI differ in how they react to changes in the momentum of an asset. The MFI is a more consistent representation of divergence. In real trading situations, the MFI may be more reliable in pullback confirmation than the RSI. If the 200 period moving average, for example, is below the price, and the MFI is moving out of the 20-point range, a pullback marks a strong buy confirmation. How to Calculate Money Flow Index Instead of blindly following the indicators, traders need to understand where the Money Flow Index is coming from. Mathematically, the MFI is given by: Money Flow Index = 100 - 100/1+ Money Flow Ratio The Money Flow Ratio measures the positive and negative money flow over the period under consideration, and it is represented mathematically by: Money Flow Ratio = 14 days positive money flow/14 days negative money flow The Raw Money Flow shows the value and how much the price in the period under consideration goes into the volume for the period under consideration. You can think about it as the actual money flow, and it is represented mathematically by: Raw Money Flow = Typical Price x Volume Where the Typical Price = High + Low + Close/3 These calculations give us an index of 0 to 100, representing the MFI for the asset under consideration. It is less likely that you will ever have to compute the index by hand due to automation. However, we can break down the step-by-step calculation process if you are still curious or passionate about the number-crunching process. Find the Typical Price for the positive and negative 14-period money flows using the Typical Price formula given before.A higher Typical Price than the previous period indicates a positive money flow, while a lower Typical Price than the previous period indicates a negative money flow.Now multiply the Typical Price by the volume to get the Raw Money Flows for each period without changing the positive or negative numbers.Now add up the positive and negative money flows separately.Divide the positive money flows by the negative money flows to get the Money Flow Ratio.Use the initial MFI formula, 100 - 100/1+ Money Flow Ratio to calculate the MFI for each period.Repeat the process starting from the previous period data at the end of the last period. Limitations of the Money Flow Index It is not advisable to rely on the MFI alone, especially for entry signals, because these indicators have many fake signals. If you place your bet on a positive MFI without confirming with stronger indicators like moving averages or exponential moving averages, you may lose your trade. The reason for this is the typical divergence situation when the price is moving in an opposite direction from the indicators on the chart. The MFI may not also be a great indicator for predicting sudden pullbacks and reversals, even though it might measure the same. It is often possible the events in the market are already playing out against you by the time you have it reflected by a positive or negative MFI. Nevertheless, it can help you act quickly to prevent further losses or adjust your stop loss for further gains. However, the MFI remains useful for confirmation of decisions and should be adequately tested with any given strategy to ascertain its effectiveness.
Decentralized financeDeFi Pulse Index: Intro, Pros & Cons, and How to BuyThe DeFi pulse index (usually labeled as DPI in the DeFi space) is a digital asset & predictor that’s specifically designed to track DeFi tokens’ performance and serve as an indicator of the decentralized finance market. This index is tracked by a token called the DPI token and is a capitalized index that allows everyone to invest in DeFi. As is the case with most of the DeFi space, the token is built on the ERC-20 network (Ethereum) and has a maximum supply of 470,000 tokens. If you want to learn more about the DeFi Pulse Index and why it’s important, continue reading. What Does DPI Solve? The team that built the DeFi Pulse Index had one goal - to establish a precise standard that empowers the inclusion of new & reputable DeFi projects in the decentralized finance space. Since it’s an index, it tracks some of the most valuable DeFi projects and shows the direction where the market is headed. Normally, for a DeFi project to be included in the index, it has to fulfill all of DPI’s strict criteria. This is why DPI is important and solves plenty of problems for the DeFi space. Since DPI has many strict criteria, it’s in all DeFi projects' interest to get included in it, as they’ll get more recognition by the community. So, new projects must fulfill all of DPI’s criteria, leading to an overall better space in DeFi with more reputable & useful projects. How Does DPI Work? As we previously mentioned, DPI’s goal is to establish a strict standard for new DeFi projects, empowering more reputable projects to be launched in the decentralized finance space. As a result, new tokens and dApps must embrace the safety and decentralization standards set by DPI. Now that we got the basics out of the way, let’s discuss the details behind how DPI works. For a project to qualify to be included in DPI, it must fulfill the following criteria: The token cannot be wrapped, i.e. it cannot be managed by any central authority (like a firm)The token cannot represent certain market assets, like options, futures, or physical world items.The token cannot be on any blockchain other than Ethereum’s.After launch, the token must be able to function independently for a minimum period of time before it’s launched in the index.Before inclusion, the token must have a minimum circulating supply, as well as a predictable total supply & market cap. The Benefits of DPI There are many benefits of DPI, and it’s widely believed to be one of the most positive influences in the DeFi market. Its pros include: Simplicity DPI is a first-of-its-kind index. The token isn’t derivative or synthetic - it simply represents the value of the best DeFi projects, similarly to the way the S&P 500 represents the US market. Efficiency Since DPI represents the DeFi market, it must subscribe to basic DeFi values & criteria. This means that the token must be fully decentralized, i.e. there is no middleman to oversee the transferring, borrowing, and lending of assets. This is exactly why DeFi is much more efficient than traditional finance, which is tightly represented in the DeFi Pulse Index. Cost As of May 2022, buying one DPI token is not expensive at all - the current price for one DPI token is $150, though it has had an all-time high of $650. Throughout history, the vast majority of reputable cryptocurrencies have surpassed their previous peaks at one point or another, so buying DPI at its current price might leave you with a 4x return on your investment if it ever reaches its all-time high again. The Risks of DPI As is the case with any investment, there are potential benefits and risks. Regarding DPI, the risks are the following: Volatility Even though DPI is an index, it isn’t necessarily much more stable than other DeFi tokens. When underlying tokens are bought and sold, the price of DPI will also fluctuate, so the volatility is more or less the same as any other cryptocurrency Smart Contract Risk SC risks are a thing for all tokens on ETH’s network, as there have been rare cases in the past where a bug was exploited. However, with the advancements of smart contracts and the direction they’re headed in, something like this occurring in the future has a low probability. Risk of Regulatory Oversight As crypto becomes more attractive to people all around the world, there will eventually come a time when it gets regulated. If a country legally regulates the DPI token, that will definitely impact its price and liquidity, though we’re uncertain in which direction it will steer it. How to Buy DPI If you believe that decentralized finance has an appealing future, then buying the DPI token is probably one of your safest options. To buy DPI, do the following steps: Find a reputable centralized or decentralized exchange of your choice (you can consider Uniswap, Hotbit, Gemini, Kucoin…)Fill your wallet with crypto (most exchanges will ask for ETH when buying DPI)Save your wallet’s details and hold your DPI.
Decentralized financeKey Insights to Maximizing Staking With LidoLido is a user-friendly DeFi staking platform built on the Ethereum blockchain. It minimizes the barriers to entry for staking by allowing crypto investors to stake even a fraction of ETH on Ethereum 2.0 and generate passive returns. Likewise, it eliminates the pain of comprehending Ethereum 2.0 technicalities and maintaining the system active. Better still, Lido offers Liquid Staking to address the liquidity problem plaguing traditional finance. At its core, Lido strives to: Enable users to earn staking rewards without completely locking their assetsOffer users the necessary flexibility to earn passive income on deposits smaller than 32 ETHMinimize the risks of losing staked funds as a result of software hitches or selfish intermediaries Offer stETH as the native token for fueling Lido activities, such as collateral in lendingOffer an alternative to crypto exchange staking, self-staking, and other semi-custodial and DeFi protocols The Pros and Cons of Lido Staking Pros These are the pros of Lido staking: Lido offers its users liquidity via their derivative token – stETH It offers an easy way to stake ETH with a user-friendly interfaceIndividuals with less than 32 ETH can stake their funds since there is no fixed minimum staking amountStakers can receive up to 18.1% annual percentage rate (APR) as staking rewardsLido allows users to use decentralized wallets like Trust Wallet, enjoying total control of their funds Cons The cons of Lido staking are: Like other protocols, the Lido smart contract is vulnerable to hacking Lido stakers can directly suffer losses if any supported blockchain is hacked How Does Lido Work? Lido allows stakers to earn esETH tokens without full locking their funds or maintaining its staking infrastructure. Instead, stakers earn stETH tokens on a 1:1 ratio to their staked funds. stETH balances are updated every 24 hours, reflecting the staking rewards. Better still, you can use them as normal Ether to generate yield and lending rewards. Furthermore, Lido staking does not have minimum deposits and lock-up periods. Stakers earn secure staking rewards every 24 hours, further securing the Ethereum network without the downside perspective and related risks. Lido is governed as a DAO, and the staked funds are distributed between proven and industry-leading node operators. When you stake ETH through Lido’s staking pool, you earn stETH tokens, reflecting your staked funds and the applicable rewards or fines. Lido Components Lido DAO It governs the Lido staking smart contract for Ethereum. Its competitors are popular liquidity providers like centralized exchanges and DeFi protocols like RocketPool. The DAO comprises reputable members from different backgrounds like Semantic VC, Terra, Libertus Capital, P2P Capital, KR1, StakeFish, etc. Lido Tokens Lido rewards its stakers with two tokens: Liquid stETH They reflect user deposits, slashing fines, and staking rewards. Basically, stETH is a liquid alternative for the staked ETH and can be transferred, exchanged, or used in DeFi apps and products. LDO Token The Lido DAO aims to decentralize Lido’s decision-making process to build a trustless staking service that is community-driven and self-sustainable. Lido members can purchase LDO tokens from DeFi exchanges like Uniswap and SushiSwap. Staking With Lido Lido provides ETH staking as a service product to investors under flexible terms than self-staking by avoiding asset freezing and maintaining a validator node. Besides, it allows stakers to generate passive income with even a fraction of Ether. Lido charges a staking fee of 10%. Moreover, users can stake tokens from any supported blockchain like Ethereum, Terra, and Solana. Here is a step-by-step process on how to stake ETH on Lido: Go to the Lido website and click the “Connect Wallet” button on your upper right cornerThe platform will redirect you to the available DeFi wallets to select your preferred option. After selecting and connecting your wallet, you will see your Ether balance in the Lido widgetKey in the amount of Ether you wish to stake and click the “Stake” button. Even before confirming the transaction, you will be able to see your stETH balance, gas fees, and the APR. After agreeing with the Lido services, complete the process by clicking “Confirm” in your DeFi wallet How Are Lido Staking Rewards Calculated? When writing this review (April 2022), the Lido Staking Reward is 3.9% APR. However, as mentioned earlier, the APR sometimes increases to 18.1%. Generally, Lido’s staking rewards are more competitive than its competitors. As more investors stake ETH, the APR may reduce, and Ethereum, not Lido, regulates the rates. Lido rewards its stakers with esETH, consisting of the value of staked amount and rewards or fines. The good thing is that Lido stakers can further deposit their stETH rewards into decentralized protocols such as Curve Finance to earn other rewards. For instance, Curve Finance rewards up to 12% APY in various tokens, including stETH, ETH, and LDO, for staking esETH. Should You Stake with Lido? While DeFi staking is profitable in almost all rounds, it has risks. However, here are two primary reasons why you should stake with Lido: The Lido protocol is tested and safe as it has undergone several auditsLido leverages a unique decentralized custody model, which splits the withdraw key of its node validators into 11 sections and participants If you are fully convinced to try Lido staking, visit the Lido website to get started. The Defipedia team wishes you happy staking! Disclaimer: The views on Lido Staking expressed in this review are for general information purposes only and are not designed to act as financial advice. Defipedia will not be held accountable for any losses resulting from its use.
Decentralized financeHow to Invest in the Ampleforth StablecoinAmpleforth is a stablecoin protocol on the Ethereum blockchain based on AMPL, its primary token that targets the adjusted 2019 CPI of the United States. The AMPL enables future stable lending and borrowing and can serve as collateral for a more reliable and decentralized stable coin. From a more in-depth perspective, Ampleforth’s elastic finance ecosystem consists of two tokens. The first token, the AMPL, is the elastic supply token on Ampleforth that contracts when the price moves further from the target and expands when the price moves beyond the target. The changes in the token supply affect the quantity of Ampleforth held on any user wallet, but the price eventually retraces the target. Forth is the governance token on Ampleforth that is used for voting to adjust protocol parameters, control emissions, and drive innovation on Ampleforth. The need for an Ethereum-built finance protocol that is resistant to supply inflation and unconnected to the price changes in Bitcoin yet serves the most important function of money by being a unit of account led to Ampleforth. The token is unlike other projects before it that relied on centralized, unreliable, and censorable systems. Ampleforth creates a currency using an algorithmically stabilized system that serves as a unit of account and a store of value and enables the creation of near-future contracts on-chain without reliance on custodians or buyers of last resort. How Does Ampleforth Work? Ampleforth uses a mathematically efficient rebase mechanism to move inefficiencies in demand to a variable supply. It achieves this by assuming that every holder of the AMPL token holds a fraction of the total supply rather than some actual number of the token. An algorithmically programmed rebase mechanism is activated if the price of the token moves away from the peg 2019 CPI by some threshold set at 5% in an adjustable hyper-parameter, defined by the volume-weighted average of the platform. The mechanism applied daily ensures that the supply of Ampleforth tokens changes proportionally and in a non-dilutive way to maintain the percentage of Ampleforth owned by users of the protocol before and after each rebase. An expansion in the protocol is established when the current price of Ampleforth is greater than the 2019 price of one USD. It is expressed algorithmically as price_exchange_rate of AMPL > 1 2019 USD, which indicates a shortage in supply; hence the quantity of Ampleforth held by users is increased to the extent of the slippage in price. For a contraction, the mathematical formula is given by price_exchange_rate AML < 1 2019 USD, which marks an excess supply of Ampleforth. The quantity of Ampleforth held by users is therefore decreased to the extent of the slippage in price, resulting in a fall in the price of AMPL. Assuming a hypothetical holder of Ampleforth holds 860,000 AMPL or 1% of the current AMPL token supply at 86,000,000. After a contraction of 20% to stop the price of AMPL from slipping below the peg, the user is left with 86,000,000 AMPL - 1,720,000 = 84,280,000 x 1% or 842,800. After every algorithmic expansion or contraction, the user retains their 1% holding of AMPL. The Pros of Ampleforth Decentralized Unlike other projects that aim to establish stablecoins yet rely on centralized authorities and entities as market makers or buyer-of-last-resort to return the asset to its peg, Ampleforth achieves this algorithmically. Hence it does not rely on any external mechanism. Censorship Resistant Ampleforth does not put itself on the table of censorship in a bid to resolve the problems of volatility and a stable unit of account. It instead builds on a completely decentralized and censorship-resistant financial stack that allows limitless possibilities on-chain. DeFi Lending Since the value of AMPL is mean-reverting or stable over time compared to other cryptocurrency assets, Ampleforth serves as a truly decentralized way to protect borrowers from undue volatility and liquidation. Where using another asset like Ethereum is necessary based on the users' preferences, Ampleforth can prevent the need to rely on the same centralized stablecoins that hamper decentralization. Derivatives The base currency of most derivative assets on the blockchain is largely centralized due to stablecoins. Ampleforth will change this narrative by allowing the creation of on-chain derivatives based on assets that do not rely on external entities to derive their value. Stablecoin Ampleforth creates a mechanism for developing crypto collateralized stablecoin based on an asset with a predictable future value and price. The Cons of Ampleforth Low Adoption Ampleforth is still considered some of the experimental DeFi projects even though it is not presented. The lack of popularity compared to the so-called centralized stablecoins is not working in favor of Ampleforth. Black Swan Event Even though Ampleforth has a mechanism that controls supply in response to demand, there is no such mechanism that guarantees the demand for Ampleforth except for decentralization which is not inevitable. Hence a sudden disappearance of demand for the token can lead to a crash. Volatility and Uncertainty The use of Ampleforth and its mechanism still lies in the wild west of DeFi, the areas categorized as too complex for newbies to navigate and not so advisable for pros in the game. How Does Ampleforth Differ From Other Digital Assets? Flexibility Anyone can hold Ampleforth, and holders retain control and the percentage of the total variable supply of the token they own. Objectives of the Protocol Ampleforth aims to be a truly different kind of cryptocurrency asset that would serve as a widely used collateral asset in decentralized finance and thus a reserve currency in the crypto space. Independence from Bitcoin pricing Ampleforth does not rely on Bitcoin or any existing cryptocurrency to determine its price. It is an example of a truly decentralized and uncensorable cryptocurrency asset. How Can You Buy AMPL? You can buy AMPL on several centralized and decentralized exchanges, including Gate.io, Bitfinex, FTX, Balancer, Uniswap, MEXC, SushiSwap, Latoken, and KuCoin. The only requirement to purchase the token is to hold the equivalent amount you intend to buy in pairs available on the exchange. So if an exchange lists AMPL/USDT, you can use the advanced trading option available on the website to sell your available USDT for AMPL or buy USDT with your AMPL. The same applies to other cryptocurrencies like Bitcoin, Ethereum, USDC, Matic, etc. If you hold funds on Web 3.0-enabled wallets like MetaMask or BlockWallet, you can simply connect and swap your token directly for AMPL on the exchange or use the swap option in wallets like MetaMask. Do You Need a Specific Crypto Wallet for Ampleforth? ERC-20 wallets are decentralized wallets that allow developers to deploy smart contracts on Ethereum. They also allow users to hold their token in a decentralized way that is not controlled by any central entity. Some ERC-20 wallets also use technologies like ZkSnarks to ensure the privacy of tokens stored by users in their wallets. These wallets achieve this by holding funds in pools and releasing them during transactions anonymously on-chain. There are no specific wallet requirements to store Ampleforth tokens. The token is available on centralized and decentralized platforms and can be stored on both platforms. However, decentralized storage is safest after hardware storage or cold storage. The Future of Ampleforth Ampleforth hopes to be available across blockchains and layers, which will be a positive development for the community and decentralized finance. The availability of other stablecoins across blockchains was a major milestone that led to the huge adoption of the tokens as they are known today. Ampleforth is also working to prevent potentially threatening volatility while ensuring increased adoption by creating incentivized mechanisms to bootstrap demand and sustain the token. If everything works out, the token could see a huge adoption and be a force to reckon with in the class of algorithmically pegged assets in the crypto space.
Decentralized financeAre NFTs a Good Investment?Non-fungible tokens (NFTs) are non-swappable units of data stored on the blockchain. They are digital assets used to denote artistic designs like art, music, in-game items, and videos. NFTs can be bought and sold on the internet, often with cryptocurrency, and they are usually encoded with the same software as many cryptos. However, unlike cryptos, NFTs are non-fungible, meaning each one is unique and cannot be traded at equivalency. The uniqueness of NFT makes it very simple for users to verify ownership and transfer tokens between owners. How Do NFTs Work? NFTs are created by hashing a unique token identifier with a distinct algorithm; this creates a unique string of characters that is the only representation of that token. Once created, NFTs cannot be copied or replaced. This approach protects the token's value and ensures that each NFT is unique. NFTs contain ownership details coded into them, allowing easy identification and transfer between NFT holders. They are also customizable, as owners can add new features or metadata to their NFTs. NFTs also have a "breedable" attribute, meaning owners can combine them to produce new NFTs. This feature is popular in play-to-earn games like cryptokitties, where players can breed two characters (NFTs) to create a new distinct character. NFTs originally started on the Ethereum blockchain as ERC-721 standard. However, Ethereum competitors like Solana and Cardano now offer NFT options too. The Pros of Investing in NFTs As a relatively new type of digital asset that can be stored and traded on the blockchain, NFTs are pretty versatile and incredibly useful. Here are the pros of investing in NFTs: NFTs are open and accessible to anyone interested in purchasing them.This asset class provides a verifiable record of ownership and authenticity, all stored on the blockchain.NFTs provide an additional means for portfolio diversification and allow investors to spread their risks.Some NFTs give their owners additional perks and merits both offline and online. For instance, one could gain access to exclusive real-life events or a highly sought-after group membership by holding specific NFTs. The Cons of Investing in NFTs There are a few potential disadvantages to investing in NFTs, including the following: There is the potential for scams and fraud in the NFT space. Investors who fall victim to fraudulent NFT projects may lose their money.NFTs are speculative and illiquid investments. Most people are not familiar with these digital assets, which means that the NFT market size is still small, and it could be challenging to trade NFTs, especially in times of distress.Like most proof-of-work cryptocurrencies, producing NFTs is also energy-intensive, and, in the long run, this could have negative repercussions on the environment.They are volatile investments; their value is only based on what someone is willing to pay. For instance, when created, Jack Dorsey's NFT tweet initially sold for $2.9 million. However, after the owner listed it for sale again, the price plummeted to just under $280. What Are the Best NFTs to Invest In? There is a world of NFT collections that enthusiasts can invest in, with different perks for holders. However, based on classification, here are some exciting NFT projects making positive waves in this space: NFT Collections These are the most common type of NFTs. They usually come in a limited number and sometimes may have additional perks for the holders. Some of the most popular NFT collections are Bored Ape Yacht Club (BAYC) and CryptoPunks. These NFTs have garnered a lot of attention from celebrities and have gone mainstream. However, they are costly for the average investor, seeing as one of the recent BAYC sold for over $600k! For the regular investor looking into NFT collections, one has to pick and research a project while still in its early phase. Some unique NFT collections that will launch in 2022 include Yubo, CryptoBaristas, Doddles, and Invisible Friends. NFTs in Blockchain Games NFTs from blockchain games also prove to be a good investment vehicle. Blockchain games allow players to own in-game items which are tradeable as NFTs. These could be characters, weapons, or other items. The rarer the in-game asset, the more expensive it will be. Due to this factor of earning from the game, blockchain games are often referred to as play-to-earn games. Investors can purchase rare in-game items and sell them for a profit on the marketplace. Some popular blockchain games include Axie Infinity, Illuvium, and Sandbox. Fractional Ownership NFTs Some NFT projects fractionalize physical asset ownership by dividing a digitized version of the asset using NFTs. This approach lowers the barrier of entry for many expensive physical assets. It allows the NFT holders to be part of an industry usually cut off from the average investor. These NFTs are popular for fractionalizing ownership of assets like real estate, artwork, or jewelry. Service providers in this niche include Propy and Milo.
Decentralized financeA Guide to $Magic Tokens: What They Are and How to Buy ThemWhat Is Magic Trading? Magic trading is a crypto investment platform that allows users to indirectly invest in upcoming startups simply by holding the platform's native token, MTK. Digital assets go beyond just cryptocurrencies; there are tokenized stocks, bonds, and other securities. MTK tokens give its holders a chance to be part of these additional digital asset classes. The MTK tokens allow holders to trade several different assets on various exchanges. The project prioritizes security and transparency with a growing community of investors looking to capitalize on Magic Trading's model of asset digitization. What Are MTK Tokens? The MTK token is a non-scalable TRC-20 token with deflationary properties as it is limited to only 49,500,000 mintable tokens. The token developers selected the TRON blockchain because of its compatibility with Ethereum and the absence of ridiculous trading fees. MTK tokens double up as security tokens, allowing holders to invest in startups and access dividend bonuses, offering a new way for investors to diversify their portfolios. The MTK token is a hybrid of traditional stock, and it is tied to the Magic Trading company's market capitalization. This feature means that its value will increase as investors trust the platform and more funds flow into the Magic Trading ecosystem. How to Buy MTK Tokens Interested investors can purchase MTK tokens with fiat (US Dollar) by following the steps below: Sign up for a crypto exchange or financial service that supports crypto, e.g., Crypto.com or eToroSend some fiat - USD (US Dollar) into your wallet.Use the USD to purchase some Bitcoin, Ethereum, or USDT equivalent to the amount of MTK tokens you intend to purchase.Send the crypto you bought to an exchange that has listed MTK tokens, e.g., Exrates.Find the correct MTK token trading pair for the crypto you purchased. For instance, MTK/ETH if you purchased Ethereum.Use your ETH to purchase MTK tokens on the exchange's marketplace.Now you have MTK tokens in your wallet. Why Should You Buy MTK Tokens? MTK tokens come with a range of attractive benefits for their holders, making them a viable investment vehicle for interested ecosystem participants. Advantages of Buying MTK Tokens Passive Investment MTK tokens offer their holder passive investment strategy options just by holding the tokens. They allow holders to become part of a platform that invests in startups while earning dividends.Consistent Earnings The Magic Trading platforms claim to provide constant earnings for holders even in times of crisis like inflation or other global financial crisis. Security Magic Trading platform emphasizes security as one of its core priorities, ensuring its users' funds are safe and protected.Portfolio Diversification Holding MTK tokens provide an easy means to diversify an investor's portfolio due to their investment structure and the dividends they offer their holders. Disadvantages of buying MTK Tokens Lack of mainstream credibility The Magic Trading Token platform is still fairly new; they are not fully established in this crypto space. The lack of mainstream credibility may be a cause for concern for interested investors.Bottlenecks Security-based tokens like MTK have the same constraints as the blockchains they are built on top of and thus, may suffer from the said blockchain's limitations. No matter how well-designed they are, they are still prone to challenges like bottlenecks.Price Volatility Like any other crypto, MTK tokens are subject to price volatility. They are not stable assets, and their price can be affected by market sentiment or general negative news in the crypto space. Investors are advised to treat MTK tokens in a similar vein to any other volatile crypto asset in their portfolio to see good returns.Lack of availability MTK tokens are not easy to trade because they are only available for trading on a limited amount of exchanges. This lack of trading options for the tokens may turn off interested investors.
Decentralized financeAn Intro to the Arbitrum EcosystemA blockchain ecosystem refers to a blockchain's network of participants who come together to share business goals, ideas, and processes. Blockchains are often associated with cryptocurrencies; however, the technology has evolved to encompass decentralized protocols that apply its power to create unique ecosystems with different applications and perks for its members. Due to its smart contract compatibility, Ethereum has grown to become the developers' favorite blockchain for building ecosystems, DeFi solutions, and decentralized applications (DApps). However, the Ethereum "rush" also created problems for the network ranging from ridiculously high transaction fees to network congestion. This is where Arbitrum comes into play. Arbritrum is a layer two scalability solution for Ethereum's smart contracts, which focuses on improving speed and scalability with the added integration of privacy features. The platform creates a second layer Ethereum solution that runs on unmodified Ethereum Virtual Machines (EVM). What Are Arbitrum Ecosystems? Arbitrum ecosystems are blockchain networks that leverage the Arbitrum chain to improve the speed and efficiency of system processes while reducing transaction costs. Arbitrum seeks to address the demerits of Ethereum smart contracts like lack of efficiency and high transactional costs while simultaneously taking advantage of Ethereum's layer one security features. Arbitrum utilizes a technique known as optimistic rollups to reduce most of the computational and storage hurdles that slow down the Ethereum blockchain. Optimistic rollups work by recording clusters of transactions on Ethereum's main chain and transferring them for execution on a cheaper and scalable Arbitrum sidechain while simultaneously utilizing the Ethereum blockchain to ensure the correct completion of transactions. What Gas Does Arbitrum Use? Arbitrum uses ArbGas to track the cost of executing transactions on the Arbitrum chain. There is no hard limit on ArbGas, unlike Ethereum; this makes it cheaper than ETH gas. The ArbGas helps compensate Arbitrum's chain validators for their expenditures, incentivizing validation on the Arbitrum chain. Top Arbitrum Coins The Arbitrum ecosystem currently has a market cap that sits around $170 billion. Several arbitrum ecosystems utilize Arbitrum layer two solution for processing transactions on their networks. These coins include: USDC/USDT/TUSD Popular stablecoins; USDT, TUSD, and USDC, which are cryptos tied to the value of stable assets like the US Dollar, depend on Arbitrum layer two solution for enhancing network transactions.UNI The governance token for Uniswap, a decentralized exchange, also uses Arbitrum.LINK The native token of Chainlink, a framework for building hybrid smart contracts and decentralized oracles.YFI The native token of Yearn Finance, a group of DeFi protocols that expose users to various earning options via lending and borrowing.BAL The governance token for the balancer platform, an Automated Market Maker that allows any investor to create and add liquidity for trading pools to earn customizable rewards. Advantages of the Arbitrum Ecosystem The Arbitrum comes with several beneficial features for blockchains on the Ethereum network. These advantages include: Cheaper transactions Being a layer 2 scaling solution for Ethereum, Arbitrum boosts transaction time and reduces the cost of transactions. The deployment of its rollup technology and ArbGas, allows Arbitrum to significantly cut transaction fees while providing incentives for its validators.Access to developer tools The Arbitrum team has produced extensive developer documentation for the platform, which will reduce the barrier to entry, giving developers access to exiting Ethereum tools. All tools required to build on Arbitrum, like plugins, Truffle, and compilers, are available to developers without requiring downloads.Robust Ecosystem Many crypto ecosystems, decentralized applications, and DeFi projects already utilize the Arbitrum solution; this indicates the efficacy of Arbitrum as an Ethereum layer 2 solution. Some ecosystems that patronize Abitrum include Uniswap, Sushiswap, and DODO.Great EVM Compatibility Arbitrum has one of the highest EVM compatibility for any Ethereum layer 2 solutions. Its compatibility goes down to the bytecode level, making it easy to build on top of it since developers don't need to learn a new coding language to work with Arbitrum. Disadvantages of the Arbitrum Ecosystem Despite its impressive merits, using Arbitrum still comes with some drawbacks. Some of these include: No Security Guarantees Arbitrum solely focuses on scaling, not security. As a layer 2 solution itself, Arbitrum doesn't offer any security guarantees. Instead, it depends on the Ethereum infrastructure for this.Competition There is a growing list of Ethereum layer 2 solutions; some of them may even offer better scaling options than Arbitrum. Aside from layer 2 competitors, layer 1 solutions seeking to replace Ethereum as a whole are already gaining ground. Solana and Cardano are good examples of these competitors. Possible Hardware Issues Arbitrum isn't immune to hardware failure, which could lead to network outages or a freeze on transactions. This problem occurred recently, causing users to panic over the state of their funds stuck in suspended transaction. However, the Arbitrum team managed to identify the issue and solve the problem.
Decentralized financeA Guide to the Best NFT MarketplacesNFTs, or non-fungible tokens, are a popular part of the Ethereum blockchain. They are non-interchangeable and stored on blockchains. They’re a form of digital asset that can be traded or sold. NFT data units are often associated with digital files like audio, video, artwork, and photos. Non-fungible tokens are encoded with similar software as many cryptocurrencies and can be bought and sold online with crypto. What Is an NFT Marketplace? NFT marketplaces are purpose-built platforms designed to facilitate storing, displaying, trading, and creating NFTs. Some individuals have begun collecting particularly unique digital artwork, some of them selling for mind-boggling prices. One NFT digital artwork piece in particular sold for over $69 million at Christie’s, created by an artist referred to as “Beeple.” If you’d like to utilize this marketplace to buy and sell NFTs, you’ll need to have these three things first: A wallet Ensure that you choose a crypto wallet compatible with the blockchain network you’re interested in. For example, buying and selling NFTs on the Ethereum blockchain will require a user to use a compatible wallet like MetaMask.Coins in your wallet Your wallet will need to have coins added to it before you buy, list, or create an NFT. A user account This step is simple, as you’ll just need to get set up with the marketplace you plan on purchasing your non-fungible tokens. NFT marketplaces require a blockchain network fee for listing or creating NFTs on their platform, depending on which system you choose. For example, Ethereum has many NFT decentralized exchange options. However, they’re known for having the highest costs associated with their services. Types of NFT Marketplaces The best thing about NFT marketplaces is their ability to offer a little bit of everything. You can find limited event tickets, in-game items such as unique avatars and other add-ons, and domain names; practically everything under the sun. This versatility makes these different marketplaces suitable for anyone interested in investing in NFT assets. There are even marketplaces geared towards specific genres of items, like sports or gaming. Depending on which marketplace you use, you will typically have the option of buying, selling, and creating NFTs. Some marketplaces are closed, meaning you will only be allowed to buy, trade, and sell; they are not built for creators. NFT marketplaces offer boundless creativity and unique items that come in various forms, such as distinctive artwork from exclusive artists, one-of-a-kind music files, rare videos, footage, etc. The Best NFT Marketplaces If you’re interested in NFTs but you don’t know where to begin, we’ve compiled a list of ten interesting NFT marketplaces for you to check out: OpenSea Leading the NFT sales packAxie Marketplace Online video game shop for Axie InfinityLarva Labs/CryptoPunks Digital art projects such as AutoglyphsNBA Top Shot Marketplace Closed marketplace- only buying and selling. Collectible video clips and play highlights from special events and games, etc.Rarible Various forms of digital collectiblesSuperRare Artwork, video, and 3D imagesFoundation Comprehensive bidding platform for digital artNifty Gateway High-level art curation platformMintable Various forms of digital collectiblesTheta Drop Video and TV Doing a quick search for these NFT marketplaces will reveal any information you’d like to find out, including what types of items the marketplace offers, its services and features, and how to get signed up. Anyone can invest in an NFT for any price as all NFTs carry different sale values. Therefore, it could cost any amount to invest, anywhere from a few dollars to thousands, even millions. Setting up a crypto wallet and adding crypto to your wallet are the first steps to take if you want to start buying and selling. NFTs are quickly rising in popularity, with so many use cases, and worldwide adoption, they are fast becoming one of the key features of Defi. How to Choose the Right NFT Marketplace NFT marketplaces pave the way for users to invest in digital assets, collectibles, and artwork. First, however, you must ensure that you choose a marketplace that suits your buying and storing requirements and aligns with the crypto you want to use for transactions. This industry is thrilling and inventive, but it’s also speculative since it is so new. Do your research on the marketplace before getting started. Before making any purchases, always keep your investment strategy and goals in mind.
Decentralized financeIntroducing DeFi 2.0: The Second Generation of DeFiDeFi, or decentralized finance, is a new approach to finance, effectively changing the way we’ve been borrowing, lending, and transferring money. Thanks to the power of innovation & cryptocurrency, working with assets is now easier than ever, as there is no intermediary to oversee the transactions. The beginning of DeFi raised many questions, but now, it has grabbed the attention of millions throughout the world, as it's potential is impossible to ignore. Getting into further detail, decentralized finance works on blockchain technology, the same technology that’s behind cryptos. Since they are decentralized in nature, there is no need for any governing body or a middleman to oversee the process and it can be used by everyone. The best part is that DeFi is just as safe as traditional finance. If you want to learn more about DeFi and how it works, continue reading. The Limitations of DeFi 1.0 DeFi 1.0 is the “version” of DeFi we have today. Even though it’s a revolutionary technology, it does have weaknesses, limitations, and flaws. The following are the limitations of today’s DeFi world, and they're important when it comes to understanding DeFi: Weak Usability One of the biggest problems of DeFi is that it’s not beginner-friendly. Unless you’re experienced with crypto and know the ins and outs of public & private wallet keys and transactions, DeFi might be a problem. This is primarily because most DeFi platforms today should improve their user interfaces. Relatively Small Liquidity Unlike centralized exchanges, most DEXs (decentralized exchanges working on DeFi’s principles) don’t have enough liquidity. This is partly because the option of using fiat cash is completely cancelled out. At a CEX like Binance, you can exchange your fiat cash for crypto for a small fee. At a DEX, you can only deposit and withdraw cryptos. The Fees Could Be Lower As of May 2022, the vast majority of DeFi platforms (DEXs) are on the ETH blockchain. Although ETH has announced its transfer from proof-of-work to proof-of-stake, its gas fees will be high until it transfers fully. Because of these gas fees, transferring and working with coins is expensive. The Rise of DeFi 2.0 The DeFi 2.0 movement’s goal is to not only retain, but also improve all the key features of DeFi is built on - lending, yield farming, borrowing, and transferring crypto. The goal is to add new features as well, like loss insurance for liquidity providers, as well as making smart contracts even “smarter”. The movement has plenty of goals to accomplish, but its primary one is improving the foundation that DeFi 1.0 has set, and only then adding new features. The following are the key features that DeFi 2.0 will improve on: Improving scalabilityProviding a better user experience for beginnersMaking self-repaying loans.Reducing fees & making it cheaper to work with crypto.Providing insurance for both lenders and borrowers. Now that you know what DeFi aims to accomplish, check out the list below for the biggest upcoming DeFi 2.0 projects: Olympus DAO (DAO)Convex Finance (CVX)Abracadabra.money (yvWETH) Risks of DeFi 2.0 and How to Prevent Them Although DeFi 2.0 aims to address the vast majority of issues DeFi 1.0 has, it’s still a new technology, meaning it has risks. Some of the most common risks of DeFi 2.0 are: Changing Regulations More and more countries have started accepting crypto as a part of everyday finance, which is why regulation will probably come into place. This has its benefits too, offering better stability, smaller price movements of DeFi coins, as well as improved security, yet it goes against the basic principles of DeFi - decentralization and anonymity, which is the biggest difference between DeFi and TradFi. Comprised Smart Contracts Someone who is new to the crypto world can easily fall prey to faulty smart contracts. Still, this is a very fixable issue and one that DeFi 2.0 aims to address - improving the user experience for beginners and making it easy to work with crypto. Risks of Losing Your Money DeFi aims to construct internal insurance structures on the blockchain, making it safe for both borrowers and lenders. However, this doesn’t mean that your assets are 100% safe. Hackers & scammers often take joy in finding the cracks in new technologies, so we would highly recommend being careful with your wallet, addresses, and your crypto.