Our DeFi experts demystify and explain decentralized finance, how it works, and how to capitalize on its growth potential.
General Discussions About Decentralized Finance
The Evolution of BNB Chain
BSC, Binance’s layer-1 blockchain, announced merging the BSC and the Binance Chain, forming the new and improved BNB chain. The idea is to link Binance’s layer-1 to the protocol’s token, BNB, to further expand, support, and facilitate decentralization. BSC is typically considered a part of Binance—after all, it’s right in the name. CEO Changpeng Zhao has stated, "We’ve done a lot of work to decentralize it and hope to make BNB go far beyond Binance." Binance has invested over $1 billion in the BSC ecosystem. These investments amplify the rivalries between Ethereum and other layer-1 blockchain systems and are intended to stop the criticism surrounding BSC being "too centralized". BNB wants to be a token for the BSC ecosystem. This ecosystem serves multiple sectors, including the NFT industry and GameFi. Doing all of this should help BNB become more relevant and beneficial concerning the development of MetaFi. BNB: Built Better As Binance rapidly grew in popularity, so did BSC. The Binance smart chain was created about the same time the DeFi movement took off. Public interest grew over time, along with financial solutions gaining interest. Blockchain technology was also rising in popularity, and the stars seemingly aligned for BNB. The BNB token was created as an ERC-20 token on Ethereum in 2017, continuously evolving and transforming. The token switched to the Binance Chain in 2019 and supported the BSC network, which launched in September 2020. BNB is the current token for the BNB Chain. After the BSC name change, several improvements were made accessible to project owners, developers, and users connected to the BNB Chain community. The chain plans to incorporate more prominent applications like GameFi, Metaverse, and SocialFi. A few key improvements to the BNB chain include: The introduction of on-chain governance mechanismsBoosted BSC throughputOne-chain to multichain scalingOverall improved scaling solutionsExpanding the BSC validator set, including 20 validators acting as block producers What Should Users Expect From BNB? According to CEO Changpeng Zhao, BNB is an acronym for "build n' build". One of Zhao’s tweets stated that BNB also metaphorically translates to "build the community, and let the community build, build, n’ build". Freedom, lack of limitation, and general empowerment are what BNB is all about. It also ties into interoperability and development of the world's "parallel virtual environment", pushing Binance forward in regard to the MetaFi movement. Here are some of the key features of the BNB Chain: DecentralizedOpenPermissionlessMultichainA space for creators and investors alikeBigger than Binance Besides a heightened focus on MetaFi, the BNB Chain also stated a few more technological advances are underway for 2022 and onward. This includes the introduction of BSC Application Sidechains and BSC partition chains. How to Utilize the BNB Chain The BNB Chain suggests use-cases for BNB on their website. They include travel, payment, entertainment, service, and finance. Perhaps the most popular reason is paying transaction fees. Binance claims that around 2 million users have used the trading platform to pay for trading fees totaling 40 million BNB on over 127 billion deals. Each trade made on the exchange will incur a 0.1% fee, payable via traded assets or BNB. In addition, traders who rely on Binance are encouraged to purchase BNB to save more on transaction fees. BNB can be used to: Pay for goods, buy virtual gifts, and more. Integrations include Monetha, CoinGate, and Pundi X.Book hotels and airfare, among other travel amenities, via Trip.io, Travala.com, or TravelbyBit. Purchase entertainment. Integrated platforms, such as VIBE, allow users to earn BNB from games. You can also use BNB to purchase the copyright to music through MachiX and others. Pay for services such as hiring freelancers, creating smart contracts, and paying for web or cloud subscription services. Obtain financial services such as trading stocks, taking out loans, and purchasing investments. BNB Pros & Cons No applications, platforms, projects, or people are perfect. The BNB chain is no exception. While fast adoption, low fees, a bridging feature, plenty of funding, and localization are all positives about BNB, there are also a few concerns. For example, a portion of the community worries that the chain is too centralized and over-complex, and has resource-consuming operations and processes. Also, similar innovations are already occurring on Ethereum instead of its designated network. The future is decentralized, and that is something we can almost count on. The rapid interest in the crypto and DeFi space is indisputable. This industry is gaining new traction daily, with more developers, creators, and users reaching new heights and breaking glass ceilings. We can see this in the differences between Web2 and Web3, and we will likely see this pattern continue.
General Discussions About Decentralized Finance
Overview of the Polkadot Ecosystem
Polkadot’s first proof of concept design and its beginning stages of development emerged around four years ago. The DOT ICO occurred in October 2017. Since then, it has raised over $145 million in ETH. Today's live price is $8.77 with a 24-hour trading volume of $719,397,341. Polkadot Funding History DOT’s initial supply of 10 million was divided and sold in two rounds: one half to public investors for $2.25 million and the other half to private investors for $2.75 million. The price per token came in at $28.80. Code Vulnerabilities Discovered Two weeks later, about $90 million of the coins raised during ICO were permanently frozen because of a vulnerability exploited in Polkadot’s crypto wallet code. However, not long after the attack, Polkadot announced that the remaining funds would be enough to move forward with development, despite losing so much. This chaotic event was the second time Polkadot’s wallets were hacked over a code vulnerability. Their first hack occurred in July of that same year. This time, $33 million in Ethereum was pilfered before anyone could stop it. Polkadot Reached Top 10 List Polkadot held another private funding round at the beginning of 2019 to gather lost funds from the DOT ICO. They sold DOT tokens at an increased price of $120 each. Polkadot sold 500,000 DOT tokens and raised over $60 million. In July 2021, another round of private funding was held. They sold slightly under 350,000 DOT tokens, each of them for $125. This private funding raised another $43 million. So, the grand total of raised funds for Polkadot sits at over $250 million. Polkadot’s bouts of extensive funding from private and public investors paint a picture of its glowing reputation. Moreover, the Polkadot ecosystem is a melting pot of skilled architects, talented developers, and expert project leaders—which is why it's on the list of the top 10 most valuable cryptocurrencies in 2021. Ongoing developments in the Polkadot ecosystem and the crypto space, in general, may push DOT to new record heights. How Does Polkadot Work? Polkadot is a complex cryptocurrency, with some articles dedicated to explaining various network elements and their functions. Polkadot is a vast ecosystem of blockchains. The core blockchain is called the "Relay Chain". The blockchains that are all connected to the core relay chain are "parachains". Parachains may have custom tokens, consensus mechanisms, and structures. The relay chain can support around 100-250 parachains. If a parachain were to connect to the relay chain, it must first win a candle-style parachain slot auction via bonding DOT. Here are 11 examples of Polkadot parachains: AcalaMoonbeamAstar NetworkParallel FinanceClover FinanceEfinityComposable Finance CentrifugeHydraInterlayNoodle Soon-to-be parachains often raise DOT through their community in exchange for native tokens. During the candle auction, parachains with the most bonded DOT will win the slot. These selections are made at random times. Once the lease ends, the lender’s bonded DOT is returned. The relay chain is built using substrate, therefore parachains built using substrate can also easily connect to the relay chain. External blockchains, like Ethereum or Bitcoin, will require a bridge if they are to connect to the relay chain. "Substrate" is a building tool for blockchains engineered by Parity Technologies. Polkadot Consensus Mechanism The Polkadot network uses a hybrid consensus mechanism: the relay chain consensus mechanism is a variety of proof-of-stake, and the attached parachains use a version of proof-of-work. Polkadot Validators & Nominators Validators must stake DOT to be eligible to participate. Nominators on the blockchain delegate their DOT tokens to validators. Nominators may nominate up to 16 validators and receive a portion of block rewards. Polkadot Collaters Polkadot collators create blocks on parachains that are attached to the relay chain. These blocks contain updated transaction records that have occurred on that specific parachain. Polkadot Fishermen Polkadot fishermen monitor the behaviors of validators and collators. Fishermen must stake a small amount of DOT to be eligible. Polkadot Governance The governance structure consists of three elements: a council, a technical committee, and regular DOT holders. The council involves 13 elected members of the network, all of which are required to stake DOT to be eligible. These members decide how treasury funds are spent. The technical committee includes three entities involved in the development of Polkadot. Web3 Foundation has snagged one of these three seats. This committee pushes proposed changes or updates to the network in emergency scenarios where time is money. Council and DOT members are the only groups permitted to bring proposals to the table, and the number of votes to pass a proposal depends on the voter turnout.
General Discussions About Decentralized Finance
AAVE: Reviewing and Evaluating Leading Crypto Lending and Borrowing Protocol
Aave offers various lending pools where users can earn interest on their existing digital assets. However, traditional institutions have stringent regulations and guidelines that you must meet when applying for a loan. These high standards can make it difficult for some individuals to get loans for the money they require. On the other hand, the decentralized nature of crypto lending platforms allows for a seamless process with fewer factors preventing you from qualifying for a loan. So, what is Aave, and why does it matter for those lending or borrowing? What Is AAVE? AAVE is the native crypto of the Aave lending platform. On Aave, users can borrow various types of crypto assets or lend their assets out in exchange for interest payments. All of this crypto lending and crypto borrowing is executed in a decentralized manner, without intermediaries. The platform became the leader in 2021, AKA total value locked. Total value locked is the full value of crypto assets deposited in a DeFi protocol. This metric is commonly used to gauge interest in that project. Aave climbed to the top for lenders and borrowers across the map. You can find the native token on Coinbase for users in the United States or on Binance for international users. Decentralized exchanges are also an option, such as Uniswap. How Does AAVE Work? Aave keeps reserves that are used as a security net. These insurance-type reserves ensure lenders are protected, and their assets are safe from crashes or volatility. Individuals interested in lending can relatively simply connect their Ethereum wallets to the Aave platform and then select the assets they’d like to lend. Once you enter the details regarding the amount you will be lending and the funds are added to the liquidity pool, users can earn interest on them. When you lend on Aave, you earn interest. When you borrow on Aave, you pay interest. If you’ve borrowed or been a lender on other crypto platforms, using Aave shouldn’t be a challenge. Currently, you can deposit 26 and borrow 25 different types of crypto. Some options include LINK or ETH, but most of the options available on Aave are stablecoins. Each cryptocurrency possesses different rates for lending or borrowing. An algorithm is used to determine current rates based on utilization rate, or the ratio of the current supply versus the amount borrowed. If most of the crypto in an existing pool is lent out, the interest rate will be appealing and high enough to entice depositors, ultimately bringing in more crypto to that pool. On the other hand, if no crypto is being used, the interest rates will be pretty low, encouraging more people to borrow. Why Is AAVE Popular? Aave is a popular lending protocol in DeFi, and it’s one of the most popular platforms for those looking to earn passive income by lending their assets. This project allows users to borrow virtually any kind of cryptocurrency without the need for any middleman: no banks, brokers, or financial institutions. The native token available, AAVE, is a good choice for users who want to invest in the DeFi market space. Purchasing this token supports the technology and methods that will change how we look at lending. AAVE is the most sought-after DeFi token on the market at the moment. Take a look at this info: Price: $102.87 All-Time High: $661.69 Circulating Supply: 13,983,282.33 Max Supply: 16,000,000 Aave is also a non-custodial platform, meaning it doesn’t hold your assets directly. Instead, you retain ownership of your assets. As a result, non-custodial platforms are more appealing than custodial platforms. This reduces your risk of hacking. What’s the Story Behind Aave? Aave protocol initially hit the industry in 2017 but was known as ETHLend. Stani Kulechov created this project in Finland. The idea was peer-to-peer lending, where users can lend and borrow crypto by simply posting requests and offers in a designated spot. ETHLend, unfortunately, hit some snags. Lack of liquidity and problems matching loan requests with the proper lenders caused the project to disintegrate one year later in 2018. However, this didn’t discourage the developers of ETHLend—it did quite the opposite. Fast forward one year, and the project is overhauled from a peer-to-peer model to a peer-to-smart contract model, followed by a rebranding to the name "Aave". This word means "ghost" in Finnish, hence the project's logo. The idea came from the anonymity that comes with using this protocol. There are no banks, and there is no sensitive information shared about the lenders or the borrowers involved.
DApps (Decentralized Applications)
Reaping the Benefits of Flexa
Flexa is leading the pack in pure-digital payments, offering fast and fraud-proof services and supporting over 99 cryptocurrencies over 12 blockchain networks. The collateral token that encourages decentralized transactions is AMP, and stakers are rewarded with AMP for each transaction completed on the network. Flexa is a unique payment network compared to its rivals. It offers an open-source network that combines decentralized and centralized tactics and methods. These are integrated with merchants' payment solutions, decreasing the restrictions and obstacles associated with the entry for merchants, wallets, etc. The Origins of Flexa Flexa was founded by Tyler Spalding, Sach Kilgore, Daniel McCabe, and Trevor Filter in 2018. Tyler has been in the crypto world since 2011. Based in New York, their idea was to bring innovation and versatility to traditional payment networks. They also wanted to address the impact of expensive transaction fees and eliminate fraud by using smart contracts on the network. Why Is Flexa Unique? Flexa introduces a whole new way for people from all walks of life to use Flexa Payment products, and they do so in a cost-effective, affordable manner. Moreover, this platform is compatible with more cryptocurrencies and networks than any other digital currency payment provider on the market. Regulation is typically the primary roadblock for payment solutions due to the harsh regulations surrounding crypto in place today. This company switches things up, being fully licensed and legally authorized to operate nationwide. In addition, Flexa is AML/KYC compliant and ensures that partnerships and participation with the platform are secure and legal. The goal is to expand the platform by including Payments API for customized integrations later on. In addition, Flexa suggests they will be recruiting new strategic partnerships, users, apps, and wallets to achieve net-zero emissions within three years. The Benefits of Flexa Flexa is one of the first networks to offer 100% digitally-secured transactions. Let’s look at a couple of the main benefits of using this service. Privacy Traditional banks and payment card transactions require sending sensitive customer account info through the network, while when using Flexa, you don’t have to do this. Instead, each Flexa payment begins and finishes with a unique, specialized authorization key that cannot be reversed or decrypted. Speed and Security Since Flexa is pure-digital, it makes transactions and payments incredibly quick and safe. When the digital auth code is captured at point-of-sale, the payment amounts are transferred from the customer's account balance. Then it's converted by Flexa. As a result, every Flexa-authorized transaction is 100% guaranteed. Flexa’s payment services facilitate immediate, affordable, and fraud-proof settlements online, in-store, and via mobile apps. Who Uses Flexa? Various stores have already adopted Flexa as a payment option for their consumers, such as Nordstrom, Lowe’s, GameStop, Whole Foods, Barnes & Noble, Petco, and more. Flexa has even partnered with Regal Cinemas, offering movie fanatics the option to pay for tickets and goods with various cryptocurrencies. New capabilities are to be announced in regard to Flexa’s point-of-sale partners, including prospective integrations with Blackhawk Network, Citcon, Aurus, Clover, GK, Shopify, and many more. AMP-supported wallets include Coinbase, Gnosis Safe, Exodus, Krystal, Guarda Wallet, Metamask, Rainbow, and Trust Wallet. As you can see, many have chosen to trust Flexa. How Does Flexa Work? Flexa customers can spend their Shiba Inu digital currency, for example, by sending it via the SPEDN wallet on a smartphone app. They can then use it to pay via the Flex Code on their screen. The merchant can then scan the Flex Code, similar to Apple Pay or QR code, and the amount is paid in either convertible virtual currency or their fiat currency of choice. Flexa will deduct the payment amount from the SPEDN wallet. Why Should I Use Flexa? Flexa is merchant-friendly. Users find that some of the advantages of Flexa include overall reduced costs, elimination of fraudulent activity, faster settlement, and access to the expanding crypto market. In the United States, about 92% of retail payments happen offline in physical stores. (1) As Flexa grows, more individuals will be able to benefit from their collective spending power, and will be doing so in ways that were once unreachable by high fees and unequal rates. Flexa only enables payments from crypto, which are naturally borderless. Flexa is planning to facilitate foreign payments to support crypto's borderless, empowering nature.
General Discussions About Decentralized Finance
Transitioning to ETH 2.0: What Will Happen to Miners?
That’s the central question right now in the DeFi community, a question that’s worth 19 billion dollars. If the plan proceeds smoothly without hang-ups, the merge should occur towards the end of September. So what does this merge mean for Ethereum miners? This transition has sparked debate within the community, with many comparing the pros and cons of proof of work (PoW) and proof of stake (PoS) as September grows closer. The Importance of Blockchain Consensus Two primary elements of blockchain technology are immutable records and, of course, decentralization. Hence, this database in which computers on the network, referred to as "nodes", maintain a shared manner. All of these nodes are ledgers of information. They contain all of the transaction history within that blockchain. Blockchain technology is also a type of DTL, or "distributed ledger network". You cannot destroy this network by taking out a central server. Blockchain technology achieves decentralized security and reliability in various ways. Blocks are linked through a protocol where no existing block can be edited or removed. Adding new blocks is virtually the only way to modify the blockchain. Any node can do it automatically without any type of central authority. A consensus mechanism is required to prevent non-compliant nodes that may cause frequent hard forks. This mechanism also guards against false transactions like double-spending and DDoS attacks. Key Takeaways: A consensus mechanism is a method of validating entries into and keeping the database secure. The consensus mechanism chosen (either PoW or PoS) will heavily impact how and who keeps that database secure. What Is the PoW Method? Mining is a competitive process that adds and verifies crypto transactions that use the PoW method. This mechanism will require network members to solve an arbitrary puzzle to prevent attacks on the database. This puzzle is said to be updated every two weeks to keep optimum security. PoW also requires participant nodes to prove that the work has been completed and submitted. Doing so qualifies them to add new transactions to the blockchain. The participants needed to verify these transactions are known as "miners". Thus the transaction verification process is commonly called "mining". Miners also earn crypto without putting money down and are rewarded for completing blocks of verified transactions and adding them to the blockchain. What Is the PoS Method? PoS differs from PoW because it involves nodes that willfully stake their crypto for validation purposes. These are referred to as "stakers", while the process is commonly called "staking". The larger the stake and the longer the length, the better chances of that staker being allowed to validate transactions. That being said, cryptocurrencies within this network are already created, meaning no "mining" is taking place. Therefore, there’s also no need for puzzles. This is a big debacle for ETH miners because what once earned them passive income will no longer be an option. Stakers can earn money verifying transactions, but they will be chosen algorithmically based on what they have staked in collateral. Why Is This Causing Concern Among the Community? The competition between miners to solve that cryptographic puzzle to validate transactions helps them earn relatively effortless rewards. Moreover, these miners don't have to put any assets down to participate in this process. PoS utilizes algorithmically chosen validators and compensates them with those crypto rewards. To stake on ETH 2.0, these individuals will need to "stake" assets to qualify to be selected to validate transactions on the blockchain. PoW is well-established and tested. It has been used in many cryptocurrency projects in the past and present. On the other hand, high-energy costs strain the environment, along with increasing centralization of mining operations, and low transaction throughput will probably make it obsolete when considering the bigger picture. The PoS algorithm offers a more scalable blockchain and higher transaction throughput. However, many users question the effectiveness of its security compared to completely decentralized PoW algorithms. What Will Miners Do Once ETH Transitions to PoS? One option is for miners to sell their GPUs to gamers on eBay or other platforms and become a validator on the Ethereum network. Validator nodes only require a stake of 32 ETH minimum, opening the door to rewards, tips, etc. This may be a good tactic before September rolls around. Miners who may not be able to afford running a validator node have the option of staking their ETH in the pool, earning rewards through a different means. Graphics processing units (GPUs) are the most common method of mining crypto, being able to hook up 9 GPUs when crypto mining. Yes, we are talking about the same GPUs used in PC gaming. CEO of BitPro, Michael D’ Aria, estimated that around 90% of miners are GPU-based, the remaining 10% being ASIC-based. GPU mining of PoW coins will surely collapse if the merge is successful. The GPU-mineable coin market cap, excluding ETH, sits slightly above $4 billion, about 2% of Ethereum’s cap. PoW coins will only be profitable for a small portion of miners who can access cheap energy sources, but moving to an alternative consensus PoW blockchain might be the choice for some. Larger-scale miners with the knowledge, time, and assets may be able to switch over to high-performance node operators for Web3 protocols or high-performance data centers. Miners may also utilize their existing GPUs for platforms like LivePeer, Akash, or Render Network.
General Discussions About Decentralized Finance
Perpetual Contracts in Crypto: All You Need To Know!
If you've been around in markets like forex, stocks, or crypto for a while, you've probably heard about different types of contracts being used. Whether it's a contract for difference (a CFD), a futures contract, or a perpetual contract, they are all necessary tools to navigate the markets. In traditional finance, perpetual contracts refer to financial derivative contracts that have no expiration date. When signing the perpetual contract, both parties agree that there will be no expiration date nor settlement details, allowing the contract to go about indefinitely. You might ask, why have an indefinite contract? Well, there are a number of reasons why perpetual contracts are used. Namely, they offer a lot of benefits in the world of investing, as they allow traders to hold positions without an expiration—even if the position is leveraged. Traditionally, these contracts were used in the stock market and the foreign exchange market, but now, with the rise of DeFi, they have become popular in crypto too. What Are Perpetual Contracts in Crypto? As we mentioned above, a perpetual contract in crypto is a derivative financial contract that has no fixed expiration date or settlement. Before crypto, the most popular type of perpetual contracts were USD-denominated contracts, which are settled in US dollars. If you've used popular margin trading platforms, you've probably encountered perpetual contracts at least once. Now, there are also crypto-settled perpetual contracts, which are denominated and settled in cryptocurrencies. Crypto-settled perpetual contracts were first introduced on BitMEX in 2016 and have since become increasingly popular. The main benefit of these types of contracts is that they allow traders to take advantage of price movements without having to actually own the underlying asset. For example, let's say you wanted to trade Ethereum but didn't want to actually own any ETH. With a crypto-settled perpetual contract, you can trade ETH without having to hold any of the cryptocurrency—and you can do it indefinitely, as these contracts have no expiration date. Additionally, thanks to the level of development blockchain technology has reached, you could even make a perpetual contract with smart contracts. Although it's still a relatively uncharted space, there are different types of smart contracts, so legally binding smart contracts could be the future of perpetual ones. How Do Perpetual Contracts Work? Now that we know what perpetual contracts are, let's take a look at how they work. The key feature of a perpetual contract is that it's margined. This means that when you open a position, you will only have to put down a small percentage of the total value of the contract as collateral. The amount of collateral you have to put down is called the margin. For example, if you're trading a perpetual contract with a 50x leverage, that means you only have to put down 2% of the total value of the contract as margin. This is one of the main benefits of perpetual contracts—they allow you to trade with a lot of leverage, which can drastically magnify your profits. However, keep in mind that perpetual contracts do not offer risk-free returns like dApps in DeFi do. If you're looking into risk-free returns, consider researching the best dApps for making money. Basis Swaps Diving deeper into perpetual contracts, a key feature they have is that they use a funding mechanism to keep the contract price stable. This funding mechanism is what's known as a basis swap. In a basis swap, both parties agree to exchange the difference in interest rates between two assets. For example, let's say you're long ETH and short BTC on a perpetual contract. If the interest rate of ETH is higher than the interest rate of BTC, you will have to pay funding to the party you're trading with. If you've read about futures, then this might sound familiar, which is why we'll now explain the differences between perpetual vs. future contracts. The Difference Between Perpetual and Future Contracts The main difference between these two types of contracts is that future contracts have a fixed expiration date, while perpetual contracts do not. This means that with a future contract, you will have to close your position before the expiration date—otherwise, you will be forced to take delivery of the underlying asset. With a perpetual contract, on the other hand, you can hold your position indefinitely. This is one of the main benefits of these types of contracts—they allow you to trade without having to worry about an expiration date. Exchanges That Offer Perpetual Crypto Contracts There are many crypto exchanges offering perpetual contracts, but you won't go wrong sticking to big and reputable ones. Consider checking out one of the following exchanges for perpetual contracts: BinanceBlockFiCoinbaseBybit Many of these exchanges also offer automated trading, where you could get into trading cryptocurrency algorithmically. If you're looking into passive income, then algorithmic crypto trading is a great choice for you.
General Discussions About Decentralized Finance
Crypto Savings Accounts: How to Earn Interest on Stablecoins
As the crypto market continues to grow in popularity, more and more people are looking for smart ways to invest their money. One popular way to do this is through a crypto savings account. A crypto savings account allows you to earn interest on your digital assets, much like a traditional savings account. However, there are a few things you need to know before you start investing in a crypto savings account. A crypto savings account is an account that allows you to earn interest on your cryptocurrencies—usually on your stablecoins. These accounts are similar to traditional savings accounts, except they are geared towards investors who hold digital assets. Most crypto savings accounts require you to deposit your coins into a wallet that is provided by the platform. Once your coins are in the wallet, they will begin to earn interest at a predetermined rate. You might ask, why use a crypto savings account when you can use a traditional one? Well, crypto savings accounts typically offer higher interest rates than traditional savings accounts. This is because the crypto market is still relatively new, and there is more risk involved. However, this also means that your earnings have the potential to be much higher. Now that we've got the fundamentals out of the way, let's dive deeper into how crypto savings accounts work. How Crypto Savings Accounts Work Crypto savings accounts work by paying you interest on your digital assets. The interest is paid out in the form of a percentage of your deposit, similar to a traditional savings account. For example, let's say you deposit 1,000 USDT into a crypto savings account that offers 10% interest per year. After one year, you would have earned 100 USDT in interest. Of course, the interest rate offered by a crypto savings account can vary depending on the provider and the market conditions. In general, though, you can expect to earn significantly higher rates than what you would get from a traditional savings account. A crypto savings account should not be confused with yield farming. The two are very different in the way they work, though they both offer solid returns on stablecoins. Why Use a Crypto Savings Account With Stablecoins? There are several reasons why you might want to invest in a crypto savings account with stablecoins, such as the following: High interest rates As we mentioned earlier, crypto accounts offer higher interest rates than traditional savings accounts. This means that you have the potential to earn more with less.It's a hedge against volatility When you invest in a traditional savings account, your money is typically invested in stocks or other assets that go up and down in value. With a stablecoins savings account, your money is usually invested in tokens like USDT and USDC. This means that even if the value of Bitcoin or another asset goes down, your investment will still be safe.Diversification A crypto savings account with stablecoins can give you a way to diversify your investment portfolio. If you only invest in traditional assets, you are putting all of your eggs in one basket, which is against the basic principles of investing. How to Earn Interest on Stablecoins With a Crypto Savings Account Now that we've explained what a crypto savings account is and how it works, let's discuss how you can earn interest on your stablecoins. The first thing you need to do is find a reputable crypto savings account provider. There are many different providers out there, so it's important to do your research before you choose one. Once you've found a provider that you trust, the next step is to deposit your stablecoins into the wallet that they provide. After you've deposited the coins in the wallet, they will begin to earn interest at the rate that is set by the provider. Remember That Interest Rates Can Change The interest rate offered by a crypto savings account can change over time. This is because the interest rate is usually determined by the market conditions. For example, you could lock your 10,000 USDT at a 10% APY and wait for it to become 11,000. However, by the time the earning period ends, you could end up with more or less money due to different market conditions. Nevertheless, on the vast majority of platforms, the rate for stablecoins varies from 6-10%. You can also consider earning interest with stablecoins through the use of a smart contract. This is different than a crypto savings account, as it requires you to lend your stablecoins on a decentralized protocol where other users will borrow your assets, giving you profit each time they do. Risks Associated With a Crypto Savings Account Before you invest in a crypto savings account, it's important to understand the risks involved: As we mentioned above, you should remember that the interest rate offered by a crypto savings account can change over time. This means that there is a chance you earn less money if the interest rate goes down from 10% to 8%. This is especially true with algorithmic tokens like the Ampleforth stablecoins. Another risk to consider is that some stablecoins savings account providers may not be reputable. In the bear market of 2022, many crypto platforms have gone out of business, so it's not unheard of that investors lose some or all of their stablecoins. For this reason, many have flocked to DeFi lending and yield farming, but it's important to be aware of the risks of yield farming.Finally, you should remember that crypto is still a new space, and is taken with a grain of salt by big and reputable financial institutions. The industry still has a long road to mature, so make sure you're here only for the long run. Best Crypto Accounts for Earning Returns on Stablecoins If you're consider investing in a crypto savings account that can offer you a high return, you should do it only at a reputable platform. Consider choosing from the ones below: Nexo A platform that offers up to 12% APY on your stablecoins. However, the platform has a loyalty level you have to reach before you can start earning in the high-returns bracket.Crypto.com Offering up to 10% on its stablecoins. Keep in mind, though, that the platform has been known to frequently change its interest rates.Binance Probably the most reputable place where you can earn interest on your stablecoins. However, they don't have a fixed savings rate. Instead, you have to periodically look for opportunities to stake your crypto for 3-6 months at a time. In conclusion, you can look at a crypto savings account as a relatively low-risk, yet solid-return investment. Reputable stablecoins have kept their peg to real-world assets for quite a while, and they will probably continue to do so in the future. Of course, you should also do your own research and see which platforms and stablecoin projects look the most appealing to you.
General Discussions About Decentralized Finance
Understanding Arbitrage in DeFi: Opportunities, Strategies, and Risks
Arbitration is the simultaneous purchase and sale of an asset in different markets to take advantage of price discrepancies. In traditional finance, this usually refers to buying and selling assets in different countries or exchanges to profit from differences in prices. In the world of decentralized finance (DeFi), arbitration refers to the practice of taking advantage of price differences between different protocols or exchanges. This can be done by buying an asset on one platform and selling it on another platform for a higher price or by lending an asset on one platform and borrowing it at a lower rate on another platform. By arbitraging between these different platforms, users can earn a risk-free return on their investment. But going through the hassle of centralized platforms would make DeFi arbitrage much more difficult than it has to be. Thankfully, this is where decentralized exchanges come in, as decentralization is one of the key features of DeFi. How Does Arbitrage Work in DeFi? So far, we've covered what arbitrage is, but how does DeFi arbitrage work? Arbitration in DeFi works by taking advantage of the fact that different protocols have different prices for the same asset. For example, suppose you have cash ready to buy 1 ETH. Let's say that the price of ETH on Binance is $1,000, while the price of ETH on Nexo is $1,050. If you buy ETH on Binance and then immediately sell it on Nexo, you will earn a profit of $50. This arbitrage opportunity exists because the two protocols have different prices for the same asset. Of course, to take advantage of this opportunity, you need to be able to move your ETH from one protocol to another quickly and with minimal fees. Transferring Crypto Between Exchanges Decentralized exchanges are protocols that allow you to trade assets without having to trust a centralized third party. Instead, trades are executed by smart contracts on the blockchain. This means that you can move your ETH from one protocol to another quickly and without fees, making them perfect for arbitrage trading. There are many different decentralized exchanges available, each with its own advantages and disadvantages. Some of the most popular decentralized exchanges include 0x Protocol, Kyber Network, Bancor Network, and AirSwap. With many different of DEXs to choose from, they rarely have the exact same prices for the same assets, so arbitraging between them is a great way to earn a risk-free return on your investment. Types of Arbitrage Strategies in DeFi There are many different arbitrage strategies that can be used in DeFi. Let's take a look at the most popular ones. Triangular Arbitrage In triangular arbitrage, a user takes advantage of the fact that the prices of assets are not always directly correlated. For example, suppose the price of ETH on Kyber Network is $1,000, and the price of ETH on Bancor Network is $1,100. At the same time, the price of BNT on Kyber Network is $100, and the price of BNT on Bancor Network is $110. If you trade 1 ETH for 10 BNT on Kyber Network and then trade 10 BNT for 1.1 ETH on Bancor Network, you will end up with 1.1 ETH and $10 in BNT—giving you a clear profit. This arbitrage opportunity exists because the prices of ETH and BNT are not directly correlated. To take advantage of this opportunity, you need to be able to move your ETH and BNT between the two exchanges quickly and with minimal fees. Cross-Exchange Arbitrage In cross-exchange arbitrage, a user takes advantage of the fact that the prices of assets can differ on different exchanges. It's the most frequent type of arbitrage as it's the easiest one to do, and it can be quite profitable if you have trading strategies in place. For example, suppose the price of BTC on Kyber Network is $19,000, and the price of BTC on Bancor Network is $20,000. If you buy BTC on Kyber Network and then sell it on Bancor Network, you will earn a profit of $1,000 for each BTC sold. Similar to triangular arbitrage, this opportunity exists because the two exchanges have different prices for BTC. Market Making Market making is a type of arbitrage that involves providing liquidity to a market. In return for providing liquidity, market makers are rewarded with a small portion of each trade that is executed on the market. For example, suppose there is a market for the token ADA with a bid price of $1, and an ask price of $1.5. If you buy ADA at the bid price of $1 and then sell it at the ask price of $1.5, you will earn a profit of $0.5 for each token traded. This opportunity exists because there is a spread between the bid and ask prices. By providing liquidity to the market, you are effectively narrowing the spread and increasing the efficiency of the market. However, it's worth mentioning that, in order to be successful at market-making, you need to have a deep understanding of the market you are trading in and be able to execute trades quickly. Risks Associated With Arbitrage in DeFi While arbitrage can be a great way to earn a risk-free return on your investment, there are a few risks associated with it. Counterparty risk When you are trading on a decentralized exchange, you are trusting that the other party will fulfill their side of the trade. If they do not, you could lose your profit.Liquidity risk When you are trading on a decentralized exchange, you are also trusting that there will be enough liquidity in the market to fill your order. If there is not, you could end up being stuck with an asset that you cannot sell.Volatility risk Crypto assets are quite volatile, usually having price swings of 3-5% in 24 hours. This could make you have a smaller profit than what you originally anticipated. How to Find DeFi Arbitrage Opportunities There are many different ways to find arbitrage opportunities in DeFi. One way is to manually check the prices of assets on different protocols and exchanges. This can be time-consuming and is not always accurate, as prices can change quickly. Usually, a better way is to use a tool like the DeFi Pulse index or Codefi Data to track prices in real-time. These tools allow you to quickly and easily see which assets are under or overpriced on different exchanges. Once you have found a DeFi arbitrage opportunity, you can trade directly on a DeFi based on the Ethereum network, or use a tool like 1inch Exchange or Paraswap to automatically execute the trade for you.
General Discussions About Decentralized Finance
The Most Popular Stablecoins You Have to Trade and Invest In
If you've been lurking in the crypto space, you've probably heard of stablecoins at least once. Namely, a stablecoin is a digital asset that is pegged to a real-world asset, such as gold or the US dollar. The aim of a stablecoin is to provide a more "stable" alternative to traditional cryptocurrencies, which are often regarded as highly volatile assets. Now that we've covered what stablecoins are and how they work, let's take a look at some of the most popular stablecoins, as well as the pros and cons of using them. 1. USD Tether (USDT) USDT is the most popular stablecoin in the world, and it's sometimes regarded as the most used cryptocurrency—even more than Bitcoin. Namely, Tether frequently has a higher daily trading volume than Bitcoin, as people see it as the most convenient way to pay with crypto. Regarding how USD Tether works, the coin is pegged to the US dollar, so each USDT token is backed exactly by $1 held in reserve. This is absolutely necessary, as having less than what's required in reserve would eventually de-peg the token from the dollar, which was the case with TerraLuna's stablecoin UST. Pros: The most popular & widely used stablecoinPegged to the US dollarAvailable on almost all exchangesExtremely low transaction fees Cons: There is some controversy surrounding USDT, as there have been allegations that it is not fully backed by USD reserves Regarding whether or not USD Tether is taxable, it's worth mentioning that it depends on the relevant jurisdiction. For the most part, USDT is not taxable. The only scenario where USDT would be taxable is if you'd have capital gains on it through trading. 2. USD Coin (USDC) USD Coin (USDC) is a dollar-pegged stablecoin that was launched back in September 2018 by Circle, a Boston-based fintech company. Namely, USDC is an ERC20 token that's based on the Ethereum blockchain, and it's currently the second-largest stablecoin by market capitalization after Tether, making it one of the most popular stablecoins. Just like USDT, each USDC in circulation is backed by one US dollar that's held in a reserve vault. The only difference is that USDT is issued by Tether, while USDC is issued by Circle—everything else works the same. The reserve funds are held with multiple banks, which adds to the transparency and overall security of the system. Pros: Fully backed by USD reserves, as proven by its recent auditAvailable on almost every major exchangeIt can be used to earn money through interest and stablecoin yield farming Cons: Less popular than USDT With regard to USDC's taxability, it's more or less in the same boat as Tether. By itself, USDC is not taxable, as stablecoins aren't legally regulated yet. So, sending and receiving USDC will not make you liable for taxation. However, earning profits with USDC (like using it for yield farming) might require you to pay a capital gains tax to your relevant jurisdiction. Consider reading the details as well as the risks of yield farming before you commit to it. 3. DAI Just like the previous two stablecoins on the list, DAI is a decentralized stablecoin that's pegged to the US dollar. However, unlike the other two USD-pegged stablecoins, DAI is not backed by USD reserves - instead, it's backed by crypto assets, specifically Ethereum. With DAI, anyone can collateralize ETH and generate DAI. The process is called "collateralized debt position" (CDP), and it works by depositing Ethereum. First, you create a smart contract on the blockchain and deposit a specific amount of ETH. This creates a debt position, which is then used to mint an equivalent amount of DAI. So, if you deposit 1 ETH into a CDP, you'll receive the current value of Ethereum in US Dollars - at the time of this writing, 1 ETH is equal to 1,064 DAI. You can then use this DAI to buy other cryptocurrencies or to pay for goods and services. Pros: Popular stablecoin that's based on the Ethereum blockchainOften regarded as the most decentralized stablecoinAnyone can generate DAI and use it to buy other assets Cons: Not as widely used as other stablecoinsLess "stable" than other stablecoins, as the value of DAI can fluctuate based on the price of ETH 4. Paxos Gold (PAXG) PAXG is one of the most popular stablecoins that's gold-backed and runs on the Ethereum blockchain. Unlike the other stablecoins on this list which are pegged to fiat currencies, PAXG is pegged to the price of gold. So, each PAXG token is backed by one troy ounce of a gold bar that's stored in a high-security vault. Pros: The most popular gold-backed stablecoin that's based on the Ethereum blockchainMakes buying gold much easier, faster, and more accessibleIt is a great hedge against inflation Cons: Not as widely used as other stablecoins Just like the other stablecoins on this list, PAXG is not explicitly taxable. In fact, according to the company that created the token (Paxos), you can redeem one token for one troy ounce of gold at any time—and as an asset itself, gold is not taxable either. However, to redeem PAXG for physical gold, you'd have to physically go to Paxos's custodied vaults.