“You are providing your capital and getting a return on them, but this is not without risks as some of the smaller DeFi projects have suffered exploits in the past,” says Nguyen, meaning “hacks”. Its main goal is to let users and other decentralized protocols exchange stable coins and capture some yield that way. Aave pay yield for collateral, but not for farming.Ĭurve Finance is not for beginners. If you owned DAI and you deposited it in the Aave application, you could earn 1.57% APY. It’s one of the biggest stable coins and yield paying coins out there with a market cap of more than $4 billion.Īave, another DeFi protocol I have been looking at to buy, defines itself as a non-custodial liquidity protocol designed for earning interest on deposits and borrowing assets in crypto. Their DAI coin is a stable coin that basically trades in line with the dollar and pays around 2% yield. The Maker Protocol is one of the largest decentralized applications on the Ethereum blockchain, and was the first DeFi application to earn significant adoption. “Some good examples are MakerDao, Aave and Curve,” Shpirman says. Investors are paid in “rewards”, which is like yield and – depending on the project. Just as a bank takes a deposit from a customer and pays him 1% interest and then loans that same amount out to another customer and charges 5% in interest, a decentralized protocol will do the same thing but with a “smart contract” in the middle to reduce cost and increase efficiency. In April, Don-Key completed a private funding round to bootstrap it’s Defi social yield farming platform to the tune of $2.2 million captured from some of the new blockchain funds like Black Edge Capital in Chicago, Genesis Block Ventures in the Caymans, MoonWhale of Bangkok, and Dubai’s Morningstar Ventures, to name a few. “DeFi is trying to imitate traditional financial service providers with a decentralized twist,” says Gil Shpirman, CEO of Don-Key.Finance. High risk, high reward, if you get the timing right and the underlying instrument is sound and serious about paying what it promises. Like traditional dividend payments, if the price per coin goes up, then the yield paid on your crypto gives you new coins and now you have more coins that are worth more money.īut DeFi yield, for traditional Wall Street investors, is a little more like C rated junk bonds. In actuality your coin balance will only increase maybe 4.6% in those 15 days,” he says. One main issue is that annual percentage yield might be high but the staking period available is low – for example you can reach 200% APY in 15 days, assuming it’s compounded daily. But, deciding on coin investment purely based on the yield offered will be problematic since there are also downsides to take into account. “If it is decided to hold certain project’s tokens over the long run, then exploring yield-paying systems is an option. “The focus of investors should be on the fundamentals of the project, not just the yield it pays,” says Eric Nguyen, CEO of Spores Research, and a former senior investment analyst of Elliott Management, a hedge fund with over $35 billion in assets under management. Anyone with a Coinbase account can easily discover which coins pay yield. Like a traditional dividend paying stock or bond, yield on DeFi tokens fluctuates depending on how these projects and exchanges roll them out.
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