"Making money" is not exactly what you are going to do, but it gives a good idea as the plan is to allocate a capital and collect the accrued interest.
In this quick article we will look at how to make money using small start-up capital and decentralized finance (DeFi). 👇
There are many ways to invest a capital, here we will see two, classified with a medium-high risk/benefit ratio. But let's start with the definition of "capital": I am not referring to the meaning of the term but to "how much" of this to use in these investments. DeFi is synonymous with high risk, which is why it is important to employ very little capital, which you are willing to lose. Personally, I believe that 1-2% of your investment portfolio (and in any case no more than $500) is the maximum I could allocate to a DeFi platform. But this is only my opinion and certainly not financial advice!
To get started, make sure you know how to use Metamask and major DeFi platforms, to do so read these guides:
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The METAMASK Tutorial
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Ultimate Galactic Guide to the Cronos Chain
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My DeFi experience #2: Osmosis Zone on Cosmos
The first method is (obviously) the one called "Farm&Dump" that I described in this article: Farm & Dump. To summarize and contextualize: I choose two or three platforms with high incentives, on which to go to pay liquidity, and I earn an equally high interest. I suggest studying the choices well and making more than one, to diversify exposure and return. Currently, Osmosis (Cosmos), VVS Finance (Cronos) and Maiar (Erlond) can be used. All three return APYs above 100%, are relatively simple to use and have very low fees.
However:
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They credit the interest with their token, which is usually destined to lose value over time.
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APYs decline as liquidity increases.
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You are exposed to impermanent loss.
I will not go into specifics, but it should be remembered that the use of the aforementioned platforms includes giving liquidity to one or more pools, staking the LP-tokens that are received in exchange and, finally, reselling the earned tokens.
The second method is a variation of the "Deposit&Forget". I'm talking about a variant because with DeFi it is not possible to sleep peacefully due to the lack of security that characterize the new protocols. However, some of these offer an acceptable compromise, such as Venus.io (BSC) and Anchor Protocol (Terra). These are platforms where you can deposit liquidity, without time constraints and without the need to put LP-tokens back into play. On the other hand, however, high interests are sacrificed (around 10-20% is perceived). Both platforms merge an initial deposit (like CeFi) and from that moment interest begins to accrue. They are extremely easy to use and certainly more suitable than the previous ones for less experienced users.
Therefore:
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Easy to use,
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Need to be checked less often,
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No impermanent loss because there are no pools made up of 2 different tokens.
But:
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Lower returns,
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Interest paid in the platform token.
So how much do you earn with these methods?
Suppose we allocate $500 to each of the three platforms of the first method, taking into account the APYs and allocating the liquidity to the pool with the highest interest, the returns could:
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Osmosis.zone (APY 150%): $2.05 per day
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Maiar exchange (APR 142%): $1.95 per day
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VVS Finance (APR 700%): $9.6 per day
For a total of $13.6 (approx) per day, which is about 2.5% daily interest.
I calculated the daily interest and not the annualized one as the APYs on these platforms are very volatile. It must therefore be borne in mind that the calculations are correct only when they are made. Furthermore, on some of the pools that make such high interest rates, 50% of the platform's token was exposed, therefore the exposure of the initial capital must also be studied before proceeding.
In conclusion, I remind the reader to always follow the usual rules:
1. DYOR before invest.
2. If it looks like a scam to you, it's a scam.
3. Don't invest more than you are willing to lose.
Hola | Ciao | Bye 👋
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