Decentralized Finance (DeFi) is the wave of the moment in the Blockchain Space. Many people now see it as a means to grow their money outside the traditional banking system that pays negative interest rates in most countries.
Funny enough we have over 200 DeFi platforms offering various services from Lending, Borrowing, Predictions, etc. And the majority of them are built on the Ethereum blockchain.
So how do you make money from DeFi Application?
Although there are numerous ways you can make money on DeFi applications; below are the 3 best ways Nigerians can make money from DeFi apps.
1. Saving money on DeFi platforms
This simply involves saving your Cryptocurrency on a trusted DeFi platform and accruing an average percentage return (APR) on it. Your AVR is the average return you get from each loan that is lent out, and it depends on the duration of the loan.
Nevertheless, you can get up to 10% APR per month depending on the cryptocurrency that you saving with them.
I’m sure you’re thinking, Cryptocurrencies are very volatile, and there is no point earning 10% interest in a year when the price of your Cryptocurrency keeps falling.
Although that is very true, the way out is to save stable coins with the DeFi App. A stable coin is simply a currency that’s always pegged to a Fiat Currency on a ratio of 1:1, and examples are Tether(USDT), USDCoin(USDC) and so many out there. Since USDT is a dollar-pegged stablecoin, the maths is that 1 unit of USDT should always be equal to 1 unit of Dollar, so if you save USDT you can get up to 8% APR even though it’s stable and not as risky as most cryptocurrencies out there i.e Bitcoin.
Again; saving USDT on DeFi App will accrue about 4% – 8% APR and it won’t be affected by fluctuations in the Cryptocurrency market.
Hedging on DeFi:
This is one of the most interesting ways to make money in the crypto space. To understand it better, I want you to imagine that someone wants to borrow money from you and use their cryptocurrency as collateral. So that when they bring back the money they borrowed, you release the cryptocurrency to them. In this scenario, what you do is give the person the money, and collect the equivalent cryptocurrency, let’s say Bitcoin. You then put the Bitcoin into a DeFi to generate 9% APR.
When the person returns the money you lend him, you can return the Bitcoin but keep the 9% APR. Note that this deal can go soar if the person never returns your money and the value of the Bitcoin you collected has gone down in price due to a falling Bitcoin price.
Borrowing from DeFi App
This is another simple way to make money from DeFi apps. If you’re certain the price of Bitcoin has reached a peak and it’s going to fall with a considerable margin, you can borrow Bitcoin and sell it at the top, then pay back the loan when the price is low.
- This looks like this, you borrowed 1 Bitcoin @ 12% APR when the price is $20,000.
- This means you’re expected to pay back 1.12 Bitcoin(1BTC + 12% interest(0.12 BTC))
- And if you sell the Bitcoin you now have $20,000 in your account.
- You can as well wait till the Bitcoin price fall to $10,000 and use the $20,000 you have to buy 2 BITCOIN.
- Out of the 2 Bitcoin, you can now decide to pay back your loan of 1.12 BTC. Leaving you with a profit of 0.88BTC.
Can you see that making money from DeFi is not rocket science? All you need is to find the best method that works for you out of these 3.
Have been using them for over 6 months and there is no cause for complaint.
I hope you enjoyed this article, and if you have any questions don’t hesitate to ask them below.