In our previous article on decentralized finance (defi) we provided a bird's eye view of the industry and looked at the case for and against the defi movement being the best thing since Bitcoin.
Now, we're going to put the theory behind defi to the test and explore what you can actually do with it today.
While numerous "Construction in Progress" signs are still in place, many of the decentralized finance protocols that have turned this crypto vertical into a $3.4bn behemoth are operational, and many more are in their final stages of development. As amazing as the growth in total value locked in defi may seem, it is not, however, the most important impact that these innovations will have.
Because defi is centred around “composability” - i.e., different components and protocols can be fitted together to create new products - the fact is that the platforms mentioned here will provide the building blocks for the next wave of innovation.
But that’s all some way down the line.
Right now, we are interested in what you can do with defi today – and why you might want to do it.
Before we plunge in, two disclaimers:
1) Do not interact with defi platforms until you have a reasonable working knowledge of using cryptocurrency, private-key management and interacting with web3 wallets such as MetaMask.
2) This guide is for educational purposes only. As with any other investment decision, you should always perform due diligence. Furthermore, given its nascent state and the very real potential for smart contract bugs and exploits, do not place more than you can afford to lose.
With the disclaimers out of the way, let’s take a look at five platforms that can help you earn free crypto. The decision to profile these specific platforms is based on a combination of two factors: the most popular defi protocols based on total asset value locked into them, as denoted by Defi Pulse (in other words, the ones others seem to be trusting), and a desire to showcase some of the different categories that exist that offer opportunities beyond the more common liquidity pools or decentralized exchanges (DEXs).
At the end of each profile we offer a rating out of 10 to give you an idea of the ease of interacting with the protocol in question. The higher the rating, the easier the dApp is to use as a beginner.
Total earnings paid out to users of the most popular defi platforms
What it does: Maker is a decentralized credit platform that is used to issue DAI, a stablecoin that is collateralized (i.e., backed) by other crypto assets such as ETH. Maker is the largest defi protocol based on the total asset value (TAV) locked into it, which at the time of writing stands at over $700 million.
How you can profit from it: You can use Maker to open what’s called a Vault and to lock collateral such as ETH into it, and then mint DAI. Other crypto users can then borrow that DAI, and you’ll earn interest in return. There are a few other ways to make money from Maker, such as liquidating undercollateralized Vaults and earning a reward, but this is for more advanced users.
Where to get started with Maker: Oasis, a portal maintained by Maker, is the best place to begin. There you can trade, borrow, save and earn interest on your DAI holdings. Because defi is decentralised, there’s nothing to stop third parties from building upon frameworks such as Maker, and thus you'll encounter plenty of other platforms maintained by third-party developers where you can interact with the Maker ecosystem.
Ease of use: 4/10
What it does: Compound is a lending platform. Lock assets into it as a lender and you’ll earn interest; borrow assets from it and you’ll pay interest. Compound enables anyone to supply Ethereum assets, including stablecoins, to its liquidity pool and to earn compounding interest.
How you can profit from it: Use a browser wallet such as MetaMask to connect to Compound. You then give Compound permission to lock the assets you wish to lend into a smart contract and that’s it: you've become a lender. One of the best things about Compound is its clean design and UX, making it beginner-friendly. Compound is the leading defi platform based on earnings, having paid out more than $13.2 million to date.
Where to get started with Compound: Visit compound.finance to learn more and then hit the App button when you're ready to begin.
Ease of use: 8/10
What it does: Synthetix enables synthetic assets to be created and traded on the Ethereum blockchain. These mimic the value of real world assets such as gold, silver, or stocks. This is a big deal because it enables anyone, anywhere, to trade assets that are normally the preserve of accredited investors. What's more, they can be traded trustlessly - meaning you don't have to custody your crypto to participate.
How you can profit from it: SNX is the native token of Synthetix. Over the past year, simply buying and holding SNX would have been a very profitable strategy. However, the token's actual purpose is to collect fees for the minting of Synths – the synthetic assets that are created as ERC20 tokens.
Where to get started with Synthetix: If you'd like to investigate and see what Synthetix is capable of, the best place to begin is Mintr. There you can stake SNX and earn a return on your assets.
Ease of use: 6/10
HODLing SNX would have delivered some healthy returns
What it does: Balancer is an automated market-maker. Anyone can lock tokens into a Balancer pool and earn a share of the trading fees. These liquidity pools enable traders to swap in and out of particular assets – say, ETH to WBTC – without incurring high slippage or needing to custody their funds.
How you can profit from it: When you lock your crypto tokens into a Balancer pool, you are issued BPT tokens commensurate with your share of the pool. This corresponds to the ratio of total fees collected by the pool that you're entitled to, which will be periodically sent to your wallet.
Ease of use: 7/10
5. Curve Finance
What it does: Curve is another decentralized liquidity pool - a bit like Balancer - but for stablecoins. It enables stablecoins to be swapped with low fees. But Curve also does some other fancy stuff, like permitting tokens held in its liquidity pools to be supplied to other protocols like Compound, earning holders an additional ROI.
How you can profit from it: Start by locking your stablecoins, such as DAI, USDT, or TUSD, into a Curve pool. You can then start earning interest on your holdings, as they're loaned out via other defi protocols such as Compound.
Where to get started with Curve: Visit curve.fi and connect your web wallet. Its interface isn't pretty, but behind the scenes there are some extremely sophisticated smart contracts pulling the strings.
Ease of use: 5/10
Decentralized finance still has a long way to go before it can make good on many of its loftier promises, such as providing financial inclusion for the unbanked and hard to bank. For one thing, Ethereum fees are too high right now to facilitate this, but this is being addressed and the launch of ETH 2.0 later this year, coupled with second-layer scaling options, should be able to address this.
What is clear from examining the current state of play within the defi space is that there are applications seeing significant usage and disbursing millions of dollars in earnings to users who lock assets into them.
It's too early to call it a financial revolution, but it's a big step for crypto, if not yet for mankind.
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