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A brief primer on decentralized finance and being a liquidity provider.
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@shortsegments
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What is Decentralized Finance
- Decentralized Finance (DeFi) is a financial system built on blockchain technology, which allows people to manage their own money without the need for banks or other middlemen.
What is DEFI Farming?
- Farming on a DeFi project means lending or staking your cryptocurrency to earn more of that same cryptocurrency or other rewards.
What is a liquidity pair on a Decentralized Exchange (DEX) in DEFI?
- A liquidity pair on a Decentralized Exchange (DEX) is a combination of two different cryptocurrencies that people can trade with each other.
What is a liquidity provider on a Decentralized Exchange (DEX) in DEFI?
- A liquidity provider on a Decentralized Exchange (DEX) is someone who puts their cryptocurrency into the liquidity pool for a certain pair.
- This helps make sure there's always enough of each cryptocurrency available to trade, and in return, the liquidity provider earns a small fee.
What are the Pros and Cons of being a Liquidity Provider in DEFI?
Pros of being a liquidity provider on a Decentralized Exchange (DEX) include:
- Earning rewards for providing assets
- Helping the exchange run smoothly
- Potential for price appreciation of the assets
- Increased exposure to a wider range of assets.
Cons of being a liquidity provider on a Decentralized Exchange (DEX) include:
- Impermanent loss, which means the value of your assets can decrease if the price of the assets in the liquidity pair changes
- Risk of loss if the exchange is hacked or has a technical issue
- Need to continuously monitor the exchange to ensure the assets are safe
- Potential for decreased liquidity if too many people try to sell the assets at the same time.
Last Words...
- DEFI is a new investment type where the world of computers and software meet the world of finance and investing.
- Many new investment strategies are being created, but many of them are old strategies with new types of assets and a different regulatory environment.
- Investors are attracted to DEFI because the yields are much greater then tradition stocks right now.
- But the assets are very violatile in value, being worth dollars one day and pennies a week later.
- Investors are at risk of lsing everything, but also making large sums of money.
- The popular theme is to only invest what you can afford to lose.
- Thats it.
@shortsegments
Here are ten references to help you learn more about DeFi:
DeFi Pulse (defipulse.com) Binance Academy (academy.binance.com/en/topics/decentralized-finance) DeFi Rate (defirate.com) DeFi Wiki (defi-wiki.io) DeFi Reddit (reddit.com/r/DeFi) DeFi News (definews.com) ConsenSys (consensys.net/resources/defi) DeFi Market (defimarketcap.com) DeFi Alliance (defialliance.io) DeFi Buzz (defibuzz.com) LeoGlossary: Main Menu Decentralized Finance Decentralized Exchange (DEX) Liquidity Pool Token