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DeFi, or decentralized finance, offers you the ability to utilize financial services without a centralized authority standing between your transactions. You can lend, borrow, buy, sell, trade, invest, earn interest, and engage in other financial endeavors securely on the blockchain. Here is a look at how to get started trading in DeFi and some of the things you need to know when starting.
1. Buy Crypto
As DeFi and its ecosystem exist and operate on blockchains, you will need crypto to navigate and fully engage in the protocol. For DeFi, specifically, it’s a good idea to consider Ethereum (ETH) or stablecoins pegged to the dollar. You can buy crypto on centralized exchanges, decentralized exchanges (DEXs), or through peer-to-peer (P2P) platforms.
A centralized exchange may work best for beginners. A DEX will allow you to swap crypto directly and come with an added modicum of privacy and security. P2P platforms give a lot of options when it comes to buying, selling, and swapping crypto directly and tend to allow various payment methods to do so.
In all cases, look around, do a little extra research, and make sure you understand how these transactions work before committing to them.
2. Download a DeFi Wallet
Your DeFi wallet will allow you to store, receive, send, or swap cryptocurrencies. DeFi requires a noncustodial wallet because DeFi transactions occur between users, rather than between intermediaries.
You’ll find the following options when it comes to DeFi wallets:
- Web wallets run in browsers as extensions or addons, and connect to DeFi platforms and services.
- Mobile wallets run on your mobile devices and can connect to DeFi platforms through links, QR codes, and other methods.
- Hardware wallets sit on a physical device that you access through a connection on your computer or other device and offer the most security.
Choose a wallet that offers strong security and an interface that you can work with. Never share your wallet’s credentials.
3. Research Tokens
Tokens represent digital assets and there are hundreds of them. One way to narrow things down is to consider what it is you would like to do with DeFi. Each token comes with a purpose and function:
- Governance tokens give you voting rights within the protocol.
- Liquidity pool tokens represent contributions that can create passive income for you.
- Utility tokens can give you access to features, services, or other aspects of the protocol.
Tokens in DeFi always represent a particular function within the protocol, so you can choose how you want to engage with DeFi and start researching from there.
The possibility for scams exists as well when it comes to tokens, and are a constant worry for those who speculate or look for the next new thing in a DeFi token. For example, rug pulls occur when developers abandon a token project after raising funds.
When researching DeFi projects and tokens, make sure you understand how the token works, how to read an analysis of the token, what risks may come with the token, and the reputability of the token.
4. Stay on Top of Trends with Social Media
A huge number of people, developers, and businesses behind DeFi, dApps, and related protocols have a social media presence. Use social media to find opportunities, tips, insights, discussions, and other information concerning DeFi in practically every capacity.
Whole groups, channels, experts, and communities dedicated to not just DeFi, but to individual aspects of the protocol exist on social media. You’ll typically find new projects discussed or introduced on a social media platform first. When you’re studying, researching, and listening to social media voices, make sure to look for reputable and respected accounts. Additionally, always do your own research (DYOR).
DeFi opens a world of possibilities, and you can have a lot of fun with it, treat it as a serious financial vehicle, or both. It doesn’t take much to get started, and a little research goes a long way. Experiment a little to see what aspect of the protocol appeals to you most.
Author Bio –
Zaid is a freelance content writer and outreach specialist for several SEO agencies and blogs. He loves watching movies and then talking about them.
