Once I first began in DeFi, I used to be on the lookout for the best strategy to earn cash — Black-box buying and selling programs, ROI dapps, and glossy advertising and marketing pitches. I chased initiatives that promised insane returns, considering I had cracked the code. However in case you’ve been following this collection, you know the way that turned out. I used to be exit liquidity extra instances than I’d prefer to admit.
Over time, I began to appreciate one thing: the true cash in DeFi isn’t in chasing hype — it’s in enjoying the function of the financial institution. Within the final article, I talked about how offering liquidity to decentralized exchanges enables you to earn charges, similar to a market maker does in TradFi. However there’s one other piece to this puzzle, and it’s one which utterly modified the way in which I method DeFi: lending and borrowing.
I keep in mind the primary time I actually understood how DeFi lending labored. Up till then, I had been fascinated with lending the identical manner I thought of banks. You deposit your cash in a financial savings account, they provide you 0.1% curiosity, after which they lend it out at 7% — pocketing the distinction. I simply assumed that was how issues labored.
However in DeFi, there are not any banks — simply good contracts. As a substitute of a intermediary deciding who will get entry to capital and retaining all of the revenue, lending protocols like Aave & Kamino Finance let customers lend belongings on to others and earn the yield themselves. No gatekeepers. No approvals. No paperwork.
That’s once I realized: I might be the lender.
The primary time I borrowed in DeFi, I used to be nervous. In TradFi, taking out a mortgage is an enormous deal — you need to show you’re worthy, signal a bunch of paperwork, and hope they approve you.
In DeFi, it’s completely different. No person checks your credit score rating. You probably have collateral, you possibly can borrow immediately. So, I deposited some ETH into Aave, borrowed stablecoins in opposition to it, and abruptly, I had additional liquidity to work with — with out promoting my ETH. That was a game-changer.
Right here’s why that is highly effective:
- You possibly can unlock liquidity with out promoting belongings. That is nice for long-term holders who don’t wish to lose publicity to their crypto.
- You need to use borrowed funds to earn extra yield. If accomplished proper, you can also make your cash work in a number of locations without delay.
- It’s environment friendly and automatic. No approvals, no paperwork — simply good contracts doing what they had been designed to do.
After all, borrowing comes with dangers — if the worth of your collateral drops an excessive amount of, you will be liquidated. However when you perceive tips on how to handle these dangers, borrowing turns into an extremely highly effective instrument.
As I saved studying, I began stacking methods. Why simply lend my bluechips once I may additionally present liquidity?
I began lending out ETH on Aave to earn yield, then borrowing in opposition to my ETH to present liquidity on a DEX. Now, I wasn’t simply incomes curiosity — I used to be additionally amassing buying and selling charges. As a substitute of simply holding belongings and hoping they went up, I used to be actively utilizing them to generate yield. That’s once I really began making DeFi work for me.
That is what separates those that earn cash in DeFi from those that don’t — understanding tips on how to layer methods.
If there’s one factor I’ve realized, it’s that DeFi isn’t about throwing cash into the most recent challenge and hoping that this one is completely different. It’s about leveraging instruments like lending, borrowing, and liquidity provision to create money circulation.
Banks do it day by day. They take deposits, lend cash, and gather charges. DeFi offers you the prospect to do the identical factor — however in your phrases.
So, subsequent time you’re questioning what to do along with your belongings, ask your self: Are you utilizing DeFi like a retail investor, or are you utilizing it like a financial institution?
Within the subsequent article, we’ll dive deeper into combining these methods right into a sustainable portfolio — one which earns yield, preserves capital, and grows over time. Keep tuned!
Article 1: Getting Actual with DeFi: Is It Simply One Massive Rip-off?
Article 2: Getting Actual with DeFi: WTF Is Defi Anyway?
Article 3: Getting Actual with Defi: Be the Financial institution
The content material offered on this article is for instructional and informational functions solely and shouldn’t be thought of as monetary or funding recommendation. At all times do your individual analysis (DYOR) and seek the advice of with an expert earlier than making any monetary selections. The opinions expressed are solely these of the writer and don’t symbolize any monetary establishment or group.