Skip to content

Use of cryptocurrencies compared to decentralized financing (DeFi)

July 12, 2020

Two major activities are currently centered around the blockchain ecosystem and are stakeout and DeFi projects. Although both are part of the new decentralized economic model proposed by this technology, both have very clear differences and advantages in relation to each other.

Staking is about getting a reward for maintaining network security on a specific blockchain platform that works under the “Proof of Stake“ PoS ”consensus mechanism.

Decentralized finance projects, popularly known as DeFi mainly focuses on active decentralized margin trading, token-backed loans and borrowing.

Use of cryptocurrencies compared to decentralized financing (DeFi)Use of cryptocurrencies compared to decentralized financing (DeFi)

DeFi has basically extrapolated the financial practices of traditional banking systems to the world of cryptocurrencies. This has been the main objective since its implementation to prevent centralization and third party involvement through the use of smart contracts.

For its part, Staking helps deliver new coins from a blockchain network. When users need a certain minimum number of coins to participate in the confirmation and validation of the transaction and receive a block reward.

The greater the number of coins blocked and the longer this promotion, the greater the chances of extracting and earning coins from the supported blockchain network.

While DeFi projects contribute to blockchain platforms to accelerate their use cases by promoting the circulation of coins, staking enables the extraction of those coins that drive DeFi.

How To Participate In Deployment And DeFi

As we described earlier, the stakeout must always be a specific blockchain project that you want to participate in that supports this scheme, i.e. PoS projects to wager the largest amount of coins and the longest time possible to increase the return on investment.

Participating in early projects with solid foundations makes it very profitable if the project starts to appreciate.

We have seen a clear example of this in subsequent projects such as Cosmos with its native ATOM token and more recently with new projects such as Matic Network and FLETA Blockchain, which report in their early stages of achieving high returns for those who take part in their rethinking or bet.

On the other hand, the equivalent of this activity in DeFi projects probably corresponds to participation in decentralized autonomous “DAO” organizations such as the MakerDAO, which manages the Maker Dapp provided by DAI.

DAOs are important in these blockchain ecosystems because they generally have a native token, the owners of which use it to vote on decisions such as the collateral relationship for a loan dapp.

With multi-billion dollar DeFi projects that allowed Ethereum to fully expand the supply of utilities in the new decentralized economy, DeFi projects have had a huge boom in recent months, enabling their current market to to exceed the nine-digit capitalization.

At DeFi, passive income is essentially earned by earning interest on your money, which you delegate to borrowers once you’ve made a deposit.

In contrast, you can earn simple and compound interest when you use it. After the required retention period has expired, you can reinvest the full amount. With compound interest, you can continuously add your earned interest to the bet amount and earn more.

In addition, you can participate by staking by directly staking third parties as master nodes or by joining groups of master nodes – similar to PoW mining pools – that will give you rewards based on their amount and lockout time.

Research is the key

Both stakeout and DeFi projects require a base set that is different for each blockchain platform. This depends on the market valuation of the token or the currency for which you want to support the respective project.

However, it is important to clarify that in both cases, as with any investment, the key is to educate yourself.. While staking is considered by many to be one of the safest and easiest ways to make money with cryptocurrencies while supporting the growth of the entire industry, it is always advisable to thoroughly research the project, its currency and the service it offers and the master node hosting service.

There are other disadvantages to this in DeFi projects. Most of these projects rely on third-party oracles to execute their smart contracts. This kind of addiction really makes it a strong weak point. Take the Synthetix error, for example, which cost 37 million ETH.

Another disadvantage of DeFi projects is that participation in DeFi loan systems can result in losses for users or at least much less capital than in a conventional banking system if input and output calculations are not properly calculated. .

Getting started is more complex and requires a deeper understanding of business or finance.

In both cases, it has been shown that PoS projects are susceptible to financial attacks through chain loans and have poorer capital efficiency than PoW projects. However, several models have been proposed that have been extrapolated to decentralized funding and use blocked PoS assets as insurance to resolve the concentration of wealth in these networks that prevents these financial attacks.

Who is leading the industry?

Staking has a market size of around $ 21.833 million and accounts for almost 8 percent of the total cryptocurrency market., according to the specialized location.

With an average reward rate in this sector of 12.97%, the effort has shown itself since its introduction with the PoS protocol one of the safest and most profitable investments for the so-called ecological mining ”.

Consolidated projects such as Tezos, EOS, Cosmos and Algorand are at the forefront based on adjusted reward metrics, volume and blocked assets. Newer cases like Fusion, Fantom, Matic, FLETA and IRISnet are characterized by their estimated double-digit returns.

According to StakingRewards in his latest report on “stakeout status”, more than $ 11 trillion has been blocked in the various projects whose protocol contains the restatement mechanism.

For the portal, Tezos is the fastest growing blockchain project in the stakeout sector, with more than 300% since May 2019 and around 80% of the total current offer of the stakeout asset.

In the decentralized financial sector, DeFirate’s latest report noted that the sector’s key metrics will become more important by the end of the first half of 2020.

According to the website specializing in DeFi, the total blocked in this sector, exceeds USD 2 trillion, less than 1 percent of the total cryptocurrency market and 10 percent of the total deployed market.

The most notable include Synthetix’s SNX, which outperforms Maker in liquidity capitalization, and Keyber Network’s KNC token increase of more than 60 percent in one week.

It highlights the fact that the number of bitcoins that serve as security on the Ethereum network already exceeds $ 100 million.