Best DeFi options for beginners 2021

DeFi or decentralised finance was the big news in the crypto world in 2020 and it looks like that trend is likely to continue in 2021.

So how to make money from DeFi in the UK in 2021?

First a brief bit about what defi actually is, because it all seems a bit nebulous!

Effectively DeFi is an umbrella term for a variety of financial applications in cryptocurrency or blockchain. generally it is aimed towards avoiding all the financial intermediaries who usually each get a slice of the cake when you make a normal financial transaction. Even a simple shopping transaction on ebay involves numerous intermediaries – paypal, your credit card supplier, your bank to name but three. They all get a little bit of profit.

DeFi utilises blockchain, the technology that first came to the fore through bitcoin which allows several entities to hold a copy of a history of transactions, meaning it isn’t controlled by a single, central source – that gives much greater security. Traditional centralized systems slow down transactions while offering users less direct control over their money. On the other hand DeFi now expands the use of blockchain from simple value transfer like bitcoin to more complex financial situations.

How does DeFi work?

Bitcoin, Litecoin etc are different from normal digital payment methods such as those run by PayPal, by removing all the middlemen from transactions. When you pay with a credit card for coffee at a cafe, a financial institution sits between you and the business, with control over the transaction, retaining the authority to stop or pause it and record it in its private ledger. With bitcoin, those institutions are cut out of the picture. Of course it’s not just buying and selling that bitcoin and other coins can help with – any financial transaction such as loans and insurance have the potential to use blockchain technology.

Time for DeFi

How to earn from DeFi UK

There are numerous ways to earn from DeFi – here are our top tips:

1. Invest in Ethereum

Nearly all DeFi products are built on Ethereum. So as DeFi grows then so does the value of Ethereum and so the possibility of an increase in the price and value of the Ether token.

2. Invest in the coins associated with these DeFi projects

Coins such as Compound, Uniswap and Synthetix have been the big winners so far in 2021 and what they all have in common is that they are all DeFi coins. In January 2021 the price of Compound for instance increased by 250% compared to Bitcoin which rose about 18%.

3. Find opportunities for earning interest on your coins

You can get a much better rate of interest by lending out your coins than you can through traditional markets. In the UK its tough to find anywhere in the traditional bank or building society market that will give you more than a 1% per annum return. There are plenty of opportunities to get rates of interest of up to 8 %. Coinbase for example offers an easy to use opportunity to earn interest by investing in Compound UDD coin which at the date of writing is offering 6% per annum interest. Be aware though that to get your money out you have to pay a gas fee in Ethereum.

Is DeFi safe? Can I lose my money?

Investing in anything in the crypto world is a risky proposition. Many people want to get rich quick. The danger is  that the greater the rewards then usually the greater the risk. However big risk does not guarantee big rewards. If you are not willing to risk losing your money then you are best off sticking with a traditional bank account. Never invest in crypto money that you are  unwilling to risk losing all together.