Many of the blockchain based investing tools that are available today, take their roots from TradFi, or traditional finance but with a twist. DeFi or decentralized finance leverages the blockchain and deploys smart contracts that are capable of conducting sophisticated activities. Couple that with traditional trading bots or algorithms and you have the perfect investment tool.
Algorithms are commonly used in the traditional financial markets to conduct high frequency trading. These algorithms are programmed to be able to take advantage of tiny price moves that a real trader can neither see or react to with the speed it takes to maximize these opportunities. The algos execute many thousands of small trades and identify differences between markets in order to bring their traders profits. This is commonly called arbitrage trading.
In DeFi though, algos go to the next level. Decentralized finance is a catch-all term for any kind of financial tool that is powered by the blockchain. From trading, exchanging assets, prediction markets, investing, banking for the unbanked and more.
For investors, there is the possibility to access a level of returns that do not exist in the conventional money markets. These include through staking, where an investor adds liquidity to a pool in return for sometimes generous yield, yield farming where you move your assets through different markets to capture the largest returns, effectively lending your holdings for the short or medium term and then there’s vaults.
Vaults manage your holdings for you looking for the very best returns available for your holdings. They exchange your holdings into other tokens, in order to be able to participate in this investing type across many chains and protocols. And then there’s AMMs or automated market makers. These are used by the digital exchanges or DEXs to power the DEX by building crypto liquidity pools, thereby taking the other side of the trade as counterparties, rather than pitting buyers against sellers as is the norm in the financial markets. Tools like these give investors, even those with limited or no knowledge, or even time to conduct research into the crypto market to participate in activities on an automated basis.
Major Players in DeFi
Yearn.Finance is one of the big names in the industry. It forms a group of protocols that sit on Ethereum, and automatically seeks out the best opportunities using algorithms, and gives users the ability to maximize their earnings.
Compound brings a marketplace to allow users to lend and borrow their digital assets. Through this marketplace, it allows users to search and achieve maximum APY.
Aave is a non-custodial liquidity protocol which allows its users to earn interest on their holdings through lending and allows users to borrow funds from them.
These are some of the more mature protocols on the scene, but some of the newer protocols are offering even more advanced and sophisticated ways to take advantage of opportunities in this market.
Let’s look at these:
HyperDex is a clever tool that creates strategies for a wide variety of users of all risk profiles, from those looking for more steady and lower risk returns, medium risk strategies and higher risk, more aggressive strategies. For lower risk, investors can use its Fixed income strategy to receive returns on more stablecoins and assets. Users can even upgrade to a cube, which boosts the amount of trades executed and thus the level of returns.
Revault allows users to automatically deposit funds in the best performing vaults in the market, while its smart contracts automatically seek and find the best performing opportunities.
We know that the DeFi landscape is rich with opportunities for investors. The question is how do they find them? These tools are some of the best for seeking out ripe opportunities, comparing them and then acting upon them. This means those investors even with minimal experience or time can act upon the unparalleled opportunities that await them in the DeFi field.