Thanks to the DEFI , there is no need for traditional banks to access financial services such as loan or investment. The DEFI protocols offer users innovative means to generate interest on their cryptocurrencies, whether via staking , the supply of liquidity or decentralized loans. In this article, we will explore the different categories of protocols and show you how to maximize your yields in this expanding universe.
Table of contents
DEFI protocol categories
The DEFI protocols are available in several categories: staking , Liquid staking , supply of liquidity, Yield Farming, Money Markets, and more. Each offers a different approach to generate interest on your cryptocurrencies. Understanding these mechanisms is essential to develop an optimized investment strategy.
Staking and liquid Staking protocols
What is staking ?
staking consists of locking cryptocurrencies on a blockchain operating with a Proof of Stake (POS) type consensus to help the validation of transactions. In exchange, you receive rewards, which result in yields. These yields generally vary between 4 % and 15 % depending on blockchains and market conditions.
Examples of Proof of Stake Blockchains
Some of the most popular blockchains using the POS model include Ethereum , Solana , Toncoin , et Suis . Stoking staking the security of the network while generating passive income.
Liquid staking : Principles and performance opportunities
The Liquid staking , as its name suggests, allows to stike cryptocurrencies while retaining a certain liquidity. In general, you receive a token representing the value of your stake cryptos, which you can use in other DEFI protocols. For example, by stakant ethn via Lido , you get steth that you can reinvest elsewhere, with yields ranging from 3 % to 8 %.
Liquidity supply protocols on decentralized exchanges
What is a liquidity pool?
A liquidity pool is a set of cryptocurrencies that users deposit on a decentralized platform, or DEX (decentralized exchange). These liquidity facilitate exchanges on the platform by allowing users to buy and sell assets without going through a centralized intermediary.
How do liquidity favor exchanges on Dex?
By providing liquidity, you allow other users of the platform to carry out transactions without depending on the order of centralized notebooks.
In exchange for your assets, you receive interest based on the transaction costs generated by exchanges on the platform. Yields for liquidity suppliers may vary from 5 % to 20 % depending on the volatility and the volume of trade.
Uniswap : leader in decentralized exchanges
Uniswap is one of the pioneers of decentralized exchanges (DEX). It allows users to provide liquidity in pools and gain proportional yields in transaction costs. Yields can reach up to 20 % in the most liquid pools.
dYdX : decentralized trading platform
dYdX is mainly a decentralized trading platform, where users can take trading positions that are validated via smart contract contracts . This means that everything happens automatically, without the need for a centralized intermediary. You can also provide liquidity for trading positions, with yields varying between 5 % and 12 %.
Yield Farming's Defi Protocols
Yield Farming: How to maximize yields?
The Yield Farming is to exploit the best performance opportunities on different DEFI platforms. This may include staking, the supply of liquidity or the use of derivative products to maximize gains.
Yearn Finance: Automated Optimization of Yields
Yearn Finance is a platform that optimizes your yields automatically by using the best available strategies. You put your cryptos, and Yearn takes care of everything to maximize your interests. Yields generally reach between 5 % and 20 %, depending on the strategies chosen.
Convex and curve: a symbiotic relationship to maximize yields
Curve Finance stablecoin pools , with attractive yields ranging from 3 % to 10 %. Convex Finance is built above curve and allows users to maximize their yields in staking tokens curve (CRV). Convex facilitates the management of complex strategies on curve, and users can see their yields rise between 10 % and 40 %, depending on the market.
Decentralized loans on money markets
Decentralized loans: how does it work?
Money markets allow users to lend and borrow cryptocurrencies using collateral. You deposit your assets from your wallet and can borrow an amount lower than their total value to avoid the risk of liquidation.
More information here
Aave : Place more than the loan to avoid liquidation
On Aave , you must deposit more than the amount borrowed (generally 110 % to 150 % of the amount borrowed) to avoid liquidation. Collateral can be in different cryptocurrencies, but borrowing and reimbursement is generally made in the same currency to avoid exchange fluctuations. Borrowing rates on Aave vary between 2 % and 12 %, depending on the asset and market conditions.
Compound: What are the differences with Aave ?
Compound works similarly to Aave , but offers less flexibility in terms of accepted collateral types. Compound allows to lend and borrow cryptos with yields slightly lower than those of Aave , ranging from 2 % to 8 %, but it is appreciated for its ease of use.
Spark: yields on the stablecoin dai issued by Makedao
Spark is a DEFI platform specializing in loans on stablecoin Dai , issued by Makedao. This allows users to generate attractive yields (from 3 % to 7 %) while taking advantage of the stability of an asset backed by the dollar.
Money markets on real tokenized assets
The tokenization of real assets: a new investment opportunity
The tokenization makes it possible to split real assets (such as real estate or commercial receivables) in tokens which can be exchanged and used in the DEFI protocols. This opens up new doors for investors who wish to diversify their portfolios beyond cryptos.
Centrifugal vs Truefi vs Maple: comparison of platforms
- Centrifugal : allows the tokenization of commercial receivables, offering yields ranging from 5 % to 15 % for investors who finance these claims.
- Truefi : focuses on unsuitable loans, mainly for businesses, with yields from 10 % to 25 %.
- Maple Finance : Combines both approaches with a focus on real assets and guaranteed loans, with yields reaching up to 20 %.
Individuals can invest via these platforms by buying tokens representing shares or real assets. Each platform offers a different approach in terms of risk and yield.
Fixed rate decentralized loans
Fixed rate loan in deffi: what advantages?
Fixed rate loans allow users to benefit from financial stability by locking interest rates, regardless of market fluctuations. This offers a certain tranquility of mind in the volatile environment of cryptos.
Ondo: Access to the USDY, a stablecoin backed by US Treasury bills
ONDO offers access to USDY , a stablecoin backed by US Treasury bills, guaranteeing stable and attractive yields (up to 5 %). This type of loan is ideal for those looking for an exposure to the cryptos market while minimizing risks.
Maple Finance: a reliable alternative for fixed rates
Maple Finance also allows fixed rate loans, often used by companies seeking to raise funds predictably. Yields are comparable to those of Ondo, with rates ranging from 5 % to 10 %, depending on the loan.
Future yield tokenization protocols
Tokenization of future yields: an innovation in the defi
The tokenization of future yields allows investors to "sell" part of the expected yields of their cryptos in advance. This offers increased flexibility to quickly access liquidity.
Pendle: How to take advantage of future yields?
Pendle allows users to tokenize their future yields and exchange them on a secondary market. This offers unique liquidity opportunities, with potential yields ranging from 5 % to 25 % depending on the volatility of underlying assets.
Safety and risks in the protocols DEFI
Protocol safety: What to do to limit risks?
Even if the DEFI protocols are generally secured by smart contract, they are not immune to flaws. To minimize risks, it is essential to choose protocols that have undergone rigorous safety audits.
Audits, bugs and hacks: How to choose secure protocols?
The audits made by companies like Certik or Quantstamp are a good indicator of the safety of a protocol. In addition, it is advisable to diversify its investments between several protocols to limit risks.
The advantages of protocols defi
High and attractive yields
One of the main attractions of protocols DEFI lies in their yields often much higher than those offered by traditional finance. This is made possible thanks to the absence of intermediaries and the efficiency of decentralized markets.
Transparency and decentralization of operations
DEFI protocols are transparent by nature, with all visible transactions on the blockchain. This guarantees some confidence and allows users to check the condition of reserves and operations at any time.
The risks of protocols defi
Yield volatility
Yields in the DEFI can be very volatile. A protocol offering high yields today can see these yields decrease rapidly based on market conditions.
Liquidation of collaterals
In decentralized loans, it is important to monitor the value of your assets. If the value of the collateral drops below a certain threshold, you may be liquidated, which means that your assets will be sold automatically to reimburse your loan.
Tips to maximize your earnings on protocols defi
Diversify your investments.
Do not focus all your assets on a single protocol. Diversify helps reduce risks while optimizing your yields.Check the safety audits.
Only engage in protocols who have successfully passed security audits.Choose reliable platforms.
Protocols like Aave , Uniswap , and Yearn Finance have a solid reputation, but it is still essential to remain vigilant.
The trends to follow in the protocols DEFI
Defi protocols are constantly evolving. Stoking staking the tokenization of real assets, and fixed rate loans are innovations to watch closely. These trends show that the DEFI continues to repel the borders of traditional finance.
Conclusion
Defi protocols represent a tremendous opportunity to generate interest on your cryptocurrencies. However, as with any investment, it is crucial to fully understand the underlying mechanisms and to diversify its investments to minimize risks. By adopting a balanced approach and remaining informed of the latest trends, you can maximize your yields while protecting your capital.
Faq
What is staking ? staking
allows to stake cryptos while retaining their liquidity. For example, with Lido, you can receive steth in exchange for your ETH, which you can use in other DEFI protocols.What are the main risks of DEFI protocols?
The main risks include the volatility of yields, liquidation of assets, and safety flaws in smart contract .How to check the safety of a DEFI protocol?
Consult audit reports on platforms like Certik and Quantstamp, and check user reviews on social networks and forums.What protocols are the safest to lend its cryptos?
Aave , Compound, and Yearn Finance are among the most famous, but it is always recommended to check the security audits before investing.
Investments in cryptocurrencies are risky. Crypternon could not be held responsible, directly or indirectly, for any damage or loss caused following the use of a property or service put forward in this article. Investments linked to cryptocurrencies are risky by nature, readers must do their own research before undertaking any action and investing only within the limits of their financial capacities. This article does not constitute an investment advice.
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AMF recommendations. There is no guaranteed high yield, a product with high performance potential implies a high risk. This risk taking must be in line with your project, your investment horizon and your ability to lose part of this savings. Do not invest if you are not ready to lose all or part of your capital .
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Yohan Uzzan
Training engineer, I quickly became interested in the field of finance. Convinced that decentralized finance has a bright future ahead of it, I participate in its democratization by developing Crypternon.
