Types of DeFi Investments
Explore DeFi investing with Notum: your comprehensive guide to DeFi investment strategies, from liquid staking to leveraged farming. Discover how to invest in DeFi with confidence.
Introduction
In the dynamic world of decentralized finance (DeFi), understanding a range of DeFi investment strategies is essential for effective investing. The DeFi investment landscape is rapidly evolving, and being well-versed in the key segments of DeFi investment funds is crucial for informed decision-making.
Notum is committed to demystifying the complexities associated with DeFi investments. Our goal is to make DeFi investing clear, straightforward, and accessible, enhancing the efficiency of your investment journey.
Strategy Types Overview
Liquid staking is a DeFi strategy offering passive income through the staking of crypto assets in a liquidity pool while receiving additional tokens. It combines the benefits of earning staking rewards and maintaining liquidity by allowing users to utilize the additional tokens in other DeFi applications.
Ideal for those seeking higher returns and enhanced liquidity, this low-risk strategy is mostly automated and prevalent on platforms like Lido and RocketPool.
Liquidity Pool Provision in DeFi involves investors contributing assets to a pool to facilitate trading on decentralized exchanges, earning rewards from trading fees.
This strategy, requiring active management and understanding of market dynamics, offers variable returns and is associated with medium risk, including impermanent loss and market volatility. Popular platforms for this strategy include Uniswap, Balancer, and Stargate.
Yield Aggregation or Vaults in DeFi involves depositing crypto assets into a vault where smart contracts automatically allocate them across various yield farming strategies to maximize returns.
This medium-risk, automated strategy requires low to medium user involvement and offers moderate potential returns. It's popular on platforms like Yearn.Finance, Harvest, Idle, and Beefy, with key risks including smart contract vulnerabilities, protocol changes, and market volatility.
Yield Farming in DeFi is a medium to high-risk investment strategy where users deposit or stake their crypto assets in a DeFi protocol or smart contract.
These assets are utilized for various purposes like lending or providing liquidity. In return, users earn rewards or interest, often in the form of the protocol's native token.
This active strategy offers variable returns and requires a significant degree of user involvement, with platforms like Aura, Convex, and Pendle being popular choices
Lending in DeFi is a low-user-involvement, conservative return strategy where participants lend their crypto assets on decentralized platforms like AAVE, Compound, Venus, and Maker DAO, earning interest in return.
This automated process is akin to traditional lending but operates on blockchain technology, with primary risks being smart contract vulnerabilities and protocol changes.
Leveraged Farming Investments in DeFi are a high-risk strategy that involves using borrowed funds to amplify investment potential in yield farming.
This method, which requires medium to high user involvement, offers the possibility of high returns but is also associated with significant risks like market volatility, smart contract vulnerabilities, and protocol changes. It is commonly practiced on platforms like Alpaca Finance and Extra Finance.
Liquidity Managers in DeFi are an automated, medium-risk investment strategy focusing on managing and optimizing liquidity provision in various protocols. With low to medium user involvement, they offer moderate potential returns.
These platforms, such as Gamma and Arrakis, aim to mitigate risks like smart contract vulnerabilities, protocol changes, and market volatility, making them a suitable choice for investors seeking a more hands-off approach to liquidity provision.
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