The term “passive income” has become increasingly popular recently, though the concept itself is not new. It generally refers to income that is generated with minimal effort, or without the need for active involvement.
All you need to do is to designate a fund to generate passive income. This can be done through various methods; one of them is DeFi projects, or decentralized finance projects.
What are DeFi projects?
Decentralized Finance (DeFi) is a comprehensive system of financial applications or products that operate on blockchain. These products do not require intermediaries or third parties, as everything is automated within the protocol through smart contracts. The main goal is to facilitate easy access to various financial services without the need for centralized intermediaries or third parties.
DeFi works through a network of users and open-source protocols, ensuring greater transparency in financial transactions and empowering users to have more control over their assets. It also makes the transfer of financial transactions easier.
Is it Safe to Invest in DeFi Projects?
DeFi wallets provide an extra layer of safety for your e-wallet. DeFi wallets use strong passwords, two-factor authentication, and biometric authentication to strengthen the security of these wallets.
But how safe your investment is depends on the security measures you take before you invest.
Therefore, you need to learn about the potential risks so you can be aware before investing. Here are some of them:
- Hacking: DeFi protocols may have security bugs that could allow hackers to access and steal deposited assets.
- Fraud or Scam: When the founders of the project exit and steal the deposited assets.
- Rug Pull: When the founders withdraw all the liquidity and take the investors’ funds.
What are the best ways to minimize DeFi risks?
As we mentioned above, DeFi projects are similar to other financial projects, so you need to minimize the risks as much as you can. Here are some steps:
- Dig deep into the founders and developers of the projects.
- Find the earliest investors.
- Monitor the product, the website, and the marketing materials provided by the founders.
- Audit the smart contract.
Ways to Invest in DeFi Projects
We will briefly explain the popular investment methods in DeFi:
- Liquidity mining or HODL: The most common way for new investors. That’s when you buy cryptocurrencies and hold them for a long time without trading them.
- Lending: When you lend your cryptocurrencies by locking them, thenyou earn rewards in return. The prices are determined by smart contracts based on cryptocurrencies in the liquidity pool.
- Staking: When you lock up your cryptocurrencies to help the blockchain network work better. In return, you earn rewards. It’s like putting your money in a savings account but for crypto.
According to reports from platforms such as Staking Rewards and CoinGecko, the total value of cryptocurrencies involved in staking has surpassed an impressive $100 billion.
Read Also: How to Start Using Staking to Earn Additional Income from Cryptocurrencies?
Best DeFi Projects to Generate Passive Income
According to cryptocurrency transaction analysis platform “Santiment“, the projects listed below are ranked among the top 10 Decentralized Finance (DeFi) projects based on monthly development activity.
- Synthetix Network: Topping the list of top DeFi projects with a development index of 266.57, it is one of the most complex and innovative protocols. By bringing real-world assets to the blockchain, Synthetix has connected traditional finance with DeFi.
- dydx: It is a decentralized finance platform based on Ethereum and focusing on designing trading tools, inspired by traditional finance and transformed to work in a decentralized finance way. It is considered on of the best DeFi projects, with a development index of 170.93
- LDO: This project allows investors to deposit their cryptocurrencies in smart contracts, and they will gain rewards. With no need to lock in the assets for a long time.
- INJ: It provides the investors with decentralized finance functionalities like trading, liquidity supplying, and stacking.
- Osmosis: It’s the largest decentralized trading platform that works across different blockchains. It wants to be as easy to use as big exchanges like Coinbase and Binance.
- FOX Token: The platform offers investors a unique investment opportunity with great flexibility. As the cryptocurrency market continues to grow and evolve, investing in FOX Token presents a good opportunity for profit.
- Uniswap: This platform utilizes Ethereum-based smart contracts to facilitate the decentralized trading of various digital assets. Smart contracts offer a more efficient method for trading assets. These contracts also help mitigate liquidity issues that usually affect centralized exchanges.
- MakerDAO: It features a stable coin called DAI that’s pegged to the US dollar and backed by other cryptocurrencies. Users can borrow against their crypto, vote on changes, and manage their own savings in the system. Smart contracts and game theory help keep DAI’s value stable.
- OGV: It’s a governance token for the Origin Protocol, a blockchain-based platform aiming to revolutionize e-commerce. This means that OGV holders are like shareholders in this project, with the right to participate in decisions about how the platform is managed and developed. If you believe in the Origin project and want to be part of its growth, purchasing OGV could be a good option.
- Centrifuge: Centrifuge is an innovative project that bridges the gap between the real world and decentralized finance (DeFi). Its unique approach involves tokenizing real-world assets and bringing them onto the blockchain, ensuring the monetary stability of the assets.
Finally
The investment in DeFi projects is a good option due to the high returns compared with traditional investments.
Regardless of the asset, you need a solid understanding of the potential risks before entering the project. Don’t swayed by high returns that may be used to deceive new investors
Monitor the development activities on the “GitHub” platform because this is one of the main roles to measure the project’s growth.
