Decentralized Finance (DeFi) uses blockchain technology to revolutionize the financial industry and create a more inclusive and efficient financial system. Where traditional finance relies on centralized institutions to hold power, DeFi aims to transfer that power to the system’s users, eliminating intermediaries and leveraging smart contracts in the process (it’s important to note that some level of centralization might still exist in the form of development teams or governance models).
Whether you’re a seasoned investor or new to the world of decentralized finance, this guide will help equip you with the knowledge to succeed over the long term in this new space.
What is Decentralized Finance?
Decentralized Finance refers to all financial services that use blockchain technology and crypto to facilitate transactions. It refers to the transfer of control and authority from a centralized entity to a peer-to-peer, distributed network, where multiple entities are granted equal authority to manage the network.
In sum, unlike traditional finance, which relies on centralized institutions like banks and brokerages, DeFi operates on decentralized networks powered by its users. DeFi is an alternative approach to the conventional rules of finance. Instead of fiat currency, DeFi services use digital assets to provide lending, investing, and management.
How does it work?
DeFi leverages blockchain technology to create a transparent and secure environment for transactions to occur.
The blockchain is advanced digital ledger that records transactions across many nodes (computers). The data is stored in “blocks” linked together in a “chain”.
The data cannot be deleted or modified without consensus from the network. That way, the system has built-in mechanisms to prevent fraudulent activities without interference from third-parties.
DeFi institutions are capable of handling transactions at scale because of smart contracts - lines of code injected into the blockchain that automatically execute when conditionals are met.
Accessing these protocols is often done through dApps (Decentralized Applications). Decentralized applications function similarly to conventional banking systems. Lending, trading, saving, and investing can all be done on dApps.
What are the benefits of DeFi?
When compared to traditional finance, DeFi offers several advantages, such as:
- Accessibility - DeFi is open to anyone with an internet connection. By reducing intermediaries, DeFi is inherently more inclusive as it removes barriers to entry. The accessibility enables individuals from around the world to participate in the markets.
- Transparency - DeFi is transparent by design. All transactions are recorded on a public blockchain ledger that is accessible to anyone.
- Security - Every transaction on the blockchain is secured with cryptographic measures. Users are entrusted with storing their own private keys.
- Efficiency - DeFi decreases transaction times and costs by removing intermediaries. Smart contracts also automate processes and allow for scaling.
- Interoperable - DeFi is becoming increasingly interoperable, working seamlessly with other applications to communicate, share data, and work with other platforms. Cross-chain bridges and wrapped tokens are examples of growing technology currently used for cross-chain interoperability.
Tips to Successfully Invest in DeFi
DeFi is an all-encompassing term for decentralized products. Like traditional finance, there are many functions and projects to take note of - many of which will be equally valuable. Here are some principles to take note of for investing in DeFi:
Invest in what you understand
Whether it’s for trading, lending, asset management, or tokenization, there will be a protocol or dApp for it. Decentralized Finance has a wide range of use cases, all with potential.
A smart investor can filter out the noise in the news. Potentially lucrative projects exist in every niche. Finding and identifying them early on is easier when you understand their real-world applications.
The old investment adage “invest in what you know” rings true in this situation. Personal knowledge is your competitive edge to stay ahead of other market participants. It’s the projects you’ve worked on, jobs you’ve taken on, and applications you’ve used that give you unique insight into what may work and what may not.
Avoid chasing too many projects
Warren Buffett would often share his “20-slot” rule to his students. The concept goes like this:
“If you had a ticket with only 20 slots in it, you had to punch 20 times - representing all the investments that you are going to make in a lifetime. How careful would you be with your choices?”
The key concept being that your odds of success improve when you direct your energy to fewer projects, positions, and investments.
Although diversification is good when it comes to protecting your wealth, our attention and time are limited. Having to pay too close attention to too many things means something is bound to slip through the cracks.
A good point to remember here is to look for quality investments you can hold over the long-term. Not only does this mindset force you to look for stocks with good long-term potential, but it also minimizes taxes and fees over the long-term.
Allocate Properly
DeFi is a growing industry, and growing pains come with risk and volatility. You should look to allocate 2.5%-10% of your portfolio to DeFi and crypto investments, depending on your risk tolerance.
The point here is to have some exposure to crypto, but not have it be your entire portfolio.
How to Invest in DeFi
DeFi covers a wide scope of services and platforms. Getting started in this space means finding a platform that’s easy to use and will guide you through every step of the process.
As one of the world’s first tokenized automated crypto investment platforms, Peccala’s algorithms were designed to simplify the investment process. Our trading engine is put to work based on the risk profile of your choosing.
1.) Signing Up For Peccala
Signing up for our investment platform, all you’ll need is:
- E-mail address
- Phone number
- Full name
- Date of Birth
Of course, we’ll also need to validate your identity, so to do this, you’ll need to provide:
- Your passport or a national ID card
- A bank statement or utility bill dated within the last 3 months
Signing up for Peccala can be done through this link: https://app.peccala.com/signup
2.) Account Security and Verification
Peccala has two levels of verification, depending on how much you would want to invest:
Level 1: Customers verified to level 1 can deposit up to $15,000 per month into Peccala. Most users will be verified within 5 minutes upon uploading the required documents.
Level 2: If you want to invest more than $15,000, we’ll require you to provide some extra documents showing the source of these funds. Given the extra level of care required for this verification level, verification will take up to 72 hours.
3.) Funding
Users can deposit to their Peccala using the USDT stablecoin on the BNB, Polygon or Ethereum smart chains. Retrieving your funds can be done in a similar fashion - you can redeem your Peccala tokens for their current value at any time. The USDT will then be sent to your Peccala account. From here, you can withdraw USDT to a whitelisted external exchange or wallet via the BNB Smart Chain, Ethereum, Polygon, or Tron.
4.) Investing and Management
Peccala tokens can be bought through the Peccala platform. To invest, you’ll need to sign up and get verified with us. Once verified, you can deposit USDT in your Peccala account, and use that to buy Peccala tokens.
Note that Peccala tokens can only be held in your Peccala account. This keeps our practice compliant with Know Your Customer and Anti-Money Laundering Regulations.
A Note on DeFi and Peccala
DeFi may be volatile. It’s a young and growing industry.
Our algorithms were specifically created to weather the storm and leverage this volatility to make profit. When our algorithms identify a trend, the next step is to determine the probability of further trend amplification.
With just over $3 million in AUM and $2.3 million in realized profit for our users since its launch in March 2022, Peccala has proven time and time again that while there are no guarantees in the financial markets, small wins stack up to big outcomes. You can see our performance for yourself here.
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