The entire crypto sphere continues to skyrocket and evolve, and investors, traders, and crypto enthusiasts now have several different options beyond directly owning Bitcoins, Ethereum, XRP, and other digital assets.
Our readers might be familiar with cryptocurrency exchange-traded funds (ETFs) and mutual funds that have gained a foothold in countries worldwide in recent years. But right now, crypto investors are also looking for opportunities in two growing areas of the cryptocurrency market: non-fungible tokens and decentralized finance.
NFTs and DeFi offer very different approaches to what can be done with cryptocurrencies. Today we want to talk more about investing in NFTs and DeFi. So let’s get started!
What Is DeFi?
DeFi is short for decentralized finance. It is an open global financial system built for the internet age. It is an alternative to an opaque system with strict controls based on decades of processes and infrastructure. It gives you the ability to control and see your money.
DeFi (decentralized finance) opens global markets to the user and creates alternatives to national currencies and standard banking products. DeFi products open access to financial services to anyone with access to the Internet. They are largely owned by the users themselves, who ensure their functioning.
To date, tens of billions of dollars of cryptocurrency transactions have passed through DeFi, and this volume is growing daily.
DeFi and traditional finance
To better understand the potential of DeFi (decentralized finance), let’s take a look at the current challenges:
- Not all people have the opportunity to open a bank account and use financial services.
- The inaccessibility of financial services is one of the causes of unemployment.
- Financial institutions can block the cash inflow.
- There is also a hidden fee for financial services – the provision of personal data.
- Governments and centralized institutions can shut down markets whenever they want.
- Trading hours are often limited to business hours in a particular time zone.
- Money transfers can take several days due to internal processes involving a person.
- Financial services are provided with extra charges because intermediary institutions need to have their own profits.
What Is an NFT?
An NFT, or Non-Fungible Token, is a unit of account that creates a digital impression of any unique item. Among them are paintings, photos, videos, music, gifs — any content that claims to have at least some kind of uniqueness. They are of great value among collectors, gamers, art lovers and NFT enthusiasts, and they are bought and sold through auctions on online NFT marketplaces.
What makes NFTs so popular?
NFT is unique in the digital world. The ability to possess one-of-a-kind, symbolic and commercially significant digital artifacts fascinates users and NFT enthusiasts. Therefore, it is not surprising that unique tokens have become quite popular and have attracted a lot of attention.
By purchasing NFT, you become the proud owner of a unique work or item that cannot be faked or copied. They attract investors due to their uniqueness, collectibility and safe properties.
For some users, NFT is an excellent investment tool; for others, it is a speculative tool. With hundreds of unique digital assets and art pieces available for sale online, finding the right NFT that can make you a lot of money requires a lot of research and knowledge. This explains why the NFT sector continues to grow and develop.
NFT vs. Defi
NFT DeFi? What is NFT DeFi combination? DeFi offers financial instruments without relying on intermediaries like exchanges or bank institutions. It provides DeFi platforms for financial transactions and services. This can carry out several processes and transactions. DeFi has smart contracts or DeFi protocols and special applications known as dApps.
An NFT is a unit of data stored on the blockchain, for example, on the Ethereum blockchain. It is not mutually interchangeable. Non-fungible tokens (NFTs) provide value-added services. They help in the tokenization of assets and can store specific unique values. Compared to DeFi, NFTs don’t have any applications or protocols.
DeFi vs NFT: Should You Invest in NFT or DeFi?
Celebrities, artists and musicians from all over the world are joining the NFT sector. And the DeFi market is growing even as the prices of major cryptocurrencies fall. So what should you invest in?
Pros of investing in DeFi
Permissionless and inclusive
Any user with a digital wallet like MetaMask and an Internet connection can access DeFi services regardless of location. Users can also make trades and move their assets wherever they want without waiting for bank transfers or paying conventional bank fees.
Real-time and transparent transactions
The underlying Ethereum blockchain is updated at the moment a transaction is completed, and interest rates are updated multiple times every minute. Each transaction on the Ethereum blockchain, which accounts for little bit less than 100% of all DeFi traffic, is broadcast and verified by other network users. This level of transaction data transparency ensures that any user can view network activity.
Smart contracts are easy to program
They can be designed to execute automatically based on infinite variables. Furthermore, DeFi data is tamper-proof, secure and auditable, thanks to blockchain architecture.
Pros of investing in NFT
NFTs are single objects, so they don’t have an identified owner. They do not follow the rules of traditional ownership while remaining unique and one of a kind. In addition, since blockchain technology is used in both production and NFT transactions, they provide the highest level of transparency.
Anyone can invest in non-fungible tokens (NFTs)
Investing in tokenized digital assets is accessible even to not tech-savvy ones. Asset ownership that is tokenized into NFTs can more quickly and easily, and efficiently be transferred among users anywhere around the world.
Unique opportunity to learn more about blockchain
Crypto investors and novice traders can become more knowledgeable about blockchain technology and the crypto sphere while diversifying their portfolios by allocating a small sum to tokenized assets.
How to Invest in DeFi?
- DeFi tokens. They transfer value in the course of a financial transaction. DeFi tokens are built on and often named for their unique, native blockchain networks.
- DeFi IDO projects. An initial DEX offering (IDO), is a pretty new and truly exciting type of decentralized and permissionless crowdfunding DeFi platform, which is opening up a new way of fundraising in the crypto sphere.
- DeFi staking. It is a practice that enables a user of a DeFi platform to act as a validator for transactions and earn profit for doing it so.
- DeFi Liquidity farming. DeFi liquidity farming works by first allowing crypto investors and traders to stake their coins by depositing them into a decentralized lending protocol through a decentralized app (dApp).
How to Invest in NFT?
Investing in NFTs is an exciting journey. What can be done:
- Creating NFTs.
- Trading NFTs.
- Staking NFTs.
- Holding NFTs.
Find out more by reading the article “How to Make Money With NFTs In 2022.”
Using NFTs in DeFi
NFT sales keep skyrocketing. The exciting NFT DeFi combination becomes immediately possible, especially with the ability of non-fungible tokens (NFTs) to represent the commercialization of digital products and services. NFTs have become one of the most promising applications in the entire DeFi sector and for a good reason. Non-fungible tokens can easily assist as proof of ownership rights to digital art. Ethereum has become one of the best choices for Bitcoin maximalists, NFT collectors, NFT holders, and Bitcoin maximalists.
Both DeFi and NFT are subject to market volatility, technical vulnerabilities, and regulatory policies. The risks of investing are pretty similar: price drops, bugs in the code, fraud using technical vulnerabilities, pump and dump schemes, and other tricks.
Crypto investors can reduce risk by choosing potentially successful DeFi and NFT projects.
As for any investment, the BullPerks team cautions that newbies should be sure to do their own research and not invest what they can’t afford to lose.
Interested in DeFi platforms, DeFi projects, DeFi protocols, and DeFi space in general? Then you should definitely read more about NFT ownership, the best digital asset, the NFT index, DeFi lending, smart contracts, conducting transactions, and the NFT market.
Disclaimer. This material should not be considered as a basis for making investment decisions or as a recommendation to participate in investment transactions. Trading digital assets may involve significant risks and can result in the loss of invested capital. Therefore, you must ensure that you fully understand the risk involved, consider your level of experience, investment objectives, and seek independent financial advice if necessary.