Learning the friendly way

When it comes to navigating the cryptocurrency markets, staying informed and staying away from FUD can oftentimes be more complicated than one might imagine. In this article, we're going to guide you through how to recognize FUD in the blockchain space and how to avoid it. 

Since Bitcoin entered the scene in 2009, the crypto markets have seen their fair share of ups and downs. Although it's true that each market downturn has been followed by a recovery and considerable development, experienced and novice traders alike may find that times of decline are difficult to navigate. Particularly with the rise in FUD.

Before we cover the tools of the trade to recognize and avoid FUD, let's first cover what FUD is exactly.

What is FUD?

FUD in the cryptocurrency realm stands for Fear, Uncertainty and Doubt. This term is used to refer to inaccurate information released by people who wish to manipulate the markets. Releasing FUD content is intended to influence a trader to make decisions that might affect the cryptocurrency's price or their holdings in some way (usually encouraging them to sell).

While commonly used against Bitcoin, Ethereum and other cryptocurrencies are also targeted. FUD typically leads to investors selling off their coins, leading to a panic sell which snowballs and results in a significant loss in value for the coin. 

Often mentioned alongside FUD is the term FOMO, Fear Of Missing Out. FOMO is centered around the fear of people missing out on profits, leading them to make quick decisions that aren't necessarily the best ones. While FUD tends to instigate selling an asset, FOMO tends to drive traders to buy an asset. Essentially, these two terms are designed to tap into human emotions that lead to quick decisions. 

FUD is typically released through a rumor published on a well-respected website, a negative news item, or a well-known figure expressing concerns about a certain asset (commonly done over Twitter ). Content surrounding FUD and FOMO tend to be from organizations or individuals that have something to gain from the intended action. The content is designed to strongly influence the reader. 

FUD and FOMO aren't strictly related to the crypto market, such tactics have also been witnessed in the stock market and other commodity trading spaces. The jargon has become synonymous with trading. 

How to recognise FUD

The crypto community might seem tight-knit but there are often ill-actors that gain access to the trusted space and infiltrate it with bad news. This is often seen when people use a commonly discussed topic, such as regulation, to build a narrative that isn't necessarily true to influence traders. 
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Here are several tips to ensure that you don’t fall victim to FUD:

Establish a trading goal 

Before you enter the crypto market ensure that you have definitive goals, with accompanying timelines. When faced with FUD or FOMO information, consider if the resulting actions of this news will move you closer to your goal or further away. If you stay focused on your goal you are less likely to be swayed by market sentiment. 

Build a trading strategy before entering a trade

A trading strategy generally involves determining a stop loss, entry point, target sell point, and amount of capital. By establishing this before entering the trade, you will have clear objectives to follow and be less likely to fall victim to FUD-centered misinformation. 

Stay informed, but verify sources

Keeping an eye on the crypto markets and staying informed is imperative for any trader, especially day traders. Ensure that the places that you acquire your information from are reputable and legitimate, and if something sounds suspicious, verify it through a number of other sources. 

Be patient and consistent

Engaging in crypto trading involves making well-informed decisions based on market trends and supporting technology. Rather than seeking rapid financial gains, it's important to maintain patience and consistency in working toward your goals, while staying focused on your intended path.

Navigating FUD

Despite this sounding difficult, FUD is easily avoidable if you stick to these tips above and only seek information from reliable news sources. While Twitter may have quick tips, it's also hard to determine what the author's intentions are.

Consider whether something sounds accurate or not, and always conduct your own research when considering involvement in a new project. From a financial standpoint, participating in digital currency can be a profitable endeavor, so be sure to act responsibly and observe market trends with a critical perspective.

Generational wealth is not just about building a large stash of money, it's also about how you pass it on. Once you've paid off your debts and established various forms of income, the next step is to start to build generational wealth that can surpass your lifetime.

In this article, we explore what generational wealth is and how to start building it. As with any investment account, the earlier you start the better the end result. While building generational wealth is a great place to be, we encourage you to get your current financial situation in order and build your financial education before you start exploring this concept.

What is generational wealth?

Generational wealth, also called family wealth, is the transfer of assets from one generation to the next within a family. This may include multiple streams of income from financial investments like stocks and bonds, as well as valuable assets, real estate, and family businesses. These assets continue to generate financial value as opposed to just being a lump sum of cash.

It's important to note that when an individual is born into wealth, that wealth was created by a generation before them, whether that be decades or centuries before. This financial success can help eliminate financial struggles for generations to come, or if not handled correctly, could be eradicated by just one generation.

The main factor for passing on generational wealth

Creating wealth is not the hardest part, the hardest part is educating the next generations on how to manage this wealth. According to the Williams Group wealth consultancy, 70% of wealthy families lose their wealth by the second generation while a whopping 90% lose it by the third. 

Generational wealth is not about creating enough money to allow your children’s children to sit around all day, it’s about passing wealth down for generations to come to make the world a better place and empower the family tree. Generational wealth is not about materialism or consumerism, it should be about financial education and philanthropy. Consider how important generational wealth is to you before embarking on building wealth for future generations.

The key steps to building generational wealth

There are two key components that need to come together in order to build generational wealth: firstly, building this wealth, and secondly, passing on this wealth. In this first section, we will cover the former. 

Creating generational wealth isn't going to happen overnight. It's a journey that necessitates time, purposeful planning, and commitment. There are no shortcuts when it comes to creating generational wealth, it's a marathon, not a sprint no matter which financial assets or stock market you might choose to invest in.

It involves not only taking care of your personal finances through proper planning but also educating the next generation about financial literacy and personal finance. This legacy wealth could go on to fund a child's education or college education, or be used to build an impressive real estate portfolio or invest in family businesses.

It's not about inheriting a trust fund at a young age so that one can simply enjoy life, it's about learning how to be financially fit, understanding how to create wealth, and hopefully building a secure financial future for the next generation.

1. Build a solid financial foundation

First and foremost, you will need to build a solid financial foundation before you start to build generational wealth which means you need to get out of debt and establish an emergency fund (three to six months' worth of expenses).

Do not progress to step two until this step has been completed. In order to build wealth one needs a firm foundation, so set yourself up to weather any storms that might come your way before you embark on the journey to create generational wealth.

2. Start allocating 15% of your income to a retirement fund

Now that you are out of debt and have established an emergency fund, allocate at least 15% to your retirement fund. In this step, consistency is key. Determine what kind of investment account (whether using new-age financial assets or the stock market) you wish to use, consult a financial advisor if necessary, and start allocating 15% of your gross income to this tax-advantaged retirement account.

If you consistently do this for two to three decades you will have built enough wealth to live comfortably after retirement and pass some on. 

3. Build slowly and consistently

As we mentioned earlier, building generational wealth is a marathon, not a sprint. This is a long-term commitment that requires no rush and no pressure. Commit to consistently building your wealth for the rest of your life. 

4. Communicate with your family and educate them about money

Discuss your financial goals with your children and use the opportunity to share your knowledge about wealth. If your wealth creation involves investing in real estate, building a family business, or any avenue that requires active participation, ensure that you keep your descendants in the loop and provide them with the wisdom, knowledge, and skills to maintain and ideally continue to build generational wealth. 

By discussing money frequently, being open about mistakes you have made with finances, and demonstrating smart financial decisions in your own life, you can teach your children about the importance of managing their money wisely.

5. Officiate things by making them legal

When it comes to building generational wealth, a financial advisor is optional but including a lawyer is essential. This step ensures that the generational wealth you spent your lifetime building is distributed accordingly.

Ensure that you go through the necessary legal proceedings to make sure you're not only on the right side of the law but also that the generational wealth is passed on as per your intentions. 

How to pass on generational wealth

Now that you've put the processes in place to start to build generational wealth, the next step is to put in place the necessary steps to ensure a smooth handoff. Here are three key steps to ensure that your generational wealth remains a blessing and not a chaotic curse for those left behind. 

1. Create a will

No matter what earthly possessions or family wealth one has, a will is essential for everyone 18 years and older. This legal document outlines how your assets are distributed after you die. While consulting legal counsel is advised, there are plenty of templates and methods online for writing and establishing your will. Regardless of whether you create generational wealth or not, this step is important.

2. Establish an estate plan

Estate planning entails organizing your possessions and determining how they should be handled after you have departed. A will is a very important component, but if your net worth exceeds $1 million, consulting a professional could be wise to guarantee that all the details of your estate plan are in order. 

Expert estate planners can help with more complex situations, like a family business or intricate family wealth, as well as demonstrate tactics for diminishing federal taxes so you don't pay any more than necessary.

3. Put together a legacy drawer outlining your family wealth

Crafting your legacy drawer should be on everyone's to-do list, it is a place where you store important documentation and items that will become invaluable for your family (and family wealth) should anything happen. While there are many documents to consider keeping in this secure location, here are a few must-haves:

• Your will and estate plan
• Financial account information
• A copy of your monthly budget
• Life insurance policy
• Tax returns
• Account passwords
• Personal letters to loved ones
• Funeral instructions

Create lasting generational wealth

Once you've made the decision to strategically allocate resources for your financial future and build generational wealth, there's no turning back. If you aim to create enduring generational wealth and blessings for future generations, it's time to focus and begin. Consider this a long-term journey that, with the right financial commitments and education, will empower generations to come.

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Much like traditional stock portfolios, crypto portfolios can too be balanced to ensure a spread of returns and risks over the asset class. Building a diversified cryptocurrency portfolio can be done in many ways, however, in this article, we will be exploring a general approach that market participants can use to build their own. 

From thoughtful diversification to asset allocation to buying your cryptocurrencies, the road to building a balanced crypto portfolio is not a complicated one. It will require some upkeep though, so be sure to factor in that you will need to balance your portfolio regularly. 

Starting with the basics, a cryptocurrency portfolio is a collection of varied cryptocurrencies held by an individual (these portfolios hold one asset class, while others can hold multiple asset classes and would require further asset allocation).

Some users also choose to use a third-party tracker which calculates the portfolio’s holdings and profits. A balanced portfolio will have a collection of coins, products, and tokens, each with its own risks and rewards.

It should have a mixture of high and low-market-cap coins and might look something like this: 35% Bitcoin, 10% Ethereum, 25% stablecoins, 15% NFTs, and 15% altcoins (this is an example based on the current climate of the cryptocurrency market and not financial advice).

The 5 main types of cryptocurrencies

Before we start building our portfolios, let’s begin with understanding the 5 main categories that can be found in the cryptocurrency market today.

Most of the cryptocurrencies on the market at the moment will fall into these options.

Payment focused

Consider these the original first-generation cryptocurrencies, starting of course with Bitcoin. Many earlier projects were designed as systems of transferring value, take for example Ripple (XRP), Litecoin (LTC), and Bitcoin Cash (BCH). 

These types of coins typically have a high market cap.

Stablecoins

This category refers to all coins that are pegged to a fiat currency and commodity. These coins naturally bypass any volatility, ensuring a stable anchor in your portfolio and a safe haven for when the markets experience a dip.

While they might seem to represent more traditional assets, stablecoins provide a valuable contribution to the crypto ecosystem.

Examples include PAX Gold (PAXG) which is pegged to the price of gold, while options like Tether (USDT) and USD Coin (USDC) are pegged to the US dollar. 

Utility tokens

Utility tokens are unique to their ecosystems and generally offer a product or service. This could come in the form of a coin used to pay transaction fees on a network, or a coin created to launch a crowdfunding initiative.

Examples include coins found on dapp and smart contract development platforms, Ethereum (ETH), and Binance Coin (BNB). 

Security tokens 

Much like traditional securities in the stock market, security tokens can take on many forms.

These digital forms of traditional securities have been integrated with blockchain technology and span across three categories: equities, debt, and a hybrid of debt and equity. This can range from representing a bond issued by a project, equity in a company, or even voting rights. 

Governance tokens

Governance tokens offer holders voting powers and a share of the project’s revenue. Similar to utility tokens, the value of a governance token directly relates to the success of the underlying project. Examples include Uniswap (UNI) and PancakeSwap (CAKE).

How to build a balanced crypto portfolio 

When it comes to building a well-balanced crypto portfolio there are plenty of different schools of thought. We encourage you to do your own research and ultimately go with what feels right, however, here are several common themes to pick from.

• Diversify risk

Ensure your crypto portfolio has an adequate amount of risk tolerance by incorporating high, medium, and low-risk coin options, portioned appropriately.

It’s important to first establish what level of risk you are willing to take, and plan your portfolio accordingly. 

• Include stablecoins

While these aren’t associated with wild gains, stablecoins help to provide your portfolio with liquidity and are key to many DeFi dapps.

They also allow traders to quickly and easily exit a position or lock in gains whether in a bear market or a bull market.

• Monitor the market

Ensure that you are checking in to see what is happening in the market regularly and adjusting your crypto portfolio to best manage this.

Crypto markets can still be very volatile, so ensure that your trading decisions reflect what is happening. 

• Monitor your emotions

This might be one of the biggest overseen aspects of trading but ensure that you have a grip on your emotions as they can play an integral part in your decision-making.

Fear and greed are strong contenders when it comes to making logical trading decisions, make sure that these are not influencing any of your trades.

Don't let greed interfere, changing potential big gains to huge losses. Things can go terribly wrong when emotions are behind the wheel of trading decisions.

• DYOR

We cannot stress it enough - always do your own research when exploring the cryptocurrency market. Never engage in a project that you cannot fully explain to another trader. Buying cryptocurrencies requires a substantial amount of due diligence.

While there is value in taking advice from a strong trader, ensure that you do your own vetting of the project before blindly trusting a stranger, this is your own money after all. 

• Only spend what you’re willing to lose

As a golden rule of thumb when it comes to navigating any market, only ever spend what you’re willing to lose.

If you’ve made trading decisions that are causing you sleepless nights, consider a different approach, and ensure that should something go wrong that you have the financial means to stay standing. Your overall portfolio should be correctly balanced in order to ensure you can have rest-filled nights.

How to use a portfolio tracker

While typically used for short-term and day traders, trackers can also provide value to long-term market participants. Trackers provide a reliable way of monitoring the performance of your low, medium, and high-risk endeavors.

Crypto trackers also allow users to measure their results across several blockchains and wallets in real-time, allowing one to directly measure the success or losses of their crypto financial products.

Portfolios typically involve holding multiple coins across various blockchains, so finding a compatible and suitable portfolio tracker makes sense.

First, you’ll need to select a good portfolio tracker that best suits your needs. Below we’ve outlined the top crypto portfolio trackers, although it's best to get a feel for the platform before diving in.

For instance, Pionex is better suited to high-volume users while Delta is better suited to beginners. See our selection below of top options on the market at the moment.

• CoinMarketCap
• One of the most used sources of information in the crypto space, CoinMarketCap also provides tracking functionality. Users can enter their coins, what price they were bought at, and monitor their progress.
• Pionex
• Favored to high-volume users, Pionex provides a more advanced option when it comes to tracking your crypto portfolio.
• CoinGecko
• Most commonly known as a data aggregator, CoinGecko also allows users to track over 1,000 coins across its mobile and desktop crypto trackers.
• Delta
• Delta not only provides a very user-friendly crypto tracker, it also allows users to track a wide range of assets including fiat currencies, stocks, bonds, futures, and ETFs.

Aside from the look and feel, other factors to look out for are safety and security and whether it supports the wallet and coins that you’ve purchased. 

Building your crypto portfolio manually

When you’re ready to start building your well-balanced crypto portfolio, you will need to find a reliable platform and wallet on which to do so. Ensure you stick to a regulated exchange and that the security behind the wallet you choose is of high standards. The Tap mobile app offers a secure and convenient platform through which users can buy, sell, trade, and store a wide range of cryptocurrencies. Next, you will need to decide on which coins you'd like to purchase, ensuring that you allocate your capital strategically with appropriate weightings.

While conducting your own research is crucial, it's also wise to consider consulting with a licensed financial advisor before proceeding with building your portfolio. A professional advisor can offer valuable insights and guidance tailored to your financial situation and investment goals, helping you navigate the complexities of the cryptocurrency market and make informed decisions.

Remember, understanding what crypto is and conducting thorough research on individual coins are essential steps before investing any money. By combining your own research with expert advice, you can build a crypto portfolio that aligns with your objectives and risk tolerance."

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While the American dream glamourised building a company from the ground up and selling it for billions, this isn’t going to be achievable for most of the population. However, we’re here to tell you that you can still build wealth while working a 9 to 5. 

We’ve heard many people say they don’t have the time or resources to build wealth while managing their desk job, so we’ve laid out some ways in which “regular people” can build wealth while still working their day job. 

Adapt your mindset to wealth building

Yes, “if you believe it you can do it”, but more importantly: if you take the necessary steps, you will move forward in that direction. If you’re action-orientated and self-motivated, there’s no reason why you can’t work your way up the corporate ladder. Typically in an organization, if you build wealth for the company, this is rewarded through incentives and promotions, thus generating more wealth for the individual. 

If you adopt an attitude that you can build your wealth within your 9 to 5, this will have you on your way in no time.  Think beyond just having a job, think of the bigger picture: you’re building a career and in turn building wealth.

When looking for a job, prioritize companies that allow for growth and personal expansion, and that value wealth creation. Whether it's in terms of promotions or offering employees shares, there are plenty of opportunities, especially within the tech space for building wealth through a career.

Grow your market value

When investing in the stock market, investors tend to look for stocks from a company that has the potential to grow. Consider yourself to be the company and invest in your own growth. If you increase your market value through learning new skills, you increase your potential for greater income. 

Two perfect ways to do this are through growing your technical skills and soft skills. 

Increase your tech skills

Technology is here to stay, so why not boost your portfolio by adding some additional skills to your repertoire now? Technical skills encompass skills that can be visible to an employer or peer. These might include coding or content creation, as both offer “proof” that you can do this.

Build on your soft skills

Soft skills, however, are skills that you need to prove over time, like being a team player, being reliable, or being emotionally intelligent. While these don’t sound like the be-all and end-all of building wealth, they are skills required to reach high-level jobs, and high level equates to high pay. 

While technical skills will get you the job, your soft skills will guarantee growth. Both play an equally important role in building wealth.

Manage your money (from stock market to student loan debt)

This might be the most important point when building your wealth. It's essential to change your attitude towards money in order to increase your financial wellness, and there are several ways you can do this.  

Understanding how to create wealth is a mentality that affects your behavior, which leads to actions that will enable you to maintain stability. Follow the golden rule of wealth building: “plan, save, invest” and start now. 

Draw up a budget. Save money. Build an emergency fund. Make your money work for you. Work on ways to generate more income. Consult a certified financial planner or investment advisor if need be. Whether you start small or not, starting today is the most essential.

The key is to always be thinking about how to make your money work for you, not just how to earn the entrepreneur title.

Establish your goals for building wealth and work backward

If you’re looking to be a homeowner in ten years, start taking the necessary steps to do so now. If you want to have a healthy investment portfolio in five years, you might want to consider open an investment account and start learning about investments today. Don't be afraid to consult professionals who can assist you with financial planning and achieving this goal.

Details are critical for success so get specific with your goals, whether it’s for your personal finance dreams or retirement savings. Do not rely on daydreaming to make your 9-5er wishes come true.

Start a side hustle

If investing in mutual funds isn't for you, there are still plenty of earning opportunities outside of your 9 to 5. While some require serious capital and time commitments, there are plenty of others that are highly achievable in the rest of the hours of your day.

From creating an online course that can run with little to no effort once completed, or content writing, to becoming an affiliate marketer or creating Youtube videos on something you’re knowledgeable about, the options are endless and often lucrative. 

In conclusion

Building your personal wealth while working a 9 to 5 is entirely achievable. Better yet, you don’t need to worry about running a business, from the operational expenses to paying salaries. You can still build your wealth on the side while learning new skills on the job and receiving a regular, stable income. 

If unsure where to start, begin with getting a grip on your personal finances and setting up a budget and emergency fund. Emergency funds will help you steer clear of high-interest debt while you reach your financial goals.

Before you invest in any crypto projects or assets, the golden rule is to always do your own research (DYOR). Hearing about a new coin from your neighbor or cousin's friend on Facebook is great, but it still requires a sizable chunk of your own research. Before you part ways with your money in the crypto space ensure that you've weighed up both the risks and the potential, the responsibility lies with you.

Crypto investing has a track record of being volatile, so the more clued up you are on the crypto assets you invest in, the better. While market data and fundamental analysis are important, be sure to understand the basics of a project and the project's potential.

What is DYOR (do your own research) in the crypto space?

The holy grail of investing in crypto projects, DYOR has become a common abbreviation for do your own research. The phrase is used to remind crypto investors that they should conduct their own research on a crypto project thoroughly before investing any money in it.

Whether you're looking to buy crypto assets, tokens, NFTs, or in any way get involved with a crypto project, be sure to thoroughly investigate the following factors mentioned below when doing your own research. Don't be lured in by a project's fundamental analysis, ensure that you understand everything there is to know about the project. Crypto investing can have devastating consequences for uninformed investors.

The 4 dimensions of how to DYOR on a crypto project

Below we will outline the four main dimensions of conducting your own research on a new cryptocurrency. These four pillars will give crypto traders a solid understanding of what the project represents, how it's been received, and what might happen in the future. Be sure to do this before looking at any technical analysis.

Remember, doing your own research requires reading multiple sources and verifying that the information is correct. When conducting your own research you mind find some disputing information, continue looking until you have the accurate answer.

Team

First and foremost, who is the team running this project? This information is typically presented on the platform's website or in its whitepaper (it's imperative that a project has both of these).

Take a look at the size of the project team, a small team might fall apart if one of the three members leaves while an excessively large team might be a red flag if it is still in its early days.

Check the experience of the leaders on the team. Ideally, you want leaders and executives to have experience in blockchain, Web3, finance, business, computer science, or any other related fields. Also, consider whether their current titles match their experience.

Are the team entirely anonymous? This is considered a red flag as the potential for them to execute an exit run is high. Consider the leaders of the project carefully and decide whether they have the means to steer this ship in the right direction.

Tokenomics

Tokenomics refers to the factors related to the supply and demand of a coin or token. The term merges "token" and "economics" and provides a key area of study for potential investors when establishing a coin's long-term viability. Below are the main aspects of tokenomics:

• Token supply: what is the maximum supply of coins or tokens?
• Token utility: what is the purpose of the coin (does it have governance rights, does it serve a specific function)?
• Market cap: How does the coin's market cap compare to that of its competitors?
• Issuance tactics: does the project intend on conducting token burns or any related activities?
• Minting, allocation, and distribution: how are the coins minted (all at once, gradually), when launched how are the tokens distributed, do a small number of members hold a large amount, are any coins locked up that will be released to the market on a specific date?
• Trading volumes and liquidity: what kind of volumes does this coin trade and how much liquidity does it have?

Innovation

For this pillar of the project, you want to look at what problem this project is solving, and what edge it has over its competitors. It's also worth taking a look at the project's road map and whether it is delivering on its self-set milestones. No roadmap is a red flag, well-managed projects are transparent and eager to release their milestone accomplishments.

Ideally, you want to establish what solution this project is bringing to the greater industry and what competitive advantage this project holds over similar projects. Consider its weaknesses.

If you want to take things one step further, consider what the team might not be telling you, and what elements could work against the growth and success of the project.

Social

This might not seem essential, but social media platforms can offer significant insights into the project's community, achievements, and current state within the crypto space.

When conducting your crypto research check whether the project has active official social media channels, and how often these are updated.

Secondly, how big is their community both in terms of followers and engagement? Are people engaging with the platform or talking about it on their own channels? Community members can shed a big light on how the project has been received.

Lastly, what kind of discussions are being had within the community of these groups? Are people friendly and inviting, or are they blindly promoting the project and pushing "lambo" sentiments? Ideally, you want to have a space where open and honest discussions can be had and constructive criticism accepted.

Toxic communities along with shillers and abandoned channels are all red flags.

The bottom line for DYOR and crypto projects

Establishing these four dimensions of a project is important prior to commiting any money. Not only does it give you the opportunity to learn about a new project, but also to become better acquainted with what is happening in the crypto space.

Through the process of conducting your own research, you might discover a viable gem or even gain access to exclusive airdrops as an early supporter. Bear markets are a great time for diving into DYOR explorations.

Decentralized Finance (DeFi) enables you to access a variety of financial services, from the basic sort that your regular bank would offer to the complicated instruments used by Hedge Funds and Investment Bankers, only with cryptocurrencies instead of traditional fiat currencies.

Staking your cryptocurrency in smart contracts, essentially locking your funds in an account indefinitely, allows you to earn interest known as an Annual Percentage Yield (APY), a term borrowed from traditional finance (tradfi).

As a thank you for staking funds and providing liquidity, each Defi project offers a token that has value only in the context of that project. That token allows you voting rights on the DeFi protocols' direction and has speculative value.

In just two years, DEFI tokens have shown significant increases in value. Likely the reason why you're here to learn how to gain from these increases. Let's dive in.

Before we get started, let us first address several terms you are likely to come across in this piece:

• Financial institutions are your traditional banks
• Centralized exchanges are crypto exchanges that are operated by a managing company
• Decentralized exchanges are crypto exchanges that are not managed by one company and typically work in a peer-to-peer manner.
• DeFi is decentralized finance and refers to the industry in which regular users can engage various financial services requiring only an internet connection.

How smart contracts work in the DeFi space

A smart contract is a digital agreement that automatically executes once the predetermined criteria have been met. These computer codes are facilitated by blockchain technology and rely on the blockchain that they are built on. 

At the moment, your bank account from financial institutions might give you the right to a certain amount of monthly interest at a fixed rate. The deal is reached through a formal application procedure - which can take many days - that is handled by a mix of people and software and is acknowledged in writing. Once successful, the bank account is opened and you have access to the services.

A smart contract, on the other hand, uses a programming language (e.g. Solidity on Ethereum) to map out the mathematical aspects of an agreement - how much interest is due when and where it should be paid - while the underlying Ethereum blockchain executes the contract for a fee, making it transparent and unchangeable.

In this basic regard, Defi protocols restore the type of savings and financial possibilities that were formerly available only to traditional finance (tradfi), with the crucial distinction that it eliminates the middleman entirely.

Unlike in tradfi, with DeFi projects users interact with code and can avoid dealing with people and lengthy application processes entirely. DeFi allows users to tap into these wealth-generating opportunities in a democratized and inclusive manner.

On the downside, this means that there is no guardrail, so users must be comfortable with the degree of autonomy and trust in the execution of the smart contracts.

The ups and downs of the DeFi ecosystem

Defi projects typically offer significantly greater returns than those provided by tradfi APYs, which tend to be positioned around zero (some banks still offer negative interest on savings). Decentralized Finance on the other hand offer single to double-digit returns, a huge attraction for those looking to increase their capital.

Additionally to the higher returns, DeFi tokens have also seen a rise in value, with some entering the top 20 and top 10 biggest cryptocurrencies based on market cap.

There is, of course, a trade-off when it comes to the seemingly endless benefits of DeFi. Although Defi standards have several interesting and unexplored possibilities, they come with their own set of risks that you need to be aware of:

• Smart contract costs: smart contracts require fees in order to execute, which in times of network congestion, can be exorbitant. Look for Ethereum alternatives to reduce these costs.
• Smart contract vulnerabilities: not all smart contracts are created equal, and should your DeFi protocol not take the correct measurements or make an error in the digital agreement, your funds could become compromised.
• Users are entirely in control: created in the same decentralized nature of cryptocurrencies, there is no fallback should you lose your private key or make an incorrect transaction.

Ensure you vet various DeFi protocols before wngaging

In general, more established Defi protocols with a higher total value of assets secured within them (also referred to as Total Value Locked, TVL) are safer. This is due to the fact that their code has been more thoroughly audited and "battle-tested".

Newer platforms will typically offer higher APYs in order to entice investors and build up liquidity. While this may sound lucrative, always ensure that you've done your research in order to understand exactly how the protocol operates and who is behind the project. 

Here are a few things to look out for:

• Has the protocol's code been professionally audited? 
• How long has the project been live?
• What is the platform's TLV? (The higher the better)

Finding your top Defi protocol

There are a number of "well-established" DeFi platforms that have proven reliable and trustworthy in recent years. While the risks are still prevalent, these are the top options when looking to enter the DeFi space with the leading DeFi protocols.

Aave

Compound

Maker

Yearn Finance

How to use DeFi protocols (Get started in DeFi)

In order to engage with DeFi protocols and join the other liquidity providers, you will need a web wallet such as MetaMask. You will need to transfer funds from a centralized exchange, for example, you can use your Tap wallet to easily transfer ETH or other supported crypto assets directly to your MetaMask wallet, from where you can connect this wallet to the DeFi platform of your choosing. You will not be able to use funds from a traditional financial institution.

Once connected, you can then deposit funds into a lending protocol on any DeFi application and pay the incurring network fee. Any subsequent activities such as staking, unstaking, withdrawing your yield, will likely also cost a fee relevant to the cryptocurrency network you are using.

Understanding the risks associated with DeFi

While we've stressed that using tried and tested DeFi platforms provide a higher level of security, there are still risks associated with the DeFi space.

Below are some more steps you can do in order to secure your cryptocurrency assets and decrease the chance of losing your funds.

• Consider insurance
• Research the team behind the project
• Choose simple yield generation strategies
• Don’t commit more than you can afford to lose

Decentralized finance is one of the most innovative and promising areas in cryptocurrency. It is also a harsh environment, however, that demands some expertise before stepping in.

Before you place any funds into Defi protocols and become one of the many liquidity providers, ensure that you've fully vetted the project and considered the pros and cons of what it has to offer. Also ensure that you understand how the platform operates, i.e. if it says it offers 20% APY, seek to find out how they do so.

The DeFi space can be both lucrative and devastating, so make sure you know what you're doing and good luck out there.

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