As the establishment financial system reveals its rigging in plain sight, more people will seek out alternatives. One of them is DeFi, with its mega-popular yield farming. Find out how to take advantage of it in a few minutes.
Inherent Instability of Centralized Finance
Even if you have no interest in GameStop’s short squeeze drama, its importance for the entire financial system cannot be overstated. Some are already calling it Occupy Wall Street 2.0, while others are calling it a financial insurrection, trying to tie it to the January 6th Capitol riot.
Whatever you want to call the GameStop revolt against the hedge fund managers, it revealed important truths about our financial system and society at large:
- A company that gained its popularity by “democratizing finance” — Robinhood — ended up serving the hedge funds against the retail traders. It turned out that Citadel Securities owns Melvin Capital, which placed the bets against GameStop (GME). Citadel is Robinhood’s biggest income source, as they sell the hedge fund their user data — order flows.
- Consequently, once the tables have turned against the short-selling hedge funds, Robinhood turned against retail traders, delisting GME alongside dozens of other stocks. Robinhood even went so far as to auto-sell users’ GME stocks without their permission.
- To make things worse, the former Federal Reserve Chair, Janet Yellen, had received $800,000 in speaking fees from that same Citadel hedge fund, among dozens of other Wall Street heavyweights. Yellen is now President Biden’s Treasury Secretary with all the powers that position entails.
Without going into many other sordid details, just these three points paint a bleak picture on the notion of “free market” and “fair play” in the United States and other nations. This is the underlying problem with centralized systems. Hidden leverages of power are interspersed throughout the system and used arbitrarily when the need arises.
The question then posits itself, should we accept this or turn to something better?
DeFi as a Viable Counter to Centralized Corruption
Although Decentralized Finance — DeFi — started to develop less than four years ago, its maturation truly began during the spring of 2020. From June to January, the total value locked (TVL) in the DeFi sector exploded from $1 billion to $27.7 billion, signifying a 2670% surge in value!
Why has DeFi achieved such an astronomical rise? Because DeFi represents a revolutionary step forward in how finance works. The preeminent cryptocurrency — Bitcoin (BTC) — laid the groundwork for this revolutionary transformation.
Bitcoin is both a currency and store of value outside of anyone’s control thanks to blockchain — distributed ledger technology (DLT). This means that Bitcoin is impervious to money supply shenanigans by the Federal Reserve.
(Source: Board of Governors of the Federal Reserve System (US))
Therefore, without relying on centralized forces, Bitcoin can serve as a reliable bulwark against inflation, i.e., devaluation of USD. As people have recognized this fact, the cryptocurrency has effectively become digital gold, surpassing the market caps of both VISA and Mastercard.
Likewise, DeFi is independent of mediators — governments, banks, and corporations — to exert pressure on its ecosystem. Instead, it relies on the power of blockchain.
How Does DeFi Work?
Like Bitcoin, DeFi’s decentralized power and unparalleled security lies in blockchain, but not just any kind of blockchain. The brainchild of Vitalik Buterin, almost the entirety of the DeFi ecosystem, is powered by the Ethereum blockchain. Unlike the conservative Bitcoin blockchain, Ethereum is a highly programmable blockchain. This means that developers can create a wide range of applications — dApps — based on smart contracts.
From gaming and gambling to finance and utilities, these dApps remove the need for any meddling mediation because smart contracts set the conditions and execution of each action/transaction.
When it comes to DeFi specifically, this means you can access the traditional banking products of lending and borrowing without any interception from a government or a bank. More importantly, without the associated fees incurred by such mediation. The entire DeFi system is self-sufficient, but with many off/on ramps for sovereign currency to be injected in order to buy cryptocurrency/tokens.
As for the speed of the Ethereum blockchain and its native Ether token, you will be pleased to note that it is undergoing a transition toward Ethereum 2.0, which should eventually provide a 100,000tps (transaction per second). For comparison, VISA can handle up to 60,00tps, although its peak is usually around 4000tps. On the other hand, PayPal has 193tps, while Bitcoin’s blockchain can only conduct 7tps. Therefore, when we go into triple-digit numbers, we are dealing with transactions that can be comfortably completed in under 10 seconds.
Tap into Yield Farming Gains with Ease
If you take a look at the availability of DeFi dApps on the Ethereum blockchain, you will find that they serve multiple categories:
- Decentralized exchanges
- Borrowing & lending
Keep in mind, DeFi dApps are also interchangeable with terms such as platforms, networks, or protocols. When it comes to yield farming, it simply means that you lock your cryptocurrency funds so that you can gain rewards from them. In other words, any time other traders/investors access liquidity pools with your funds in it, you earn passive income via fixed or variable interest rates.
Provided you already have a crypto wallet/exchange account (Binance, Coinbase), you can start earning money with yield farming with these short steps:
1. Install MetaMask extension for your internet browser, all major ones are supported.
2. Create a wallet and deposit Ethereum (ETH) in it. Keep in mind that Bitcoin cannot be directly used because it operates on its own blockchain. Therefore, you need to swap it with some Ethereum (ETH) and then deposit it. WBTC (wrapped Bitcoin) and stablecoins like USDT and USDC are other popular bridging tokens.
With that said, there are projects being developed with the aim to solve blockchain interoperability, such as Cosmos, Chainlink, Polkadot, Chainflip.
3. With ETH in your wallet, access one of the popular DeFi platforms, such as Uniswap. Then, connect it to your MetaMask wallet.
4. Select the Pool tab and click on Add Liquidity.
5. Input the number of the tokens of choice, ETH, and its token pair, DAI stablecoin will suffice. Confirm the creation of the ETH-DAI liquidity pool.
Once confirmed, you have now set your yield farming rate, based on your pool share. As you can see, it is not that much more complex than doing trades on your favorite smartphone apps. All that is left to do is continue exploring other DeFi platforms with the links provided in this article.
Good luck, and don’t forget to safeguard your private key and passwords!