DeFi

DeFi Returns vs S&P

-73.70%

Versus S&P

-9.50%

37 minutes ago

-73.70%

Versus S&P

-9.50%

37 minutes ago

6m High

6m Low

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DeFi

341.06

82.62

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S&P 500

4,796.56

3,900.79

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DeFi

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S&P 500

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Does not follow the stock market

Sources: DPI Pulse Index, SPX

    Reasons to Invest

  • Decentralized trading has lower fees
  • Stellar passive income potential
  • Early adopter benefits like DAO access and comparatively high potential ROIs
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Highlights

Good For

Early adopter benefits and high growth potential

Time Horizon

2+ years

Diversification

Environmentally Friendly

 Decentralized finance, or DeFi, is an umbrella term for blockchain-based financial services and products. The DeFi sector includes crypto and blockchain-based versions of traditional financial products like cryptocurrencies, crypto exchanges, crypto loans, crypto wallets, and even crypto savings accounts. DeFi transactions happen through a crypto wallet, such as Coinbase or MetaMask, and are stored on blockchain forever (or at least as far ahead into the future as we can fathom). This open-source nature is what makes DeFi so appealing to those calling for less governmental regulation and fewer fees. In theory, DeFi is a libertarian utopia, but in practice you have to be well-informed about both crypto and advanced trading to hang. If you’re willing and able to accept some risk, DeFi can be a fun and exciting way to earn passive income through advanced transactions like staking, lending, and trading.

DeFi investors embrace short-term volatility in order to try and snag an early adopter’s advantage in the crypto industry.

avg

+140.5%

Returns since October 2020

Ways to Invest

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Risk Score

6M Growth

DeFi

DPI

45

-73.41%

Bitcoin

BTC/USD

67

-47.35%

Risk Analysis

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Risk Analysis

DeFi is full of risk. However, crypto investors would argue that such risks are natural and well worth it for the decentralized economy DeFi promises. 

 

Whereas traditional banks require that customers hand over a driver’s license and social security card to store their money in an FDIC-insured account, DeFi has no such thing as standard identifying protocols or insurance. That means that your crypto can get stolen in an instant, but that you have complete autonomy to use your money however you’d like.

 

Obviously, DeFi investing requires some research and familiarizing oneself with best practices like how a crypto wallet works, how to safely store your crypto wallet offline, and how to track your crypto portfolio. It’s also worth talking to others who are bravely embarking on their DeFi journeys alongside you. Much like a pick-up basketball game, crypto relies on everyone for accountability.

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Compared to:

Residential Real Estate

Low

12

Gold

Low

13

Performance During a Recession

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Performance During a Recession

During last year’s economic recession, the crypto industry saw incredible gains and proved that, despite negative macro circumstances, crypto is here to stay. The DeFi index market cap alone is at least $132.32 million, and the crypto industry as a whole is over $2.6 trillion.

The word on the street is that crypto insiders fear the Fed’s heavy hand in driving inflation, which actually benefits DeFi even more. Because Bitcoin is known as digital gold, consumers are starting to see cryptos of all kinds as an inflation hedge—and everyone wants in on the action.

Drawbacks

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    Drawbacks

  • Decentralized trading means fewer regulations, so it can be riskier
  • Lack of basic customer identity verification known as “KYC protocol” (know your customer)
  • High scam potential
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How You're Taxed

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How You're Taxed

Income Tax

Income Tax

Capital Gains

Capital Gains

DeFi trading can be a bit of a nightmare for tax reasons. It’s important to make a good faith effort and claim your profits and losses as accurately as you can.

Crypto is seen as a digital asset, so capital gains rules apply when buying and selling it. If crypto is held for over a year, most people pay 15% or 20%, based on your income threshold and filing status. Hold it for one year or less, and you’ll be taxed whatever your normal income tax rate is. 

You can also keep a small amount of crypto on a centralized exchange like Coinbase without telling Uncle Sam (let’s be honest—he most likely knows), but once you exchange it for U.S. dollars or other cryptos where there may be a profit or loss from the exchange rate conversion, you should log those transactions for tax time.

DeFi Basics

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DeFi Basics

Did You Know?

  • poitStar

    Crypto entrepreneurs use DeFi for crowdfunding. When investors buy a new project’s utility token, it creates an instant liquidity pool of sorts. Early investors buy in at a low price, helping to fund the project, and then when the project reaches success, investors have a new asset to trade.

  • poitStar

    DeFi is revolutionizing lending. Traditionally, you need a credit score and sometimes collateral to secure a loan. DeFi opens up loan access to those who might not qualify for traditional loans but can use crypto assets as leverage.

  • poitStar

    Shark Tank’s Kevin O’Leary himself said that investing in Bitcoin and Ethereum isn’t enough to truly capitalize on the major upcoming crypto boom. Of O’Leary’s total crypto holdings, just about 5% are BTC and ETH, and the rest are a number of altcoins that collectively make the DeFi space possible. Most new blockchains have what are called native tokens, and investors can buy up these new tokens to create liquidity pools and trades—not to mention leverage your crypto assets for lending.

  • poitStar

    Coinbase, a popular crypto exchange, had over 73 million users and a quarterly trading volume of $327 billion in December 2021.

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