Cryptocurrencies are growing at an unprecedented rate. This year it reached a market value of $ 2 trillion. Decentralized Finance (DeFi) has become one of the most important ecosystems in the digital currency space.
Currently, DeFi has a total locked value (TVL) of $ 142 billion. Many projects at DeFi have accumulated billions of dollars with the ability to lend, gamble, and borrow cryptocurrencies. As more users are drawn to DeFi, we are seeing incredible exponential growth.
Apparently there is such an abundance of capital in DeFi right now. However, it seems indisputable where this value really comes from.
We take for granted the value of various tokens, coins, and the accumulated value of a project. But this must be questioned, or can we really pretend to understand space?
It is well known that banks make most of their profits with interest. So if you don’t understand where performance in DeFi is coming from, then clearly more education is needed for those entering and exiting the cryptocurrency space.
DeFi surrender creates farms
Agricultural performance is a DeFi feature that has gained popularity. It is currently the most significant growth engine in the space.
premise of yield farming is that a cryptocurrency holder can lend his digital assets as a loan to another user. This is done by the asset holder by depositing his cryptocurrency in a loan pool. From there, the borrower can access the funds as a loan payment and pay the interest on the crypto loan.
interest that the borrower pays on the crypto loan is accumulated as yield. This is then paid to the lender as a reward for gambling. One of the biggest benefits of yield farming that some users may not be aware of is that you can achieve consistent yield regardless of the state of the market.
In addition to earning on a loan protocol through yield farming, the word “farming” in crypto means so much more.
Agriculture includes Agricultural Liquidity Funds (LPs), such as Raydium LPs or SushiSwap LPs. It also includes the use of protocols like Harvest Finance or Muse, where you can bet your NFTs.
se replication mechanisms reward cryptocurrency users, incentivizing them to contribute more to the platform and help grow the ecosystem.
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This symbiotic relationship between the protocol and the user, in which both parties win and benefit, both through loans and gambling, continuously generates returns as more people flock to DeFi and deposit their assets.
Airdrops and how they create value in DeFi
One of the other ways the DeFi space has amassed such a colossal TVL figure is through airdrops. se have become commonplace among the crypto communities.
se are projects that release limited amounts of their tokens as a free gift to a select few people who sign up for their launch on time.
Airdrops are a free distribution of tokens or crypto currencies in users’ wallet addresses and are mainly used to draw attention to a new project.
In addition, they can also be used as a way of generating influence, especially if there is something big that the project is announcing or if they are looking to promote something.
Airdrops are a good way to monetize project-related interests and are a tactical customer acquisition technique. While there may be significant tangible differences, it is in fact very similar in concept to paying for an ad space like a billboard, and they both serve the same purpose. Your goal is to attract more people to your product or service.
Airdrops are a tactic to create and distribute wealth to a project, and the hype behind them is enough to generate the desire to claim a token, which then increases its value.
Value beyond a single DeFi project
If the airdrop comes from a project with a solid platform, the tokens can fetch high prices. This creates an influx of value to the DeFi space.
Depending on the number of tokens launched in the airdrop, the price can be affected even if the tokens are subsequently sold. refore, airdrops are beneficial to the project issuing the tokens and help to keep the capital flow in DeFi healthy.
Airdrops are also a customer acquisition cost for a project. With traditional internet ads like Google or Facebook, only a small percentage of people will click on your content, which could be less than 1%.
However, with an airdrop, almost 100% of people are likely to interact with your platform after receiving a token. refore, it generates more users and ultimately more value in the project.
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Income Generation Protocols: An AMM Example
Another way DeFi has built up value is through revenue-generating protocols like SushiSwap. y charge users fees for exchanging their currencies before the fees are recycled into DeFi.
While high fees are often a deterrent for users, there is still enough demand for these protocols in the space for capital to flow into these projects.
One of the key examples of revenue generating protocols in DeFi is Automated Market Makers (AMM).
AMMs are an underlying protocol that powers decentralized exchange. AMMs are independent trading mechanisms that eliminate the need for centralized trading and related market making techniques. most popular MMAs are Uniswap, Balancer, and Curve.
MMAs come in various forms. An AMM like Step Finance does not have permission and allows projects to create their own groups without the need to apply for or go through any approval process.
Said MMAs have put their token in front of a global audience. Create an opportunity for people to earn with your token by adding it to your project’s TVL. As such, it incentivizes more people to own and invest in the asset. This is why MMAs have become a popular promotional tool on DeFi.
DeFi must have value
For performance to be sustained and accumulated in DeFi, each project must create something of value.
Also, each token launch must have tokenomics that create value in the token itself. In a space that is becoming increasingly saturated with meme coins, this is becoming more crucial than ever.
In the traditional financial system, most companies have a narrower window to generate income for their businesses.
For example, Apple may sell an iPhone for $ 1,000, but that one-time payment is the most value they can extract from their product. At DeFi, you repurpose (crypto) money, then borrow to create more and earn lots of money.
Capital efficiency – the relationship between how much a company spends to increase revenue and how much it gets in return – is at the heart of DeFi’s revenue earning mechanisms.
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DeFi allows you to earn multiple times with your same dollar (crypto), overlapping the return performance. Bypassing third parties and traditional bank fees is just the icing on this profitable business caral.
As cryptocurrencies move down the straight path to mainstream adoption, DeFi protocols will find their place in contemporary society. We could see examples of its use in everyday settings.
However, the crucial thing here is to understand exactly where this money is coming from and how this is helping to turn the DeFi ecosystem into a true alternative to traditional finance.
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