How to Invest in DeFi in 2023 | 
How to Invest in DeFi in 2023
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How to Invest in DeFi in 2023

Decentralized Finance (DeFi) is a hot topic in the world of finance. It offers an alternative to the traditional finance system—full of bureaucracy, high fees, and heavy-handed regulatory input. And it’s not just a fanciful idea; the DeFi market was estimated to be worth $13.61 billion in 2022. It’s a fast-paced industry at the cutting edge of financial and technological innovation. So how do you get involved?

We’re going to look at what DeFi is exactly, the major players in the space, and how to invest in DeFi and earn passive income. We’ll also cover the tax implications and some great resources to learn more.

PS, Don’t forget you can sign up to to pre-order a crypto card that can spend any DeFi token in the world here!

What is DeFi?

how to invest in defi

Decentralized Finance or DeFi is an umbrella term that covers an ecosystem of financial services and products powered by blockchain technology and hosted on decentralized networks. Decentralization, at its core, means that it operates without any central authority or intermediaries like a bank or broker. It uses smart contracts (self-executing code) to carry out transactions securely on the blockchain. 

DeFi users can borrow, lend, invest, trade, and more, all without using a bank or other centralized organization. Transactions are often carried out “peer-to-peer” (P2P). This means that instead of using a bank to transfer money to another person, you can send money directly to the other person. 

For example, instead of borrowing from a bank, you can borrow from another person who has the assets to lend and provides liquidity. Interest is paid to that person. This puts control over finances back into the hands of the users instead of all profit going to the banks. 

DeFi uses cryptocurrencies, including stablecoins, to make this possible. Users worldwide can access DefI with only an internet connection which gives financial power to the global unbanked. However, many governments worldwide are introducing legislation to regulate the DeFi industry in response to concerns about financial risks and legal issues. 

Decentralized Finance Companies

There are various companies and platforms available that carry out the different services that make up the DeFi ecosystem. This can include the following decentralized applications (dApps) and protocols:

  • Decentralized Exchanges: Platforms to exchange crypto assets without a broker.
  • Lending Protocols: P2P lending and borrowing projects.
  • Wallet providers: Projects that offer DeFi wallet solutions. What is a DeFi wallet? These are self-custody wallets that are hosted online. 
  • Insurance dApps: Platforms that offer automated payouts when certain conditions are met.
  • DeFi Derivate Protocols: These support DeFi futures trading and DeFi derivatives trading.

DeFi 2.0

how to invest in defi

DeFi 2.0 is the next generation of DeFi companies and dApps. It builds on the protocols already in use and focuses on tackling issues like liquidity, usability, scalability, sustainability, and security vulnerabilities. It’s hoped that it will bring stability to the volatile crypto sector. Some examples include OlympusDAO, a decentralized reserve currency focusing on liquidity and sustainability, and Abracadabra, a stablecoin lending platform. 

How to Earn Passive Income With DeFi

If you’re interested in how to earn passive income with DeFi, there are many routes available. Some of these allow you to earn passive income—essentially, you lend your tokens to a platform, and, in return, you receive interest over time. This method provides the DeFi liquidity needed to offer financial products without bank reserves. 

The three main methods of earning passive income in DeFi are:

  • Staking: Users lock in crypto assets for a set period to support the blockchain. In return, they receive a portion of transaction fees and newly minted tokens.
  • Lending: Crypto holders can temporarily lend their tokens to others in return for interest fees. 
  • Yield farming: This investment strategy involves staking and lending tokens to a liquidity pool to receive high rewards in the form of cryptocurrency. Alongside higher rewards, there are higher risks in this form of investment. 

One popular example of a DeFi platform where you can earn passive income with DeFi is Yield App. Let’s look at what the project offers.

DeFi Yield App

DeFi Yield App is a decentralized wealth management platform that allows you to earn passive yield on your tokens. It’s a one-stop shop for all things Defi. It offers high-yield investments, token swapping, a fiat on-ramp, and structured investment products. Users can earn up to 10% per annum in returns on their assets. 

DeFi yield protocol price prediction

While it’s impossible to predict the future price of Yield App’s token YLD for certain, the project has shown promise. Although the price dropped over 2022, like most cryptocurrencies, it has rebounded in recent months. 

DeFi Llama

There are countless DeFi projects, and new ones appear every day. Although all data is hosted transparently on open blockchains, it’s hard to keep track of and make sense of all this information. DeFi Llama is an analytics platform that tracks the total value locked (TVL) in different DeFi projects. It also offers a decentralized exchange for trading cryptocurrencies. 

It tracks on-chain activity and dApps, aggregates all this data, and presents it for free on its decentralized platform. It covers over 80 major blockchains and 100s of decentralized applications. Its analytics dashboard is popular amongst DeFi traders and investors as a primary source of information on the cryptocurrency ecosystem. It’s a good way to check which DeFi protocols are popular and have deep liquidity. 

The platform is open-source and transparent, making it a reliable database for investors. Many decentralized exchanges have forked its code as part of their base code, including PancakeSwap, Curve, and SushiSwap. 

DeFi Tax

As the saying goes, there are only two things in life that are certain, death and taxes. And DeFi is no exception. Although transactions are carried out outside of our traditional financial system, you still need to pay taxes on any gains or income. Most governments that allow crypto activities tax any interest, gains, or earnings from lending, staking, investing, etc.

In the US, cryptocurrencies are treated as properties, which means the DeFi crypto taxes that you pay are capital gains taxes and sometimes additional income tax. If you buy or sell crypto, you’ll be subject to capital gains or losses depending on what you sell it for. For staking and liquidity mining, you’ll pay income tax on your profits. For other DeFi activities, the law is less clear; however, it’s safest to assume there will be some form of DeFi tax. 

In the UK, crypto assets are taxed similarly, and you can expect to pay income tax or capital gains. The EU has recently introduced a proposal to tax all crypto activity at an EU level rather than solely at the national level. Most nations in the EU also have specific rules surrounding crypto taxation. It’s important to research the tax implications in your country of residence when taking part in any DeFi activities.

Best DeFi Podcasts

With the fast-paced nature of DeFi and constant technological innovations, it’s hard to stay abreast of recent developments and regulatory changes. That’s why DeFi podcasts are a great way to stay informed and be entertained along the way!

We’ve gathered some of the best DeFi podcasts on the airwaves today. Take a look and see what the world of DeFi has to offer:

  • Bankless: A great YouTube series exploring the frontier of digital currencies.
  • CryptoCartography: Your source for all the new and exciting projects you need to know about. 
  • NFT and Chill: Conversations with the thought leaders and innovators of the Web3 space. 
  • Unchained: An independent journalist covering all things crypto.

DeFi: The New Financial Frontier

DeFi offers people a way to take control of their financial future and earn passive income while doing so. It covers a range of services that provide a real alternative to traditional finance. With many ways to invest and earn income, it’s an exciting frontier. 

We hope we’ve provided you with the information you need to confidently explore DeFi and the resources to get to grips with every fascinating facet that makes this space so unique.

To invest in DeFi tokens and even spend them directly, sign up to or pre-order a crypto debit card from our whitelist!

Author Photo

Mohammad Humaid

Mo is an accomplished content marketer with expertise in Fintech, Blockchain, Web3, and SaaS. His professional journey includes a notable stint at Wise (formerly TransferWise) expanding the brand's footprints within European market. Presently, Mo is deeply engaged in shaping the vision of CryptoWallet, with the goal of making cryptocurrencies easily accessible and seamlessly integrated into everyday financial transactions.