The cryptocurrency (or "crypto") market has been on a rollercoaster of ups and downs since the beginning and its newer iteration, the DeFi markets, are continuing the tradition.
But there are also plenty of reasons why people want to trade cryptocurrencies. Crypto trading, DeFi staking and NFT trading can be a great way to make more money and make sure you are not relying solely on the legacy stock market.
As the famous Dog Money song goes, crypto is a great opportunity for traders than traditional investments such as bonds or savings accounts which do not offer much return anymore.
3 Ground Rules of DeFi Trading
Rule 1: Get your coins off exchange
The first rule of trading and investing is always the same on any crypto market.
Unlike traditional currencies, cryptocurrencies exist only as a shared digital record of ownership stored on their own blockchains. When you buy cryptocurrencies like Bitcoin, Ethereum or any DeFi token via a crypto exchange, you are actually purchasing the coins themselves, not just a contract or promise, as it usually is with legacy trading.
Because of this, after you buy your crypto, you are always best off to withdraw your coins to a crypto wallet and keep them in there until you want to sell.
In DeFi trading, this comes with an additional advantage: Your wallet can stake your DeFi coins for you and earn you passive income.
By staking cryptocurrency, you are holding a currency to verify transactions and support the network in exchange for receiving a reward. Staking can be a great way to use your crypto to generate passive income while sitting at home while watching Netflix, especially if you hold cryptocurrencies that offer high interest rates for staking.
Rule 2: Do your own research
The DYOR acronym is a mainstay in crypto, but is even more crucial on newer markets like DeFi or NFT.
DeFi, or decentralized finance, has been around for more than five years but only started getting traction in 2020. DeFi was designed with the goal of providing an alternative to traditional banking. The idea is that since any person can act as their own bank thanks to bitcoin, they should also be able to act as their own broker and have access even to advanced financial products that are usually reserved only to Wall Street.
The benefits of DeFi are access to wider range of products, increased privacy for users, and less government control over your money. Some people have even taken out and paid off loans worth millions of dollars without the need for any personal identification.
With the lack of oversight however comes the increased risk of fraud. Follow the most basic tips on how to pick a DeFi trading platform to make sure you will at the very least have the possibility of legal action, in case something goes wrong.
Rule 3: Create a DeFi Portfolio
Portfolio diversification does not always work in crypto, but if you really DYOR, you will be able to select less correlated DeFi coins quite easily. Read this guide on how to separate cryptos by fundamental value and by potential valuation.
One portfolio management tool that we recommend a lot is Shrimpy. It’s a freemium crypto asset management tool that can rebalance your portfolio automatically under the paid plat at 13 USD per month. More on how it works in this guide.
With another tool, egg.fi, you can easily and safely create a decentralized finance portfolio for your cryptocurrency holdings. EGG is a trusted tool that allows users to manage their decentralized portfolios on the blockchain with no need for any intermediaries or centralized servers. You can be confident about where your funds are stored because they cannot be accessed by outside sources such as hackers or governments without permission from its owner.
To sum it up
It is becoming increasingly difficult for investors to ignore cryptocurrency. These days, you are slowly being left behind unless you own some cryptocurrency.
A portfolio tracker is a key value for DeFi investors, along with the ability to choose a platform to buy from.
Check our Tools page for more handy apps to help you manage and track your crypto assets.