The fact that decentralized financing gives cryptocurrency holders a large number of opportunities to earn passive income is no longer news. While this is a known fact, I do not think this is all.
While the DeFi story has successfully captured the attention of cryptocurrency investors, there is not enough educational material describing how the growing set of protocols is responsible for the astronomical growth of DeFi as the new gummy baby in the crypto market.
Some argue that the rapid nature of this new sector makes it almost impossible to identify and track revenue opportunities. On the contrary, others blame the complex concepts associated with DeFi.
I recently had the opportunity to speak with Viktor Radchenko, founder of Trust Wallet Binance, and while researching the complications of some quality protocols in this area, he agreed that DeFi offers unique opportunities to generate revenue. The easiest way to quantify the market dynamics of protocols capable of generating passive income, Radchenko said, is to track calculations on DeFi Pulse.
As a result of evolution and change in the DeFi environment, there is no single way to measure the speed at which technology is changing traditional financial services. However, the most profitable DeFi-optimized sectors so far are decentralized exchanges, loans and loans, derivatives and assets.
Uniswap, which belongs to the category of decentralized exchanges, allows flexible, relatively cheap trading operations by offering liquidity pools for different cryptocurrencies. Since the protocol is completely decentralized, users are also responsible for obtaining liquidity. In return, they automatically take on a fraction of the transaction fees generated by these liquidity pools. As Radchenko explained:
“So, what happens when you bet on that money is that you get LP tokens that allow you to get a share in the pool, and this is how you get all the bonuses based on the trading volume.”
Like Uniswap, protocols aimed at the lending sector such as MakerDAO, Kava, Curve, Aave and Compound have developed unique models that allow users to receive rewards. The main principle of these platforms is to allow borrowers to guarantee digital assets and receive loans in other cryptocurrencies at better rates compared to income from traditional lending services and banks.
Decentralized derivatives create virtual assets that can reflect the value of a real financial asset. The goal here is to give cryptocurrency holders access to a wide range of markets. When asked how wise it is for Tesla to trade protocols for decentralized derivatives in the near future, Radchenko replied that, in his opinion, this will happen sooner rather than later. He said:
“Yes, you can. Maybe in the future. I think we are very close to achieving that, even if you do not want to be able to trade shares or sell Tesla yourself. But you can speculate on the price of Tesla shares.”
Finally, Yearn.finance is another good addition to the DeFi scene as it increases membership revenue. Instead of going through many processes to do more than just grow a crop or other income opportunity, you can improve your income with the less complex Yearn.finance protocol.