Investing in DeFi: 4 Best Practices


Decentralized finance is a modern financial system without the burden of a central figure or institution. DeFi puts the power of the investment into the hands of the actual investors. To get the most out of the system, here are a few things you should keep in mind. 

1. Take It Slow

Don’t rush when learning how to invest in decentralized finance. It takes time to learn the ins and outs of the industry, and you won’t be prepared in one afternoon. There are plenty of investors that thought stock knowledge was a prerequisite for decentralized finance. In their rush to become rich, they lost an untold amount of money. There are major differences between the two, so you will suffer financially if you use your past knowledge to navigate decentralized finance. There are some common-sense takeaways that work for both, but it is still better to start your DeFi knowledge from the ground up. Even experts are still in the learning process of how to be consistently successful in this industry.  

2. Stick to Trustworthy Protocols

As an investor, there are multiple security risks you need to be aware of. A single hack can endanger all of your funds in an instant. With DeFi, it is smart to stick to lending protocols with a history. The best in the business have gone through several smart contract audits. Established protocols will have a long history of business with identifiable contacts. The rush to DeFi supremacy has attracted a lot of legitimate startups, and a lot of convincing scams. Pay attention to what a company does, and follow your instincts if something seems too good to be true. 

3. Develop A Clear Understanding

Never tie up your capital in DeFi products that you don’t understand. New products come out at a blazing rate, each with features more exciting than the next. A product that promises great returns is not a guarantee of the action you’ll receive after an investment. It doesn’t even qualify as a prediction! There are some fascinating concepts behind emerging technology surrounding DeFi. Explore them, but don’t make a habit out of investing all you have into an unproven product. 

4. Only Invest What You Can Afford to Lose

This is advice that works with any investment, but is especially important for DeFi. There is always a big thing around the corner due to hype. Investing a small amount in proven hype can give big returns. In a situation where you lose money in that investment, it isn’t a big deal. 

When Bitcoin first came out, it was pitifully cheap. When it blew up, investors became millionaires overnight. Even a small investment in cheap Bitcoin was a win for all involved. This hype led to plenty of other coins, and it was a mixed bag. Those that went all in on a cheap coin lost everything when it flopped. And the investors that tipped their toes in the water for an untested coin came out not feeling a thing. Measure your feelings before investing, and never go all in.

Smart Money

It’s your investment, money and time that matters. Use it wisely as an independent instead of relying on finances tied to larger entities. When you control the money, the investments will always meet your expectations. 

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