DeFi
Here is the most accepted definition for those who still don't know it properly. However, if you look at the definition more carefully you will see that the definition is incomplete.
Decentralized finance (DeFi) is an emerging financial technology that challenges the current centralized banking system. DeFi eliminates the fees that banks and other financial companies charge for using their services and promotes the use of peer-to-peer, or P2P, transactions.
DeFi doesn't eliminate fees, rather transfers the fee, which was conventionally taken by financial institution (think banks, brokerages, mortgage lenders etc), to a group of participators, while taking a small cut still. So nothing is free, and lets clear up that confusion.
Spring of 2021 (even earlier for Pancakeswap, Jul-Aug 2020), in the middle of Covid pandemic was the rise of DeFi, mainly first with Pancakeswap, later with Apeswap, Goose Finance, Sushi Swap, and all other kinds of crazy names. People can argue, lots of people were stuck at home, and having nothing to do probably implied both innovation(?), supply and demand. What these things generally were (are) is making money out of thin air by definitely the creators, and also some early investors. In short, you create a token, (BSC was most common), you have some kind of inflation built into that token that pays the same token if you 'stake' it.......viola! Free money out of thin air. There were major houses on BSC, led by Pancakeswap, and also on ETH, led by Uniswap. They are all basically the same mechanism. The word 'swap' stands for you can exchange one token for the other in this platform, as there were numerous.
| Total Crypto Marketcap | Total DeFi Marketcap |
|---|---|
 |  |
I put both Marketcap charts side-by-side for a simple visual correlation. Often human eye is the best analyzer compared to any automated technique. Notice the both marketcaps catapults around Sep of 2021, and party was over early 2022. That said DeFi marketcap still about $30-40B depending of which sources you look.
APR%
The moment I see APR and especially with a percentage after that and along with a ridiculous number my blood now begins to boil. This is one of the biggest lie that is rampant in crypto. Let me explain:
An annual percentage rate (APR) is the yearly rate charged for a loan or earned by an investment.
This is simple enough in the 'real world'. This is the metric bonds are based on. This is also the metric you pay your mortgage on. There is a USD (or any other major fiat currency) interest % you pay or get for a financial product depending on which side you are on.
Trouble is in crypto none of it work. Let me explain:
When you see something like this; and believe me, these numbers can be ridiculous as 400% or 4000%; always understand that they are meaningless:
Nothing in terms of crypto prices last 1 year (keyword in APR, Annual!). Most projects either go belly up in a year, or generally becomes a tiny cub from a LION (catch my drift?)
The interest is not paid in USD, but paid in a shitcoin, which typically is worthwhile early on, but usually performs an exponential decay, and generally becomes worthless, as inflation inevitably takes over whatever miniscule demand there is.
Funny thing is people still go for it and fall for it. I have invested in many of them, and I think they all made money for the owners and early investors. Point is you have to get out early.
What I suggest, in this kind of DeFi project rather than thinking about APR%, please consider thinking about how much money you will get today. You will know that with fair bit of certainty. Then think about how much money you will get tomorrow, typically it is less than today (early on, it is lot less); and so on. Think about if there is exponential decay, there will be (there is); how long it will take to get your money back. Because, these DeFi coins are all going towards the same direction, ZERO, (sorry, not exactly zero, but very close to it!)
Compound Interest
Your DeFi Guru told you, the compound interest is the 8th wonder, and it will save you from everything in the long run!
Wrong; in the long run, really long run, we are all DEAD!
If there is Meteor hit the planet earth you are dead. No compound interest can save you. But I must say, with basic Fiat currency, and even some crypto, it can do wonders, but not with shitcoins.
What I can tell you that is a 9th wonder, and it is the work of Devil; it is inflation. This inflation is the way any DeFi token is created, and it is definitely something that can make a few people very rich; and you my friend, the common dude, incredibly poor! With that charming thought I should stop writing and take my leave! :)
Disclaimer: This is NOT professional advice, this is all just my own opinion and experience. I am NOT a Certified Financial Adviser. Consult professionals for any financial, accounting or legal related questions you have.
Charts are created in Tradingview.com, which is a free service.
