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💰 Where does the money come from in DeFi?

  • Thread starter Thread starter Bored Ape Crypto Club
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Bored Ape Crypto Club

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This question worries many, and should worry everyone who wants to make money here.

For most people, the cryptocurrency sphere is associated with fraud and financial pyramids. And this association did not appear for nothing. There are a lot of scams and ways to scam naive people out of money around crypto.

⭐ The most important thing is to understand where the profit comes from in DeFi instruments. Let's take the decentralized exchanges Uniswap and TraderJoe as an example. Where does the profit come from here?

It's very simple:

➖ DeFi users have a demand for asset exchange. Exchange ETH for USDT, AVAX for USDC, USDT for USDC, and so on.

➖ Liquidity is needed to conduct these exchanges. Without liquidity, exchanges cannot be carried out.

➖ Liquidity is provided by users who want to earn on commissions. As I do now in the ETH-USDC pair on TraderJoe

➖ As a result, liquidity providers earn on commissions, and users get the opportunity to exchange their assets.

Money does not appear out of thin air. Someone exchanged 1 ETH for 2000 USDC and paid 0.15% commission on the transaction amount. This commission went to liquidity providers in this trading pair.

⭐ Where does money come from on Lending markets, such as AAVE or Compound Finance?

➖ There are users who want to receive interest on their stablecoins. They make a deposit on the platform in a common pool.

➖ There are users who want to borrow money using their assets as collateral, for example, BTC or ETH as collateral.

➖ Users take a loan from a common pool using their assets as collateral. Interest is accrued on the loan, which borrowers must repay.

➖ The interest paid on the loan is distributed among all users who made a deposit.

➖ Sometimes Lending markets use the emission of their tokens to attract liquidity. Compound Finance is doing this now.

You should always understand where the money comes from in any instrument you plan to work with. Until you understand where your profit comes from in a particular instrument, do not even think about investing money. All DeFi instruments have extensive documentation, where you can always find a detailed description of how and what works. Always and everywhere ask yourself the question: "How do I get money here?"
 
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