10 May 2022
3 min read
DeFi is an encompassing term for a multitude of public blockchain apps and ventures aimed at disrupting the conventional financial world. DeFi refers to financial applications built on blockchain technologies, generally leveraging smart contracts, and is driven by blockchain technology. According to several crypto enthusiasts, decentralized finance is a revolutionary next step in finance. A new venue like this may provide people with new possibilities to earn money while also contributing to a larger-than-life community-run goal.
While being a part of such an emerging space for making money, a few mistakes here and there come in handy. To identify the mistakes in their nascent stage, read more below.
Common Mistakes to avoid while Investing in DeFi
1. Not Reading enough about the Space you’re about to Invest In
How did you become interested in Defi? What are your information gathering methods? Perhaps you’ll subscribe to a YouTuber with extensive knowledge of DeFi or personnel associated with a corporation. Nonetheless, it is always preferable to gather a variety of viewpoints rather than learning from a single source of information. It will assist you in gaining a greater understanding of the DeFi and Crypto world and a better picture of the current market condition.
You must acquire information since what may be a sensible investment for one person may not be appropriate for another due to differences in risk tolerance or investing goals.
2. Making Basic Functional Errors
By nature, blockchain transactions are permanent. While a bank may be able to refund funds to your account in the event of an error or fraud, all crypto transactions are irreversible. That implies users must send tokens to the respective addresses and also provide their addresses to others so that they can receive transactions.
3. Not Keeping Seed Phrases and Private Keys Safe
Users must have a private key — a strong, unique string of characters that allows access to a cryptocurrency “address” and the funds included within it — to utilize DeFi apps and services. In conventional banking, a private key supplements the standard username or email and password approach for managing an account.
Because the private key or seed phrase is all that is essential to access funds from an address, and there are no respected administrators to assist people if they lose their keys, it is vital to keep it safe.
4. Not Looking For Secure Interfaces
Scammers are out to defraud you. To steal money, they develop fraudulent interfaces, ask for your private keys on social media and messaging sites, and apply other methods. Take care to deal with only an authentic version of a DeFi application, browser extension, software downloaded from an app store, or a site interface.
5. Misunderstanding the ‘Makers’ in DeFi World
It’s okay to get confused between the Makers in DeFi. A quick insight to understand them individually!!
Maker Foundation MakerDAO was established with the help of this entity. With that procedure completed, the Maker Foundation is methodically working towards its long-promised separation while also aiding the DAO in becoming self-sustaining and fully decentralized.
Maker Protocol Users can self-generate DAO using the Maker Protocol and collateral deposited in a smart contract-based escrow. The DAO stablecoin, Maker Collateral Vaults, Oracles, and Voting are currently part of the Maker Protocol.
Maker DAO The worldwide community of MKR token holders preserves the stability of DAO and the security of the Maker Protocol by voting on significant criteria such as the Stability Fees imposed on Vaults, debt ceilings, and the addition of new collateral types through the Protocol’s blockchain voting system. MakerDAO is a decentralized independent organization made from the Maker Protocol and the Maker community.
6. Confusing between Sai and Dai
The original single-collateral Dai token was Sai. Sai was decommissioned in November 2019 with the deployment of Multi-Collateral Dai (MCD). Users were asked to move their Sai to Dai at the time. Users can still redeem Sai for its underlying ETH collateral, however, that option is no longer in service. Because both Sai and MCD are referred to as Dai, and certain platforms have been sluggish to alter their wording, if you still have Sai in your wallet, you may mistake it for MCD.
Despite some of the difficulties associated with functioning on the cutting edge of innovation, the world of decentralized banking is on its way to glory. It’s difficult to anticipate how this space will evolve as the ability to build financial services becomes more progressive. However, at the juncture where Defi and fintech collide and integrate, budding financial technology will become an element of a new financial system.