Wrapped De-Fi Versus Native DE-Fi

Wrapped De-Fi Versus Native DE-Fi | Ecency

Hey JessInvestors

The DE-FI space is heating up, hotter than the call for more stimulus and as investors look for yield the DE-FI space is offering all sorts of crazy interest rates suckering in investors like crazy. The technology is still in inst infancy and with smart contracts riddled with bugs yet investors are piling into ETH and pumping up gas fees as the frenzy continues.

We have not seen transaction fees on ETH this high since the crypto kitties rally which gives you an indication of how popular this new investment opportunity has become.

While the ICO phase was all about pumping and dumping this time around it's all about interest rates and while 2-4 and even 8% is pretty high for an interest-bearing account, we're seeing up to 40% returns which is nuts.

So what is this DE-Fi craze all about?

What is DE-FI?

DE-Fi is the general term for anything in crypto offering an interest rate and even that is up for debate by some, but let's go with that broad definition for the sake of this post.

It's the early stages of plugging in what the banks were already doing with things like savings accounts, fixed savings accounts and money market accounts and paying you for lending your capital for use somewhere else.

Since there is such a broad definition the way in which DE-Fi is implemented often goes under the radar and it's important to understand how the product is set up before risking your capital in DE-FI.

Wrapped DE-FI

Wrapped DE-FI refers to taking your asset, let's say for example Bitcoin and locking it into a smart contract and then using a representative version to place into various DE-FI platforms. At the moment there are around 55 000 BTC sitting in wrapped versions on ETH DE-FI and it continues to grow.

You would then gain your returns in your wrapped asset and whenever you're ready to cash out you can do so and have your BTC back along with your returns. The wrapped DE-FI allows you to secure your BTC without having to make any trades and give up your BTC in the process.

As mentioned these contracts are not without their issues, but as it improves so will the security. Remember you're also taking BTC from its secure network into a network that may be less decentralised and less secure so keep this in mind when using a wrapped token.

Native DE-FI

Native DE-FI refers to you having to trade your ETH or BTC for a new token and then using these new tokens to either stake or submit it to liquidity pools or collateralised loan pools to try and return an interest.

While native DE-FI comes with tends to work on either side chains or a new chain it does also pose the risk of you using a chain that may not be as secure. It also means you are subject to trade liquidity issues.

As you get you returns in the native currency unless there are sufficient buy orders at a specific price you may not be able to sell your tokens at a price that allows for a positive return. When investing in a native token it's always good to look at the various order books on exchanges so you can sell without slippage.

Native DE-FI tends to offer extremely high-interest rates to secure investment but this will be short-lived as more users pile in.

Additionally, also look at the buy orders too as well as activity on the chain or smart contract to see that there are an active number of participants should you eventually want to get out.