I was reading a number of articles talking about the Cryptocurrency space and one of the topics that jumped out at me was the interest in Crypto Income, particularly since a huge number of people are holding their tokens through the so-called "Crypto Winter". Some of the commonly mentioned services are
- Decentralised Finance
- Proof-of-Stake or Delegated Proof-of-Stake
Decentralised Finance works basically the same as how finance works in our current world, except using blockchain technology to remove any intermediaries (eg. banks and brokerages) so the cost of transaction and the speed of execution increases. Some of the projects that I found interesting that uses this idea are
a. Celcius Network - works like a bank, and a participant can deposit cryptocurrency tokens to earn more tokens based on an interest rate or a participant can take out a loan (using his/her deposited cryptocurrency tokens as collateral) based on another interest rate
b. Poloniex Exchange - works as an exchange and similar to a traditional brokerage firm in that it has the facilities to allow registered users to trade on Margin Accounts and provide lending in various lending schemes
- Margin Accounts are trading accounts in brokerage firms that allow traders to buy securities (eg. shares, ETFs, etc.) using only part of the capital required. The rest is loaned to the trader by the brokerage firm. An example is a trader wants to buy a share that costs $1 and is only required to have $0.20 in his/her Margin Account to buy it.
Proof-of-Stake or Delegated Proof-of-Stake works like how many miners use their powerful computers to mine bitcoin. Investors in a cryptocurrency token will buy some tokens from an exchange and, through an in-built mechanism, "stake" the tokens purchased to earn more tokens from the staking process (the staking process is used to secure and validate the blockchain).
As someone who is rather conservative, I am always on the lookout for risks in any investment/speculation. While searching through the internet, I found an article that talks about BTC Margin Lending Pool Losses on Poloniex that gives an example that losses can occur when using the facilities mentioned above. Hence, as always, it is important to understand the risks involved before plunging in.
Sample Screenshot of article mentioned above:
