SourceDEFI has drawn an enormous attention from past some time. Some most popular led innovation from the front. Its market cap has crossed $10 billion. However, despite all this, it has a hideen dark spot in which people lost a huge amount of money. Rugpuls and Hacks have made it vulnerable. Before investing into DeFi project, one should research properly and be aware of risks. In this post I am gonna discuss some factors about DEFI.
#1: High APY..
We all know people always fall for high AYP as everyone is greedy in this mean world. There are so many project which offer initial return more than 10,000%. Looks like a crazy way to get rich. Before going for that, get clear vision:
- Sustainable High Yield:
At the starting, supply is rapid which results in high yields. Meanwhile, in a short time, there are halvenings which led the supply to fall drastically. - Sell In Profit?
There are soo many projects where you get an enormous amount during inflation period at start, but you are not able to sell the tokens although they are locked. So before going for that project, check properly for how much time should I have to lock.
#2: Actual Use-Case:
Invest only in a project which has a use case apart from governance. Governamce is higly common in many projects, you should research whether the token is having any other use case or not.
Lets look at UNISWAP, it is a collateral token which can help you to get loans on other playforms. This is the real utility token, it makes UNI more valuable.
#3: Audited Project:
Before falling for a project, you should always check whether the project is audited or not. Its code must should be audited by a reputed firm. Some of the popular auditors are, Quantstamp, Trial of Bits, etc.
#4: Gas fees:
While calculating your profits, make sure to calculate the gas fees for your actual investment. You have to pay fees for:
- Token purchasing.
- Approving liquidity pool pair.
- Approving LP staking.
- Staking.
- Unstaking.
- Sell
- Removing liquidity.
You should never count your profit by neglecting gas fees.
#5: Entering into Project:
You should be aware that the market tends to fall after few days from beginning. If you enter into project late, it already has created a selling pressure which makes in vulnerable. You have to decide whether to enter at this time or not.
#6: Consider Loss:
As the price of token keeps falling, exchange adjusts the tokens being paired in liquidity pools which will increase the amount of yield farming token and decrease the another pair. You should be aware that you don't incur impermanent loss untill you remove liquidity. This issue can be resolved by Long term liquidity provision.
#7: Total Supply Circulation:
This is common, the more token in circulation the less price will be. You should identify the project you invested whether it is in top 200 and try to compare it with another similar supply project.
# Wind-Up:
Defi is crazy game, it is highly risky. You should only invest money which you can afford to lose. And also only invest in audited and trusted project, don't go FOMO in. Again DYOR before going for a project.
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