It is the Wild West. There are exit scams. It is an arena where one needs to tread lightly.
However, it is also a place where millionaires are being minted on a regular basis.
Bitcoin set off the cryptocurrency craze and, for those who got in early, the opportunity at financial freedom was presented. Many of the early adopters are now millionaires, many times over.
This story is being replicated in the Decentralized Finance (DeFi) world.
As the market cap for cryptocurrency surpassed $2 trillion, and overtook the banking industry, DeFi is establishing itself as a major threat to the traditional financial sector. Many of the banks are aware of this, looking to enter the space as they try to remain relevant.
Of course, this leads to calls for more regulation as the existing financial establishment cannot lose control. Thus, everyone from bank CEOs to regulators will want to get a handle on this.
Whether that happens remains to be seen. In the meantime, we are seeing people make boatloads of money off this sector. Yield farming is now commonplace as the amount of money locked into DeFi platforms keeps growing.
According to Defipulse, the total amount locked is now over $50 billion.
It is important to note this was less than $1 billion a year ago. This also does not appear to include the money that is being locked up on the Binance Smart Chain, which technically does not qualify as DeFi. Nevertheless, due to the lower fees than Ethereum, a lot of money is flowing onto that platform.
The Wild West mentality is surely to wane over time. As we saw with the ICO craze of a few years ago, the mania that takes place usually masks some underlying value that is being created. So while the SEC is sifting through what it views as lawbreakers, the industry keeps evolving and growing.
One of the key elements to DeFi is the ability to generate outsized returns. Through the use of tokenization, the ability to create new currency, platforms can incentivize people to lock their money up. By offering the incentive, massive amounts of funds can be shifted very quickly.
Here is where people can see enormous gains. When there are returns of 1,000% offered for a couple weeks, one can really cash in if enough is put forth. Of course, those who are adept at this keep moving their funds around, getting these types of returns for months on end.
It is not, of course, without risk. There were a number of exit scams that made headlines, as people took off with millions of dollars. Hence, it is an area to be very careful in.
Nevertheless, this new sector is generating a lot of wealth for those who are getting involved.
If we overlook the 1,000% returns and focus upon something a bit more viable, we can see how things can grow very quickly.
Taking CubFinance as an example, we can see the return on the CUB token is now over 200%. That is a remarkable yield especially when we consider that banks are paying 1% if one is lucky.
A 217% return will amount to a large amount of money over time. How long this particular rate lasts will be determined. However, even if it "falls" to a 25% annual return, that will end up being a compounding machine. After all, Warren Buffett became the richest man in the world some time back by garnering a 20% annual return, over decades.
Cryptocurrency is a lot like playing the lottery. It only takes being right once for the payout to be life changing. With DeFi, getting involved in some of the more upstanding projects can be a terrific way to garner a fantastic return.
What is really fascinating is that the process keeps growing. As the industry starts to unveil more applications, people who are getting the returns have expanded choices. Thus, one is able to take the profits from yield farming and move them into other arenas.
Ultimately, we are going to see an across the board suite of products for people to use. This will enhance their returns to an even greater degree. As the sector fills out, there will be many different risk levels to choose from. Not everyone is willing to roll the dice, trying to get the massive returns. Many prefer lower risk environments with a steady return.
All of this will eventually be available. DeFi is providing the opportunities that Wall Street had access to yet was out of reach for most of us.
Now that equation is changing and we know the present system does not like it. The abovementioned $50 billion is not money that is resident outside the banking system. With the mindset of those who are presently involved in DeFi, it is money unlikely ever move into that realm. As the value keeps growing, this is a lot of money the bankers are missing out on.
The real power that is being erected is seen in the ability to compound returns. For now, the challenge is time, or lack thereof. The power of compounding truly comes from the use of time. As it passes, the amount of wealth generated grows exponentially.
Of course, as noted, a year ago the DeFi world was under $1 billion. While the growth rate over that time was outstanding, it still lacked the benefit of time. A year is not long in the compounding world.
However, each day passes, providing an even greater return. Thus, the growth that will take place going forward will be even greater than it was in the past. We have a lot more money as the basis to compound plus a great deal of time ahead of us.
Collectively, or on an individual basis, the impact is the same. Accounts can grow rather rapidly simply by enjoying powerful returns over time. DeFi is offering that to individuals. For many, this is starting them on the path to financial freedom.
And for a few that are heavily involved, DeFi is doing a lot more for them.
Each day, it is minting more millionaires.
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