What is DeFi and why is it a good investment?

Disclaimer: This is not a financial advise, please do your own research before investing

Decentralized Finance sounds like a fancy term. But what is it exactly?

The idea is simple. It is a financial system that has no centralised financial institution to facilitate any transactions. In traditional finance, there are always centralised financial institutions, such as a bank or a global exchange, that we need to interact with for every transaction. But for decentralised finance, everything, including lending, borrowing, exchanging, investing, are all done through smart contracts and blockchain technology, without any intermediaries involved.

So why is it good for us as an investor?

Efficient and Cost-effective

Decentralised finance breaks down the geographical and time zone barriers. People can make transactions all over the world at any time. Transactions are completed in minutes. There is no waiting on banking hours for transaction verification. And of course, there are no overdraft or wire transfer fees involved in all transactions.

Secure consensus model

All smart contracts are built on blockchains. Each blockchain works through a consensus model that verifies that a transaction has happened and is legitimate. Every transaction is verified by thousands of blockchain peers before it is confirmed legitimate, which makes the whole system secure and trustworthy.

Having that said, DeFi protocols are not completely risk-free. It is not uncommon to see protocols being hacked and lead to financial loss. So it is important to only invest in trustworthy protocols.

At Cadena Investments, we carefully select the DeFi assets for our clients. All the selected protocols have been audited to prove their security. In addition to that, we have insured most of our funds to prevent potential loss and to ensure we only provide the most trustworthy investment products to our clients.

Potentially higher yields

As we know DeFi is a pretty new concept. It is rapidly growing and this provides lots of new opportunities to investors. New protocols usually offer very high yields to attract investors. If you invest in new protocols, it is not impossible to achieve a more than 100% rate of return annually, which is more than most (if not all) traditional financial products.

But as the old saying goes, high risk high return. And therefore we need to diversify our risks, which brings up our last point here.

Risk diversification

Thanks to the large number of protocols in DeFi, you can invest in multiple assets to diversify your risks. More stable investments, such as stablecoin lending, can be added to the portfolio to lower the overall risks.

Apart from that, DeFi assets are a great tool to diversify your risks in traditional finance. DeFi assets are generally uncorrelated with traditional investment products. Investing into different asset classes and spread out across stocks, bonds, and digital currencies help you control your risk and achieve your targeted return.

At Cadena Investments, we have different fund options. Each fund option consists of more than 1 DeFi asset to ensure the risks are well-diversified and our clients are free from unnecessary risks.

Clients can also choose across different funds according to their risk appetite and also invest in multiple funds to further reduce the risks.

If you are interested in entering the Defi world, we encourage you to check out more on our website.