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Know These Basics of DeFi investing in Canada!

It is evident that technological advancement has brought us to the border gates of the future. And with evolution in every field of life, the financial system has also transformed. One such epitome of technology is DeFi investing in Canada and other parts of the world. It is a frictionless, more affordable, and borderless option for the current financial system.

DeFi means a network of different applications that reiterate the behavior of the current applications that are widely used to fulfill various financial activities like lending, borrowing, depositing, etc. However, the catch is that you have to utilize cryptocurrencies in order to execute these functions. Cryptocurrency is also a modern investment alternative that operates without any middlemen, banks, or brokerages, and makes any decisions independently to approve any action. 

Read: Amazing Investment Options in Canada to Grow Your Money

DeFi’s potential to bridge the gap between technology and financial systems has attracted many prominent tech personalities, crypto enthusiasts, and developers to invest in it with millions of dollars. Currently, the value of De-fi contracts stands at US$240 billion, and it rose by $21 billion in 2020, as per the DeFi Llama. 

If this technology keeps growing at an unstoppable rate, in no time, DeFi will rise to the top of the economy. According to the most commended crypto players in the world, the step towards decentralized finance is near us. Hence, if you are a keen investor who is always looking for new alternatives to invest in, you should try your hand at DeFi through learning, and to solve your problems, this blog will cover it all! Keep reading to learn more about DeFi investing in Canada. 

Read: Your Dictionary To Buying Bitcoin ain Canada!

How Does DeFi Investing in Canada Function?

DeFi utilizes the smart contracts that are laid through the foundation of blockchain contracts that remove the middlemen and provide financial products via decentralization. Blockchain-based smart contracts like Ethereum, allow the development teams to create financial applications upon them, whose functions are not governed by any intermediaries. 

To this, efficient, and profitable businesses can be transformed including insurance markets, banks, exchanges, art markets, derivatives markets, Robo-advisors, asset managers. Etc. It makes their functioning seamless without any human interventions. 

Experts say that this thrust of speed and efficiency brings in the potential to instill more creative and innovative inventions, like self-repaying loans, lossless lotteries, flash loans, yield farming, which facilitate more efficiency in the financial systems. 

Read: Your Guide to Investing in Index Funds in Canada!

Why is DeFi Unique?

In DeFi, you are acting as your own bank and financial institution because there is no intervention of any human or middleman. Hence, you will be growing your savings, but without the need for any human involvement. If you deposit your savings in a simple savings account, it is true that with time inflation will erode its value. However, the DeFi transactions come with options that can help you offset the effects of inflation on your money. You can easily get a yield of 10% and more by investing in different cryptocurrency coins. On the other hand, the traditional banks can barely provide growth of even 0.5%.

Read: Can You Beat Inflation in Canada?

Moreover, DeFi investing in Canada allows people to take loans or lend cryptocurrency like any other financial institution. And if you lend money in DeFi, then you also get interested. In traditional banking, the rate is dynamic and keeps changing and it is the same for DeFi too. However, you won’t need to set aside physical collaterals but the crypto assets. This whole process happens without any human involvement and anonymously. Hence, it is highly cost-efficient. 

Read: Avoid These Biases for Making Investment Decisions in Canada!

DeFi vs CeFi

DeFi and CeFi (Centralised Finance) are very different for when a person defaults in both cases. In the traditional banking system, if a person defaults, then their assets are seized in physical form. But in DeFi this is not the case. If the cryptocurrency that was used for the loan falls in price, a precaution is triggered, which will liquidate your collateral for the loan value, so the value of collateral does not fall below the loan value. 

DeFi’s risks are similar to those of cryptocurrencies. This means you will have to face strict scrutiny, handle the highly volatile prices. And the glitches that come with the technology. There is no middleman between these transactions, hence, if your funds are lost, it will be very difficult to recover them, as everything is done anonymously. A smart contract error can make people lose out on thousands or millions of dollars. 

Read: Top 10 Investment Rules To Follow In Canada!

How is Participation in DeFi Possible?

DeFi investing in Canada is on the rise as billions of dollars are being invested every day via the DeFi applications. The market is also on the rise, but how can you invest in DeFi in Canada? 

DeFi is based on smart contracts and has the foundation of the Ethereum blockchain, hence, the best way to buy it is through Ether (ETH), which is also Ethereum’s coin, or you can also do this by investing in digital coins that utilize the DeFi technology. After that, you can deploy these ETH coins on DeFi applications, and explore features like yield farming, trading, etc. 

For DeFi investing in Canada, people usually buy ETH and other crypto coins from prominent coin exchange platforms like CoinSmart. This is a widely used platform that enables the safe and secure purchase of crypto. It is suitable for both new and advanced investors, and people also get a $15 referral bonus. 

The various DeFi based coins are LINK (Chainlink), AAVE (aave), UNI (uniswap), CRV (Curve DAO), etc. and you can purchase all of these coins with CoinSmart. A great way to invest in DeFi is through yield farming. A process where you lend crypto and then earn interest on it. And since the interest over the traditional bases is still at an all-time low, the investors are prompted to try out DeFi. 

Moreover, with DeFi you can also get yield on deposits, additional rewards, through the LP (Liquidity Provider) token, which the owner can buy and hold, and buy and sell on the DeFi applications for cash. 

Read: Investing in Index Funds in Canada – Yay or Nay?

Conclusion on DeFi Investing in Canada

With the merging of blockchain into financial applications, the DeFi system will also be becoming an expansive platform. And as the technology further evolves, DeFi will touch greater heights that will move it from niche to mainstream market. This will instill more interest for investors, and people from different walks of life. 

The crypto investors await more unique opportunities as the world of DeFi brews up eccentric avenues for them. This gives a new perspective to the financial world and its functioning, and a way to invest or perform bank functions without any intermediaries.

Read: All About Bitcoin Trading in Canada


Devanshee Dave

Devanshee is a staff writer at YourFirst.ca. She is a finance enthusiast and has completed her Master’s degree in Mass Communication & Journalism. She has worked as a journalist in a local business newspaper, multiple start-ups as well as finance and economy-related online media houses.

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