The biggest buzzwords in the crypto space for 2020 are almost certainly DeFi and yield farming, so a crypto arbitrage trading platform that operates in this field can be very interesting.
DeFi is an abbreviation of the words Decentralized Finance, which refer to a new kind of digital banking system, using smart contracts. Then there is yield farming, which is a strategy employed by investors to loan their crypto to a DeFi application for exceptionally high returns. The DeFi market is already worth over $8 Billion in digital assets, but to understand why these developments in crypto investment have become so popular, let’s take a closer look.
How does DeFi work and how can it offer such great returns?
Based on blockchain technology, DeFi provides a democratized, financial ecosystem characterized by transparency, accessibility and speed, with no central authority controlling the flow of money. Using a peer-to-peer network to instantly execute and confirm transactions, DeFi eliminates time consuming bureaucracy and cuts out middlemen, dramatically reducing costs.
One way in which DeFi applications, or dapps, differ from other blockchain based systems is that they offer unprecedented versatility, in a way that is upending the financial sector and expanding the capabilities of digital finance.
They enable users to perform all kinds of activities, ranging from purchasing insurance or exchanging and storing digital assets, to trading, borrowing and lending cryptocurrencies.
The most sought after dapps are those offering the user the option to borrow funds or loan them to the application in return for unparalleled returns. Utilizing decentralized applications for these purposes is rapid and convenient with the app interacting directly with the user’s e-wallet.
A yield farmer is able to leverage these unique characteristics of DeFi products and protocols, to receive high interest for the use of their funds. The applications gain liquidity, using the yield farmer’s capital to offer loans to other users or to power their operation, and they offer exceptional rates in return.
It sounds great. What’s the catch?
DeFi is not all huge passive profits and instant, cost effective transactions. There’s also a downside, particularly with regard to user protections and system security.
To start with, it shares inherent risks with other blockchain-based technologies. For example, you can instantly lose access to your entire crypto savings simply as the result of a typo in a wallet address, a forgotten password or misplaced private key. Then of course there is the fact that since DeFi applications are such a newly emerging phenomenon, they have uncertain regulatory status, so until governments catch up with developments in digital financial services, protections are limited for dapp users.
Another factor to consider is that dapps frequently offer loans to clients who might not be eligible to receive them from traditional financial channels. So, to mitigate their exposure, the recipient has to provide exceptionally high levels of collateral. Moreover, if the price of the currency that the loan recipient used as collateral falls below a specific threshold, their entire account will be liquidated and all their funds lost.
Possibly the most concerning of all the drawbacks of DeFi, which uses open source code, is the holes in the smart contract defenses that leave dapps open to attack. In fact, in the first six months of 2020 alone DeFi applications suffered huge losses from at least five major hacks.
What’s the alternative?
The best way to mitigate these risks is by choosing a form of investing that minimizes your exposure. Crypto arbitrage is widely acknowledged to be an exceptionally low risk form of investment, particularly when you consider the high volatility of the crypto market.
Crypto arbitrage involves taking advantage of those instances where for a brief period, a coin is available on multiple exchanges at once, at different prices.
To get a clearer picture, let’s take ArbiSmart as an example. A leading player in the field, ArbiSmart is an EU licensed and regulated crypto arbitrage platform that is fully automated. The way it works is that the company’s AI-based algorithmic trading system scans the crypto markets 24/7 to find a coin with price disparities. It identifies the lowest available price for the coin, buys it, and then instantly sells it on the exchange where it is being offered at the highest price, so as to make a profit before the price difference is resolved.
At ArbiSmart, all this happens automatically, without you having to even glance at a screen. You simply sign up, deposit funds and the system takes it from there. Your deposit is then converted into RBIS, the company’s native token, and used for crypto arbitrage trading. Passive profits are already available for withdrawal within 24 hours, in ETH, BTC or EUR. Alternatively, you can choose to reinvest them to earn compound interest.
On average, a legitimate DeFi application will offer generous returns to yield farmers, ranging from 10-12%. Compare this with ArbiSmart, which depending on your account type, offers a return for your liquidity that starts at 10.8% and goes as high as 45% a year.
RBIS, enables ArbiSmart to provide an even higher yield, above and beyond passive crypto arbitrage profits, further outperforming its DeFi competitors. The token is consistently rising in price and since its introduction in early 2019, it has already gone up by 120%, generating exceptional capital gains. The token has risen in value in line with the global growth of the platform and the ongoing development of additional products and services. In fact, it is projected to go up 3,000% by the end of 2021.
One such product, offering an additional high yield investment opportunity is the company’s EU licensed, interest-bearing wallet. The account holder provides liquidity in return for interest of up to 45%. The interest rate depends on the size of the deposit, though if funds are converted into RBIS and placed in a locked account for a set period, the return is even higher.
While ArbiSmart’s crypto arbitrage trading platform is able to offer the speed and transparency of blockchain, it provides the peace of mind that can only come from regulatory compliance. As an EU licensed company, clients are protected in a number of ways, through external auditing to ensure account integrity, KYC/AML protocols to safeguard against fraud, tough data security measures to prevent system hacks and most importantly, a client insurance fund that covers all operational capital so clients are completely covered if a hack were ever to succeed.
Although the ArbiSmart system benefits from the efficiency that comes with full automation, which we associate with DeFi applications, the company mitigates the associated risks of placing all your capital in the hands of an algorithm by providing added layers of protection with advanced risk management protocols and an expert team to monitor market activity 24/7, so as to be able to intervene in the case of an unexpected market upheaval. The human touch is also provided via a team that offers dedicated personal support through numerous channels including email, phone, Messenger, Telegram, Viber and Whatsapp a. They provide professional guidance as well as account retrieval assistance if the need ever arises.
Undoubtedly, DeFi applications and the yield farming opportunities they provide are attractive. However, there are undeniable security issues that can be avoided by choosing a form of investing that is innately low-risk. Crypto arbitrage trading companies like ArbiSmart that combine the best elements of both decentralized and the more traditional centralized finance offer speed, automation, accessibility and exceptionally high yields alongside fully regulated, secure, support driven systems. Learn more about arbitrage, or click here to start trading crypto arbitrage directly.