Defichain is a very interesting crypto project that has pros and cons. It’s also a very unique idea since it’s the “only” DeFi crypto project that is based on Bitcoin and not Ethereum!
Defichain can be a great investment if you’re bullish on crypto and DeFi.
Keep reading and I’ll share what Defichain is all about, 5 reasons I’m very bullish on it, 2 warnings with the project, what CakeDefi is all about and how vaults work.
What is Defichain?
Defichain is a decentralized blockchain that enables fast, secure, transparent financial services. Due to the project being on a turing in-complete blockchain it’s more simple, with fewer chances of something going wrong.
You could compare turing in-complete as a mechanic that only changes oil and has been doing it for 20 years.
Turing complete would be like your neighbor that not only is a mechanic, but a plumber, electrician, carpenter, welder, snake milker, and legal bank robber.
If you were going to change your oil who would you want to hire? Yea, the boring one right? Your neighbor would be great to have a drink with.
What does Defichain offer to the world?
One thing it has is a decentralized exchange. This means you can swap tokens for other ones completely on the blockchain.
This can also include buying tokens, buying stocks, options trading, bonds, funds, commodities, real estate, and any other asset you could think of like carbon credits.
If you’re not sure what carbon credits are you could view this post I made on it.
Other things that Defichain can perform would be lending, financial derivatives, peer-to-peer financial transactions, on-chain clearing houses, transactions between financial institutions and countries.
How Many DeFiChain Coins are There?
DFI has a capped supply of 1.2 billion coins. Just like Bitcoin that has a halving event every 4 years, DefiChain coins also have a reduction in their supply.
Instead of a huge halving event that makes “everyone” nervous DFI chose to reduce the supply gradually.
Every 2 weeks the supply will get reduced by 1.658%.
The point of the supply getting reduced is to hopefully increase the price due to supply and demand. Defichain coins also go through burning when they are used.
The first burning was the founders that used their own money to create the project burned ALL the DFI they used and you can read more about it HERE.
Around 400 Million dollars worth of DFI was burned. Crazy right? Could you burn your own money?
There are also MANY uses when DFI gets burned with transactions and you learn all the different ways the coins get destroyed by viewing the pink paper HERE.
What is CakeDefi
CakeDefi was created by Julian Hosp and U-Zyn Chua. The whole point of CakeDefi is it’s a service that helps your Bitcoin and crypto work for you.
They do this through liquidity mining, staking, lending, and freezing assets. Julian and U-Zyn also helped to create Defichain and use Defichain for their company CakeDefi.
- CakeDefi is a central company
- Defichain is a decentralized blockchain.
CakeDefi is easier to use, but you can earn fewer rewards because some of the money goes to the company. Defichain you are more on your own if you need help. There is a big community that supports each other, but this is the difference.
Defichain also has a HUGE support community, which is another positive.
A blockchain is only has powerful as the community behind it!
Defichain Loans and Vaults
Defichain does have a service where you can take out a loan. To be honest I’m NOT a fan of this service. Of course, I don’t like borrowing money period!
One reason I don’t like it is because you have to lock up your crypto. The crypto you do lock up you can earn money when the price goes up and you sell it, but you can’t earn rewards from them (hopefully, that makes sense).
You also “need” a very healthy buffer to avoid dropping below the collateral amount.
If your vault goes below a certain amount then other people can bid on your vault and take your money (sucks right?)
If I put $1,000 into BTC/DFI pool I would earn an APR of 102% (at the time of the post). $1,000 x 102% x 1 = a profit of $1,020 (If the rate stays).
If I put $1,000 in a vault I probably would choose 200% collateralization at 2% interest. If I drop below the 200% (it’s $500) then the vault gets liquidated.
4 -5 times the collateral is healthy (what I would choose). $1,000 in a vault I would mint $200 worth of tokens.
$200 into BTC/DFI pool I would earn an APR of 102%. $200 x 102% x 1 I would earn $204. Plus there are fees for taking out a loan. 1 DFI is paid to create the vault (~$5) plus $2 for the interest.
| Investment | Rewards at 102% APR |
| $1,000 directly to a liquidity pool | $1,020 |
| $1,000 collateral to take out a loan of $200 | $197 |
It seems you’re better off investing your money into a pool rather than taking out a loan (Unless you see something I don’t).
You might be wondering how in the hell someone can earn 102% APR?
The 102% APR comes from the block rewards. Every block that is created produces 100 DFI, but this number gets reduced by 1.658% every 2 weeks.
Due to the procotol (coding language) so much of the DFI goes to liquidity miners. The more people in the pool the fewer share you get and thus your APR will drop (The APR will drop in time).
However, when you liquidity mine not only do you get the APR from rewards, but you get transaction fees so you earn more money!
The reason the blockchain pays you is because nobody will provide liquidity without compensation (they have to pay you).
You could say you become an exchange just like Coinbase or Binance!
Hopefully, this makes sense!
Oh, and If I haven’t blown up your head enough I tried to arbitrage the pricing oracle to the DEX, but it doesn’t work. When you take out a loan and mint tokens it’s at a different rate than when others are trading for it.
If you can mint tokens at a lower rate than what you sell them for on the DEX (Decentralized Exchange) you can make money right?
I have NOT found a way to make this work, yet. To pay back the loan it has to be the same token you borrowed. Maybe, there is a way to do this, and if you have discovered a way to arbitrage the different prices of tokens please let me know.
I try to be open-minded and it helps especially in these crazy times we live in.
Still, it’s “bad-ass” to stick some money in a pool and get high returns (and this DOES work) because I do it.
2 Warnings of Defichain!
Even though I’ve invested a lot of my own money into this project nothing is perfect. There are 2 challenges I see that I want to make you aware of.
The first challenge is it being built on Bitcoin, which is an advantage but it’s also a drawback. There are around 236 billion USD locked in DeFi projects mostly on Ethereum.
Defichain has around 2 billion and needs more money to grow. The Ethereum DeFi projects can “more” easily move around on Ethereum (apart from gas fees).
It’s more complicated to transfer this money to Defichain without using a third-party solution such as CakeDefi. This is a challenge that Defichain has. The good news is a team of developers are building trustless, fully decentralized fund transfers between Ethereum and Defichain.
Someone will retain ownership of these funds through the transfer. This will make it easier for more people to get involved with Defichain.
The second challenge Defichain has is they created a stable coin for the DEX (Decentralized Exchange) with their non-crypto assets.
The challenge is the stablecoins are in such high demand that the price of this coin shot up to $4 per coin. They do have some ideas on reducing this price through rewards and you can read more about it HERE.
The good news is there are some ways to earn money through these rewards.
Conclusion
Defichain is a crypto project I’m very bullish on and here is why.
- It has its own blockchain that is non-turing complete
- Has a “huge” supportive community
- Provides services that are “In demand” (not just a meme token).
- You can earn some “nice” rewards
- Is different
There are “many” ways to earn money with this project. What I’m most excited about is liquidating mining with both Bitcoin and DFI coins. I’m bullish on both of these coins over the long run plus I get some nice rewards (passive Income).
When the stable coin goes to $1 then I do plan on jumping into other pools such as stock companies that I believe in and possibly other assets.
Oh, depending on the rewards I might “arbitrage” the price difference of the stable coins.
If you’re wondering what is the best way to get started with DeFichain then I would recommend starting with CakeDefi that you can view HERE. If you use the code 939517 you will get $30 in free coins if you make a deposit of over $50.
I hope this blog post on is Defichain a good investment was helpful, bye for now.