10 Best Tips for Choosing the Right DeFi Platform
Decentralized Finance (DeFi) transforms how humans manage their finances today by providing users complete ownership of their assets without relying on banks or intermediaries. According to Bankless Times, the DeFi market revenue is expected to touch $26.17 billion by the end of 2024, a whopping increase from the previous years’ figures. Indeed, the market CAGR is supposed to grow at an annualised compound rate of 46.8% between 2024 and 2032?. This shows people’s increasing trust and interest in decentralised financial systems as alternatives to conventional banks.
Additionally, Crypto Innovations has revealed that around 10% of internet users aged between 18 and 64 years interacted with DeFi platforms by 2023 indicating a huge increase in adoption rates especially in areas not adequately served by traditional banks. These huge numbers compel people to shift to decentralised finance instead of banks. But, with a huge number of defi platforms, it’s very confusing for beginners to decide which is best among the platforms.
In this article, we’ll provide an easy-to-use checklist that makes it as simple as possible for someone to choose a DeFi platform that is safe, easy, and suited to their needs. But before this, let’s first understand the importance of DeFi over traditional banking.
Why Use DeFi, not Traditional Banks?
DeFi has a broad range of advantages over its counterpart traditional banking. These include accessibility, transparency, and efficiency. While banks tend to require all documentation of all transactions and restrict their hours when services are not available, DeFi allows its users to transact anywhere and anytime within the coverage of an internet connection.
In fact, DeFi empowers 1.7 billion people who have no bank in the world. It is expanding financial inclusion in areas without banking services at all. All these benefits come with the fact that there is no intermediary because fees are lower, and users can access their funds directly. The Legacy banks are indeed realizing that demands for services such as savings and loans will drop because of DeFi. Additionally, rising DeFi participation shows that over 10% of global internet users aged 18-64 engaged with DeFi in 2023, demonstrating its revolutionary potential.
10 Things To Know Before Choosing The DeFi Platform
Here are 10 crucial points to consider before selecting a DeFi platform for your financial transactions.
1. Understand Your Needs
Before plunging into the concept of DeFi, it is important to know what you want to achieve, whether you want to trade cryptocurrencies, earn interest by staking, or borrow and lend crypto assets. There are several services in DeFi platforms, namely, Uniswap for token trading, whereas Aave is known specifically for lending and borrowing. Knowing your goals would facilitate the narrowing down of options while ensuring that you are choosing the financial path that is good for your financial plans.
2. Pick a Trusted Platform
When it comes to your financial security, it’s critical to use a reliable platform. Established platforms like Aave, Uniswap, and Curve Finance are trusted because they have consistently demonstrated reliability with a massive user base. You could check online to read reviews, ratings, and user feedback to validate the platform’s legitimacy. Reliable DeFi platforms tend to publish audits with proactive communities, hence ensuring operational activities.
3. Check Security
Security is one of the most significant factors in DeFi. Because DeFi platforms use smart contracts, ensure that the platform’s code will undergo professional audit tests to check for any vulnerabilities and rectify them. Some platforms even offer insurance for additional protection, which may cover losses that may be incurred from hacks or bugs. Investing time in knowing the safety measures of a certain platform can ensure the safety of your funds.
4. Look for Low Fees
Since gas fees are the costs associated with accessing the blockchain, they may be incurred along with DeFi transactions. Usually, the blockchain and the platform determine this. For instance, during peak hours, gas fees on Ethereum-based platforms are expensive; in contrast, other platforms, such as Polygon or Binance Smart Chain, provide lower prices. If you plan to transact frequently, you might save a lot of money by comparing the prices that different platforms impose.
5. Make Sure It’s Easy to Use
The user interface of a DeFi platform can either make it or break it as far as the entire experience is concerned, especially for those who are new to it. Look for platforms that don’t have too many complex features and instead have simple, beginner-friendly designs. On the other side, Coinbase Wallet and Trust Wallet have improved greatly in terms of usability and intuitiveness, making them excellent starting points for novices. Choosing wisely won’t be a distraction when managing your funds thanks to a smooth, simple UI.
6. Supported Cryptocurrencies
Not all the DeFi platforms support all the cryptocurrencies, therefore a check on the acceptance of their desired tokens is necessary. Some of these platforms mainly operate only on Ethereum-based tokens (ERC-20), while others support Binance Smart Chain (BSC) tokens. If one plans to have diversity in one’s portfolio or use a token exclusively, the ideal option would be one covering a broad spectrum of tokens without limitations.
7. Transparency
This is one most important aspects of trusting a DeFi platform. The best platform should define fees clearly, how it works, and what risks it carries. Besides, in an open-source platform, you can also audit its code, which further increases the trust. When most operations are clear, it becomes rather easy to trust your funds are being handled fairly and securely.
8. Liquidity Matters
Liquidity refers to how easy it is to trade or withdraw from a platform. The efficiency and reliability of these decentralized systems depend on an effective liquidity pool, which allows for more seamless transactions and more affordable rates for customers.
High-liquidity platforms will tend to make transfers quite fast and at better prices because there will be more funds available for users. You find that massive liquidity is made available by popular platforms like Curve Finance or PancakeSwap because they have always kept them as one of the primary benefits to make them easily trustworthy for seamless transactions. Low liquidity, on the other hand, can cause delays or issues with rates.
9. Community Support
Having a good community and responsive customer support helps in using a DeFi platform. For instance, platforms with active forums to hold users’ attention, adequate guides, and effective customer support are more user-friendly.
You can also join social media groups or forums where other users share experiences and troubleshoot issues. Such good community support will help you resolve any problems or any advice you might need.
10. Reputation of the Founders
It is worth it to get to know the team working behind a DeFi platform for more assurance. In most cases, established platforms are developed by reputable developers who have some form of experience in either blockchain or finance.
Check into the founders’ credibility and whether they are transparent about their involvement. A platform has less chance of committing fraud if it is backed by a strong and transparent type of company, giving you some level of assurance.
5 Reputable DeFi Platforms
For newbies to DeFi, check out these five great platforms for starters:
- Aave: Extensively used for lending or borrowing cryptocurrencies with flexible terms.
- Uniswap: One of the most popular decentralized exchanges for trading Ethereum-based tokens.
- Curve Finance: Best for trading stablecoins, with low fees and high liquidity.
- PancakeSwap: For trading and yield farming on Binance Smart Chain.
- Compound: A credible platform for earning interest on one’s crypto assets.
These are the best and most popular platforms, user-friendly, secure, and widely used in the DeFi community, making them perfect for starting.
Common Risks in DeFi
Here are some risks to know to reap the benefits of DeFi:
- Smart Contract Bug: There may be a loophole in the code, which can result in loss of funds. Use audited smart-contract platforms.
- Impermanent Loss: This could be a potential risk that may deliver losses to liquidity providers if token prices fluctuate.
- Scams and Rug Pulls: Fake platforms can steal your money, so always verify a platform’s legitimacy.
- Market volatility: Fast changes in the price of cryptocurrencies affect investments significantly.
- No refunds: Errors can be made, but they cannot be undone; confirmation is definitive. Therefore, check all details twice before finalizing any action.
Important Tips for Beginners
- Start Small: Understand the concept and then transact with small amounts.
- Research: Legitimize the platform before dealing with it to avoid falling prey to scams.
- Learn about Gas Fees: Gas fees will be widely different from one network to the other.
- Use only Trusted Wallets: Always download wallets from the official website.
- Secure Your Wallet: Safely keep your private keys offline, never share them.
Ending Note!
It isn’t really hard to choose the best DeFi platform by following the simple steps: Know what you really need, check on the safety and reputation of the platform; ensure it’s easy to use. Scout for good reputable platforms and stay clear of common risks so you can save your cash. Thus, with this guide, you’re prepared to take the first confident steps in this fascinating world of DeFi!
