---
# System prepended metadata

title: The new ways to make money with cryptocurrencies in DeFi
tags: [EN-TheSmith's-Collection]

---


Author: https://twitter.com/guiribabrb
Original Article: https://odysee.com/@ShapeShiftDAObr:a/yield-farming:42 

###### tags: `EN-TheSmith's-Collection`
# The new ways to make money with cryptocurrencies in DeFi 

Before Decentralized Finance came up, there weren't many ways to get returns with cryptocurrencies: or the users carried out *trades* with their assets, or kept them in the portfolio awaiting their appreciation. In other words, the usual way of making a profit was only through the acquisition of cryptocurrencies and direct exposure to their value.

Nonetheless, the *smart contracts* created, the ‘prior’, by the Ethereum researchers – with Vitalik standing out as their creator – gave life to a new ecosystem in the crypto universe. With them, anyone with basic programming knowledge could create a *dapp¹* in their own way, enabling the construction of a new financial system based on cryptocurrencies.

Thus, gradually, the decentralization of finance has come about through the development of decentralized applications capable of replicating traditional financial instruments – or going beyond them. These enable investors not only to invest in projects and their tokens, but to passively monetize them

**These profits are called *yield farming.***

To obtain gains on these *dapps,* users need to deposit their tokens in DeFi protocol smart contracts. These, need this trust, to perform their functions, each one with its own objective

- Decentralized Exchanges – DEX – : as DEX do not keep the tokens of their users, these need liquidity to offer the market the possibility of trading tokens – swaps –. For this, it depends on users to provide liquidity through LPs², such as FOX/ETH.
    - Leaders in this market: [Curve, Uniswap e Sushiswap](https://defipulse.com/)
- Lending Protocols: some *dapps* offer the loan opportunity to users. However, they depend on liquidity to be able to provide this to them. Thus, they need users to deposit their cryptocurrencies in protocols *smart contracts*.
    - Leaders in this market: [Curve, InstaDapp and Aave](https://defipulse.com/).
- Insurance Protocols: Depositing tokens into an insurance protocol, providing payment liquidity to These can range from malfunction in *smart contracts,* hacks, *rug pulls*, loss of parity of *stablecoins –* and its representations –, hacks in CEX³, among others.
    - Leaders in this market: *[Armor, Nexus Mutual and Unslashed](https://defillama.com/protocols/insurance)*
- Derivatives – Protocols that allow users to issue synthetic assets backed by assets of the TradFi traditional finance world or even the crypto ecosystem. Thus, the user can have access to [tokens that accompany the Euro’s value or even the Gold ETF traded on the Stock Exchange](https://eth.mirror.finance/). However, like others, derivatives *dapps* need the users to deposit a predetermined value in their *smart contracts* in order to guarantee the borrowing of synthetic tokens.
    - Leaders in this market: *[Synthethix, Dydx and Nexus Mutual](https://defipulse.com/)*
    

Due to the need for liquidity to provide the services offered to users, many protocols attract them using incentive strategies with financial rewards, either in their native tokens or in tokens from partner *dapps.*

To achieve this purpose, each of them will need to generate revenue capable of maintaining the protocol and paying the incentives to users of liquidity providers:

- DEX – Decentralized Exchangesbrokers, in order to exchange tokens for users, charge fees on swaps using the protocol. Despite being low – a[bout 0,04% on Curve, for example](https://resources.curve.fi/base-features/understanding-curve) – the high volume of daily transactions on the main DEXes will therefore generate a large amount of revenue in fees collected – [in Curve case, close to 43 million dollars so far.](https://dune.xyz/mrblock_buidl/Curve.fi) Usually, the amount collected with the fees is allocated to liquidity providers, as an incentive to keep the deposited tokens in *smart contracts*. Besides that, there may also be incentive programs for liquidity providers, allocating part of the protocol’s treasury to reward depositors in *smart contracts*. As an example, we can verify ShapeShift DAO’s [FOX-ETH pool on Uniswap v2, with a return of ~130% APY – Annual Percentage Yield:](https://fox.shapeshift.com/fox-farming/liquidity/0x470e8de2ebaef52014a47cb5e6af86884947f08c/staking/0xc54B9F82C1c54E9D4d274d633c7523f2299c42A0/get-started)

![](https://i.imgur.com/3mQzU66.png)


Source: [ShapeShift](https://fox.shapeshift.com/fox-farming/liquidity/0x470e8de2ebaef52014a47cb5e6af86884947f08c/staking/0xc54B9F82C1c54E9D4d274d633c7523f2299c42A0/get-started)

- Lending Protocols – The revenue collected by this type of *dapp* comes from fees charged to users due for making loans and fees for penalties for liquidation. Both are responsible for collecting funds in order not only to make the protocol activity profitable, but mainly to repay users who deposited their tokens in the *dapp*, helping to generate liquidity for the loans made.
    - Aave is one of the main protocols in the DeFi lending market. For educational purposes, look the [USDC token from Aave v2 on the Ethereum Mainnet](https://app.aave.com/#/reserve-overview/0xa0b86991c6218b36c1d19d4a2e9eb0ce3606eb48-0xa0b86991c6218b36c1d19d4a2e9eb0ce3606eb480xb53c1a33016b2dc2ff3653530bff1848a515c8c5): as of December 08, 2021, it has a 3,29% Annual Percentage Yield; Borrow APY on Stable borrowing of 11,57% and Variable of 3,98%; and 4% Liquidation Penalty:
    
![](https://i.imgur.com/BaZMlDX.png)

    
- Insurance protocol – The insurances sold by these type of *dapps* also have their particular way of encouraging users to deposit their tokens. As these depend on the liquidity in *smart contracts* to cover the insurance contracted by their holders, these *protocols* remunerate with their native tokens those who trust us with the possession of their cryptocurrencies.
- Derivatives – Users who issue synthetic tokens must deposit tokens in the protocols as a guarantee. In return, they receive for keeping their tokens deposited in the protocol, encouraging the use of issued assets.

The above protocol categories are just a few ways to passively monetize cryptocurrencies. In DeFi, many strategies can be used to maximize profits and also aid in risk management.

Therefore, each one must define their profile and study the best way to allocate their assets, trying out protocols with audited *smart contracts*, with a good track record, a team of developers and an active community.

**So, good yield hacking!**

¹*dapp* is the abbreviation for decentralized app.

²LP is the acronym used for Liquidity Provider. These are representations of the liquidity provided by users to the protocols.

³CEX is an acronym given to Centralized Exchanges such as Binance and Coinbase.