Today, I want to introduce Decentralized Finance (DeFi). In particular, how you can earn returns on your tokens. In our previous post, we detailed our experience using Orca on the Solana blockchain. But today, we’re taking a much broader look at DeFi and why you should be excited about it.

What is DeFi?

DeFi, short for decentralized finance, is an innovative financial system that operates without traditional intermediaries such as banks. DeFi utilizes blockchain technology, particularly smart contracts, for transactions. More specifically, DeFi refers to digital assets, platforms, and protocols that offer financial services.

In simple terms, think of DeFi as the way you bank with cryptocurrencies.

Orca is a great place to start if you’re new to DeFi, and I highly recommend spending a few bucks to test the waters. Here’s a link to a post where we explain how to use Orca.

Unlocking the Value of DeFi: TVL

Now, let’s dive into DeFi a bit more. One of the most important measurements of DeFi’s success is Total Value Locked (TVL). The TVL, reflects the amount of locked tokens in smart contracts used in DeFi apps.

TVL metrics provide a window into DeFi’s overall health and growth. If the TVL is rising, it means more assets are being locked into the DeFi ecosystem, signalling more people are using DeFi services.

Monitoring the growth of DeFi since 2018 reveals some substantial shifts. Initially, the TVL remained low. In 2020, DeFi began to capture global attention, leading to a significant increase in the TVL. In other contexts, investors often refer to this growth as a “bull run,” signalling a correspondingly growing market.

Checking Out Solana’s Performance

Now, let’s look closer at DeFi on Solana. Specifically, let’s look at its performance in 2023.

In general, Solana’s DeFi performance tracks closely with the overall DeFi market.

Importantly, even in a bear market — or crab market, as they are sometimes called — where movements are largely sideways, Solana has demonstrated impressive stability. In early 2023, Solana started with a TVL of $205,000,000 and has grown to $313,000,000 regardless of the market conditions.

What About Solana’s DApps?

Let’s take a glance at Solana’s decentralized applications (DApps). For the Solana newcomers, Orca and Raydium are the biggest DeFi exchanges, or DEXs, currently available. Notably, Raydium garnered a lot of attention during the bull run and might again with the next.

Another cool DApp to consider is Kamino. By using liquidity pools in Orca or Raydium, you can realize a higher APY (Annual Percentage Yield). It does this by harvesting rewards and redepositing the tokens back into the liquidity pool, thereby increasing the pool’s size.

Dealing with Inflationary Tokens

One important aspect to consider when navigating DeFi is how tokens behave economically. Some, like the Orca and Raydium tokens, are inflationary, meaning they increase supply over time, which can impact their value.

Take Raydium, for example; despite a promising bull run, it has been in a downtrend for quite some time. One of the reasons being that more RAY is constantly coming into circulation.

The Orca token reveals a similar pattern. Since its high during the bull market, it’s also been on a general downturn.

Inflationary tokens are worth considering if you’re planning or anticipating the bull market. However, their value tends to suffer in longer downtrend periods.

Taking Advantage of DeFi Opportunities

Let’s not forget about DeFi’s potential rewards amidst its risks. There’s still the potential of reaping significant rewards amidst the bear market. For instance, the Orca and Helium token pool offered promising rewards in the past despite the ongoing bear market conditions.

Always remember the golden rule of investing: Never risk more than you can afford to lose. But also, learn and stay updated about DeFi trends and opportunities. By doing so, you’re well-equipped to fill your pockets when the next bull run occurs.

In our next post, we’ll be learning more about harvesting rewards and removing your liquidity from Orca. And as always, stay curious, and happy investing!

Disclaimer: This is a helpful blog. Follow me on my socials but remember this is NOT FINANCIAL ADVICE. I am making this content as a community member because it is great to learn crypto, playing on Solana is fun, and it is easy to onboard friends into the space with a game like this. My opinions are my own, research more if you wish, and if you decide to degen, that is your decision!

Follow me on X: https://x.com/SebMontgomery