The Benefits of Encrypted Financial Products

21 March 12:16

Key encrypted financial products include DeFi lending, staking, crypto mining and liquidity provision.

Mobile mining is convenient as it requires minimal investment and low power usage.

High liquidity leads to market stability, fast transactions and more accurate technical analysis.

The past decade witnessed the growth of blockchain based financial products which have transformed the global economy. In addition to digital finance, virtual assets including fungible and non-fungible tokens have dominated the blockchain economy resulting in new financial products.

Generally speaking, cryptocurrencies and non-fungible tokens have improved the ecommerce sector. For example, both cryptocurrencies and non-fungible tokens (NFT) have resulted in encrypted financial products which include cryptocurrency mining, liquidity mining, staking, insurance, lending, digital wallets, trading, lending and borrowing, among others.

The aim of this article is to discuss the various types of these encrypted financial products.

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Staking

In general terms, staking is a process where users lock their digital assets such as cryptocurrencies in their wallets, on the exchange or on crypto platforms in order to earn rewards.

More specifically, staking is a process of locking cryptocurrencies in order to facilitate the proper function of a specific blockchain or network. The staked assets support the proof of work (PoW) blockchain consensus mechanism. And validators that staked cryptocurrencies, are responsible for verifying transactions on the blockchain and get rewarded in return.

However, with some crypto projects staking is an investment package where the investors get a specified return within a period of time, such as 30 days or one year. Staking also helps in reducing the circulating supply of a coin which may help to stabilise or increase its price. For the users, this is usually a safe way of earning passive income.

Lending and borrowing

Crypto lending, also called DeFi lending, is similar to the lending services which legacy financial institutions such as banks provide. However, in this case decentralised platforms offer the loans through the peer to peer network system.

The platform users, called lenders, provide their cryptocurrencies through smart contracts.In return, they earn interest whose rate depends on the amount they invest. Nonetheless, it is important for the lenders and borrowers to understand the terms of their services which include the lending period and the rate of return.

It is also worth noting that the borrower should deposit collateral in order to get a crypto loan. The collateral is in the form of cryptocurrencies such as USDT. In most cases, the borrower repays the loan with interest in instalments. If he/she fails to make the repayment on time, the lender can recover the borrowed amount from the collateral.

Major exchanges such as Gate.io have lending and borrowing services. For instance, at Gate.io people can lend and borrow tokens such as BTC, ETH, Doge, ATOM, BNB and many more. In order for an individual to lend out some cryptocurrencies, he/she should visit the Crypto Lending Section. Conversely, if you want to have a loan, then you visit the CryptoLoan section.

Trading

Cryptocurrency trading is the act of buying and selling cryptocurrencies with the aim of making a gain. Usually, people buy and sell the cryptocurrencies on exchanges such as Gate.io. The general trading principle is to buy low and sell high, meaning that you sell the cryptocurrency at a price higher than the buying price. However, the selling price should be high enough to cover the transaction fees.

There are different types of trading strategies which include HODling, day trading, swing trading and many more. A good crypto trader should master the strategies he/she uses in order to avoid losses. At Gate.io spot trading is very popular. Spot trading means the buying and selling of a cryptocurrency for instant delivery. Thus, as soon as you pay for the digital asset, you get it in a near instant moment.

Although HODling is popularly considered a long term trading strategy, some experts view it as a separate investment option, where individuals buy and hold cryptocurrencies for a long time, waiting for their appreciation. At Gate.io, HOLD and Earn is a product on its own.

Derivatives

Derivatives are popular trading assets. By definition, a derivative is a contract whose value depends on the performance of an underlying asset such as gold or silver. In the crypto sector, the underlying asset for a derivative can be a cryptocurrency such as BTC.

Cryptocurrency mining

One of the trending DeFi products is cryptocurrency mining. Generally speaking, cryptocurrency mining is a method of minting new coins. Yet, more specifically it involves validating cryptocurrency transactions on the blockchain in return for a reward. As a result, the system generates new coins which are used for rewarding the miners or blockchain validators.

There are various ways in which people can mine cryptocurrencies. Individuals and institutions that have vast financial resources can purchase specialised equipment for mining the cryptocurrencies. Probably, the most well-known cryptocurrency which people mine using the computing machines is bitcoin.

Cloud mining

People can also mine cryptocurrencies using the cloud mining method. This is probably a very convenient method of mining cryptocurrencies without purchasing and maintaining expensive machines. The individuals simply lease the hash powers of some mining companies. After paying the contract fees, the mining process begins and the individuals get their returns within days.

Mobile mining is another very popular method of mining cryptocurrencies. Instead of using Application-Specific Integrated Circuits (ASICs and Graphics Processing Units (GPUs) which use much power, people can use their smartphones to mine cryptocurrencies.

In order to mine cryptocurrencies using smart phones people should install the appropriate applications such as MinerGate, Mobile Miner, and bitcoin Miner on their smartphones. Basically, people can use smartphones to mine bitcoin (BTC), Ethereum (ETH), Monero (XMR), Litecoin (LTC), Bytecoin (BCN) and Dash (Dash), among others.

Mobile mining has various advantages:

• It is very cheap and convenient to use mobile phones for mining. The mining applications do not use much power. Therefore, once you install the application you can start mining right away.

• The mining applications do not take much space in the smartphone.

• There is very low initial investment for mobile phone mining, making it suitable for many people.

• There are various types of mobile crypto mining applications which enable people to mine various cryptocurrencies.

Drawbacks for mobile mining

• However, people should take some precautions when using smart phones for mining. They should use genuine applications. This is because malicious malware can cause the phones to crash.

• Some of the mined cryptocurrencies are not yet on the exchanges which may result in loss in the end.

Liquidity Mining

Liquidity mining, also called liquidity provision, refers to a process where people lend their cryptocurrencies to decentralised exchanges (DEXes) and get rewarded for that. Normally, the reward comes from a share of the trading fees generated from the respective pools.

In fact, the liquidity providers add liquidity to a pair of cryptocurrencies by making a contribution of equal values of each token. For example, an individual can contribute $500 of ETH and $500 of USDT in an ETH/USDT trading pair.

The reward which each liquidity provider gets is in direct proportion to the contribution he/she has made to the pair. What this means is that a liquidity provider who has provided 0.03 % of the liquidity of the pair, will get a corresponding share of the trading fees reserved for that purpose. In some cases, the liquidity providers also earn LP tokens.

There is no doubt that liquidity provision is a reliable source of passive income. This is because the provider will always get a share of the trading fees which the pair generates.

The importance of high liquidity

Liquidity mining leads to market stability. When a cryptocurrency has high liquidity its price becomes more stable than otherwise. This is because the price of a token that has many buyers and sellers is less likely to be affected by the transactions which a few people make.

When a cryptocurrency has high liquidity the orders will be filled within a reasonably short time. The ability to exit a position quickly attracts many investors to the exchange. Those who are familiar with Gate.io, for instance, know how quickly the orders are filled. In most cases, the order is filled within 20 minutes.

High liquidity results in comparatively more accurate technical analysis than when there is low liquidity. This is because pricing and charting are more precise in a liquid market.

Liquidity Mining at Gate.io

Gate.io enables people to participate in liquidity mining involving different pairs of cryptocurrencies. Therefore, investors have the freedom to select the pairs of their choices. Some of the pairs which people can provide liquidity for include MELI/USDT, BRY/USDT, KST/USDT, ASTRO/ETH and VADER/USDT. In fact, the list is long. People interested in liquidity provision should head straight away to the Liquidity Mining Section.

Gate.io has also a lending and single asset vault. This is a unique type of mining in that an individual contributes liquidity to a single cryptocurrency. There is a long list of tokens which people can provide liquidity to which include WAVES, MAPS, LOOKS, FRONT, RAI, ACA and AXS. Once again, the list is long, affording investors a wide choice.

Conclusion

Decentralised finance has improved payment convenience, security and increased investment opportunities. Convenience has improved because of the absence of intermediaries due to the peer to peer network system which dominates the digital economy. Some of the prominent products that exist in the decentralised sector are crypto mining, lending, borrowing, staking and liquidity mining.

Author: Mashell C. , Gate.io Researcher
This article represents only the views of the researcher and does not constitute any investment suggestions.
Gate.io reserves all rights to this article. Reposting of the article will be permitted provided Gate.io is referenced. In all cases, legal action will be taken due to copyright infringement