A Beginner's Guide to Investing in DeFi

Summary:

One of the easiest ways to start is through yield farming or staking DeFi-powered coins such as Ether to earn passive income.

There has been a steep rise in disruptive cryptocurrency innovation over the past couple of years that has fast-changed the digital currency landscape. Today, one of the fastest emerging areas of the cryptoverse is decentralised finance, or DeFi.

It is the hottest and most impactful crypto trend that is upending the traditional financial system with the promise of a borderless, friction-free, decentralised, cheaper and faster alternative.

For the uninitiated, DeFi comprises a network of applications devised to replicate conventional financial products with cryptocurrency.

It works within a peer-to-peer ecosystem that does away with intermediaries needed to make decisions or approve transactions in the traditional financial system.

"DeFi is financial services, controlled not by humans or some entity, but by public smart contracts available on the blockchain," says Viktor Prokopenya, a technology entrepreneur and founder of Capital.com and Currency.com.

"The functioning of the service is published on the public ledger, so that anyone can view them."

This is typically why people say there is no legal entity behind DeFi, giving us the concept of entity-less financial services.

The DeFi market is booming as more enthusiasts, app developers and opportunistic cryptocurrency investors are drawn to it.

As of October 5, there is $55 billion worth of funds in DeFi-related contracts, a big jump from $15bn in 2020, yet significantly below its $180bn peak in November 2021, according to DeFi Llama.

While this year's relentless cryptocurrency volatility may have slowed things down, experts say it is still early days for DeFi.

At its current growth rate, it is destined to become a major element of the digital economy as the world continues its pivot towards DeFi.

Investors looking to ride the latest cryptocurrency wave may want to dig into this handy guide to DeFi.

The inner workings of DeFi

Much of what DeFi applications do is underpinned by blockchain-based smart contracts that are used to design financial products that people can use without needing intermediaries such as banks or brokers.

Ethereum is the world's first and most widely used smart contract platform. Developers can build financial applications on top of these blockchains.

"A smart contract is simply the programme behind the token and its code is published publicly on the blockchain," says Mr Prokopenya. "They are considered a fundamental building block for DeFi."

These applications function autonomously and have a smooth interface with each other.

This gave rise to a DeFi ecosystem that allowed developers to create efficient, faster and highly profitable businesses, including exchanges, banks, insurance markets, derivatives markets, art markets, and robo-advisers, all working seamlessly and without human interaction.

"Ways DeFi is being used include through Decentralised Exchanges [DEXes], where the participants can exchange one token to another token," says Mr Prokopenya.

DeFi apps are also attracting yield-seeking investors who can lock capital in smart contracts in exchange for returns of 15 per cent to 30 per cent.

DeFi: CeFi without the middleman

DeFi allows financial activities without an intermediary, effectively allowing you to be your own bank. Investors can use a DeFi platforms to earn yields, much in the same way as they do with their savings account — but without a financial institution involved.

This process is called staking, where "you lock crypto assets for a set period of time to help support the operation of a blockchain", says Mr Prokopenya. "In return for staking your crypto, you earn more cryptocurrency."

Just as banks do with fiat currency in centralised finance (CeFi), DeFi lending allows users to loan out cryptocurrency and earn interest as a lender.

"It is similar to holding funds in a savings account and earning interest over time," Mr Prokopenya says. "That money is then lent out to other users or sent out to market makers, providing the investor with passive income."

While interest rates fluctuate in both the CeFi and DeFi domains, the latter doesn't require borrowers to pledge hard assets as collateral. Instead, DeFi borrowers provide crypto assets in a process that is entirely anonymous and without human intervention.

The reason DeFi generates higher benefits for users is that there are no bank branches, employees or other operational costs that CeFi must contend with.

The divergence between the two systems becomes more significant in the event of a loan default. Unlike in the conventional financial system, DeFi borrowers don't repay with physical assets in the situation of a potential debt default.

Debt defaults are simply not allowed in DeFi.

When the price of cryptocurrency used as collateral falls dramatically, a preventive measure is activated. Cryptocurrency held as collateral is then liquidated to recoup the loan before the value of collateral falls below the loan value.

Bear in mind, though, that DeFi also possesses risks inherent with cryptocurrencies, including the prospect of intense regulatory scrutiny, extreme price volatility and the technology itself.

There is no provision or mechanism in DeFi for recovering assets lost due to technological or human error.

How to get in the DeFi game

Billions of dollars worth of cryptocurrency is locked into the DeFi ecosystem as funds continue to pour in. So, how do you plug into the DeFi bonanza?

DeFi is built with smart contracts that run on the Ethereum blockchain.

Thus, the simplest way to invest in it is to own Ether, or ETH, Ethereum's native coin.

There are other DeFi-powered coins — such as Cardano (ADA), Chainlink (CHAIN), Aave (AAVE), Uniswap (UNI) and the Curve DAO Token (CURVE), among others — that can tie your portfolio to the fortunes of DeFi technology.

Not only do these coins offer exposure to various segments of the DeFi industry, but each token is also a ticket to ride the growth of their respective DeFi protocols.

For example, if you invest in Ether, and the Ethereum protocol grows and attracts more users, it will boost demand for Ether, thus appreciating its price and the value of your investment.

Another way to play the DeFi field is yield farming, regarded as the most disruptive part of DeFi. It is a process of generating passive income by lending and borrowing on crypto lending platforms.

"You lend your money temporarily and because the business entity's goal is to make a profit, you take a share in profit, earning passive income," says Mr Prokopenya.

In addition to yield, some protocols offer an additional reward, in the form of a new token called the liquidity provider (LP) token, which the owner can hold, use on DeFi apps or sell for cash.

"The easiest way to begin is through staking and other passive income options," says Mr Prokopenya, adding that it is a great way to "familiarise yourself with smart contracts, wallets and tokens with less risk".

The road ahead

The continued convergence of blockchain technology and financial applications is expected to continue to expand the DeFi ecosystem. Supporters of DeFi say it is a more efficient alternative to the current CeFi system.

However, there may be some speed bumps along the way.

"This is new technology, so regulation is coming," warns Mr Prokopenya. "It will also be brought into the sphere of tax regimes and there is now international consensus on this."

All virtual asset providers will have to report transactions to tax authorities, which is a very significant move, he says.

Investors need to watch out for various cryptocurrency fraud schemes.

"The rule here is double check, triple check — be suspicious," he says.

Fraudsters tend to exploit some technical risks inherent to the emerging DeFi system.

Yet, there is much for cryptocurrency investors to look forward to as the burgeoning DeFi economy opens doors to unique opportunities in 2022 and beyond.

It is a whole new way to gain access to the cryptocurrency market for both devout investors and those simply dabbling in it.

But be sure to research your investment thoroughly, do your due diligence and only invest what you can afford to lose.

Source: thenationalnews

Risk Warnings and Investment Disclaimers

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Italy: New Meloni Government Passed Both Confidence Votes

Michelle

Meloni government easily passed both confidence votes

After passing a confidence vote at the Lower House yesterday (235 votes in favour out of 400), today the Meloni government got the rubber stamp also from the Senate (115 votes in favour out of 206), and is now fully empowered.

Meloni keen to reassure on Atlantic alliance and relationship with European institutions

In her parliamentary address before the confidence votes, PM Meloni had broadly outlined the programme for the legislature. She sounded aware of the scope of short-run challenges and is very keen to reassure her enlarged audience about the international positioning of Italy and the relationship with European institutions. On the first, she re-affirmed that under her leadership Italy will remain well anchored into the Atlantic alliance, unambiguously supporting Ukraine. On European integration, she clarified that the promised defence of national interests will be met by acting "from within", in an attempt to better steer the process when facing crises and external threats. The absence of any reference to Italexit options of sort is clearly reassuring, but the way this strategy will be implemented is still unclear.

Prudent approach on economic matters, for the time being

When dealing with economic matters, Meloni adopted a relatively prudent approach, acknowledging that in the current deteriorating economic environment the short-term priority will be to refinance the set of measures to help households and businesses weather the energy price shock (energy bills, temporary reduction of fuel tax). As this will likely use up most available resources, she added that some planned measures (tax wedge cuts and extension of the flat tax) will only gradually be introduced. We thus suspect that the government will set up a priority list topped by those measures bearing a small monetary cost tag but high symbolic value. The proposal by Salvini to raise the limit for cash transactions to €10K seems to point in this direction. The replacement of the expiring early pension scheme (the so-called level 102) will also likely be high in the priority list, as inaction on the subject would bear a high political cost.

Frictions among coalition to remain under control in the short run

After some frictions with junior ally Forza Italia when the list of ministers was compiled, tensions within the government alliance have seemingly cooled down. Furthermore, the appointment of Giancarlo Giorgetti, an experienced moderate politician from the Lega, in the key role of finance minister should in principle reduce in perspective the risk of political instability coming from the benches of the Lega.

2023 budget and RRF implementation as forced priorities

All in all, we remain convinced that in the short run PM Meloni will have very limited room to manoeuvre on the economic front, with priorities mainly set by external constraints (energy inflation) and by the need to implement the Recovery and Resilience facility measures to contrast the incoming recession.

Source: think.ing

Risk Warnings and Investment Disclaimers

UK's Lloyds Braces for Housing Crunch, Bad Loans as Profit Slides

Anthony

Lloyds Banking Group LLOY.L is bracing for a downturn in Britain's housing market and a rise in unpaid loans as inflation squeezes borrowers, leading it to report a slide in quarterly profit on Thursday.

Lloyds downgraded its economic forecasts to reflect a worsening outlook, and is now predicting the economy will shrink 1% next year and that house prices will fall 8%.

The country's biggest mortgage lender posted pre-tax profit of 1.5 billion pounds ($1.74 billion) for July-September, compared with 2 billion pounds a year earlier and below analyst forecasts.

The fall was largely down to setting aside an additional 688 million pounds to cover potentially soured loans as customer budgets come under pressure.

Lloyds shares fell 4% in early trading and were last down 2%, against a broadly flat benchmark FTSE index.

The mixed update from Lloyds, with profits sliding and bad loans charges rising while the bank nonetheless increased its guidance for several key performance metrics, showed the unusual environment Britain's banks are now in.

Rising central bank interest rates aimed at combating inflation also boost banks' income, but those same pressures of inflation and higher rates on mortgages are squeezing household budgets, risking defaults on loans later down the line.

Rivals including Barclays and HSBC reported robust results this week, but investors are wary the rising cost of living will bite long term.

Analysts have argued Lloyds could be particularly vulnerable to any increase in loan defaults because of its huge mortgage book and significant share of the credit card market.

"To a large extent, Lloyds can't control the external forces that govern its customers' behaviour, but its particular exposure to traditional lending, especially mortgages, puts it in the firing line when conditions sour," said Sophie Lund-Yates, equity analyst at Hargreaves Lansdown.

HOUSING CRUNCH

Britain's new prime minister Rishi Sunak has said the country faces a "profound economic crisis" as he seeks to fix the mistakes made by his predecessor Liz Truss.

Market turmoil sparked by Truss' tax-cutting plans pushed up the country's borrowing costs and led lenders to ratchet up mortgage rates, piling further pressure on households.

"Our one request would be for a period of stability," Lloyds' finance chief William Chalmers told reporters when asked about what he wanted to see from government. "That, in turn, will help us to support customers."

Chalmers said there was likely to be a slowdown in mortgage lending over the next 12 months as a result of higher rates and affordability pressure.

Banks are also concerned Sunak's new government could slap additional taxes on the industry, with a surcharge on bank profits under review by finance minister Jeremy Hunt.

Chalmers said further bank taxes were a decision for politicians, but added: "Our longer term request is for a competitive tax regime for the banking sector in the UK."

Despite its lower profit, Lloyds said the strength of its underlying performance meant it could raise its forecast on several performance metrics for the year.

Net interest margin, which measures how much the bank makes on the spread between what it pays savers and charges borrowers, will be 290 basis points rather than 280, it said, and the bank will generate more capital.

However, Lloyds said asset quality - measuring potential loan defaults - was expected to be slightly worse this year. Actual loan defaults remained low for the time being, it added.

Source: reuters

Risk Warnings and Investment Disclaimers

NTUC FairPrice Offers 15% Discount on Rice to Address Inflation Concerns

Glendon

SINGAPORE: NTUC FairPrice will offer a 15 per cent discount on three rice products for two weeks to address inflations concerns, FairPrice Group said on Thursday (Oct 27).

The discount on Songhe AAA Thai Hom Mali Rice (5kg), Double FP Thai Hom Mali Premium Quality Fragrant Rice (10kg) and FairPrice Thai Brown Rice (5kg) will be made available from Oct 27 to Nov 9 across all FairPrice supermarket retail formats, including FairPrice Online.

Each customer may purchase up to four bags during the promotional period, said FairPrice in a media release early on Thursday.

"The prices for these three products have not been adjusted since 2020 as part of FairPrice's ongoing efforts to moderate the cost of living for daily essentials," it added.

Singapore's core inflation rose to 5.3 per cent in September, driven mainly by larger increases in the prices of food, services and retail and other goods.

In June, the Government announced a S$1.5 billion support package to counter inflation, providing immediate relief for lower-income and more vulnerable groups.

"Rice is a key staple and basic necessity for most households in Singapore. With the current unprecedented inflation coupled with supply chain disruptions, rising cost of living is a top concern for consumers," said FairPrice Group CEO Vipul Chawla on Thursday.

"To allay these concerns, FairPrice continues to strengthen our efforts to moderate the cost of living. Our latest price drop applies to rice products that are not only popular, but also products where prices have been kept stable for the past two years to ensure we give exceptional savings to the community."

FairPrice said it regularly initiates efforts to benchmark prices for daily essentials in Singapore. Earlier this year it provided a 10 per cent discount on four cooking oil products to address concerns on elevated oil prices, as well as providing a special discount for its Pasar fresh eggs for a week in view of rising egg prices.

"This latest initiative complements our earlier efforts this year to drop prices for staples and essentials and we hope this brings some respite to families, empowering them to stretch their dollar further", said Mr Chawla.

Source: channelnewsasia

Risk Warnings and Investment Disclaimers

Japan Will Allow Digital Salaries Starting 2023, but Crypto Is Excluded

Damon

Cryptocurrency

Japan will allow companies to send salaries to money transfer fund providers. However, it will not allow this for cryptocurrency.

The Ministry of Health, Labor, and Welfare in Japan has approved a revision to its Labor Standards Act, barring the use of virtual currencies in digital salary payments. The new rules' revision will come into effect in April 2023.

The rules' revision focuses on digital salary payments. Specifically, it allows payment of wages to the accounts of money transfer service providers. This includes forex services if certain requirements are met. The government has revised the law because there has been a spread of "cashless payments and the diversification of remittance services" in the country.

The rule change, however, excludes crypto assets. Salaries cannot be transferred to fund transfer companies in the form of crypto. Only those currencies that can be directly converted into cash can.

This isn't an outright ban on crypto as a means of salary payment in Japan. The country may yet change the rules in the future, perhaps when there is more regulation for the crypto market. Meanwhile, other countries are crypto in salary payments.

Crypto, a Popular Option for Salary Payments

Individuals in developing countries have been taking to cryptocurrencies for their salary payments. Argentina, Brazil, and Turkey, as well as nations in Africa, are seeing their citizens accept Bitcoin or stablecoins because it is faster and cheaper for international money transfers.

International transfers have been one of the biggest selling points of crypto, as there is only a marginal loss for a crypto transfer. With traditional bank transfers, international transitions often cost 2–5% of the total sum transferred.

As remote work becomes more popular, those in developing countries may see even greater adoption of crypto payments. The volatility remains popular, but this has also been dropping in the crypto market, at least in recent weeks.

Japan Opening Up More to Crypto

While crypto for salaries may not yet be a reality in Japan, the government has been making progress in other areas. Regulators in the country recently relaxed laws related to the crypto market, allowing crypto exchanges to list digital currencies more easily.

It has also toughened rules related to money laundering. The country will monitor remittances that use crypto to prevent money laundering, mandating the sharing of customer information. Authorities can now also seize assets. Japan aims to boost the economy by making the regulatory landscape more welcoming to startups.

Source: beincrypto

Risk Warnings and Investment Disclaimers

LNG Ships Play Waiting Game off Spain's Coast as Higher Prices Eyed

Kevin Du

Energy

Several ships carrying liquefied natural gas (LNG) anchored off Spain's Bay of Cadiz are likely to stay there until late November in anticipation of a rise in European gas prices, industry sources said.

Dozens of ships have been circling off the Iberian coast and in the Mediterranean sea for weeks, unable to secure slots to unload their LNG cargoes as plants that convert the superchilled fuel back to gas are operating at maximum capacity.

The high volume of LNG in floating storage exposes Europe's lack of "regasification" capacity just as the continent stocks up for a winter of substantially less Russian pipeline gas.

But industry sources say some of the waiting ships are part of a trading strategy from their respective companies, anticipating higher prices.

"They are waiting for higher prices. If one single idling vessel discharges its cargo, the price will immediately collapse by affecting the other cargoes on the queue and this domino effect is so painful in terms of opportunity cost," one of the sources said.

European natural gas prices are at their lowest since June, dropping 28% in a week, partly due to high inventory levels and above-normal temperatures, according to Rystad Energy.

"For those floating storage cargoes sold on a DES (delivery ex ship) basis, we're expecting most of these to be delivered in early November, though some firms may push deliveries yet further into winter,"said Samuel Good, head of LNG pricing at commodity pricing agency Argus.

Out of nine vessels anchored off Cadiz by Wednesday noon, three belong to Spain's Naturgy NTGY.MC: Castillo De Caldelas, Rioja Knutsen and Iberia Knutsen, two industry sources said.

One of the other ships belongs to BP BP.L, three to commodity trader Trafigura [RIC:RIC:TRAFGF.UL] and one to U.S. Cheniere LNG.A and the last one is empty, the sources said, adding that vessels are sometimes subleased by other companies.

A Naturgy spokesperson said that its ships have assigned discharge slots in Spain and are waiting for those dates to unload.

BP, Cheniere and Trafigura declined to comment on regular cargo operations.

Spanish port authorities said that some ships had been waiting since mid-September.

One industry player said there were no problems with the slots allocated in September in Spain.

"Currently, prices are declining pretty fast and paradoxically, these cargoes will seize less value than in September or early October," he said.

Toby Copson, global head of trading and advisory at Trident LNG said cargoes were unlikely to be redirected to Asia, given soaring freight costs and as prices are lower than in Europe. European LNG cargo prices for December remain competitive versus Asia for U.S. origin LNG.

Prices between November and December remain in contango, where the futures price of a commodity is higher than spot levels.

Meanwhile, some tankers that had been waiting in the Mediterranean since September recently moved, heading to Northwest Europe and UK terminals, data intelligence firm ICIS said.

While some spare slots are available at Britain's Isle of Grain and Dragon in late October and early November, daily gas prices at onshore hubs will be under bearish pressure as terminal tanks clear space to tackle the LNG backlog, said Alex Froley, LNG analyst at ICIS.

"However, gas prices remain much higher than in first half 2021 and prices for winter next year aren't falling back as much as the month-ahead," he added.

Source: reuters

Risk Warnings and Investment Disclaimers

South Korea: GDP Growth Decelerated in 3Q22

Anthony

Growth supported by domestic demand while net export contribution contracted even further

In 3Q22, GDP growth was led by domestic demand, as expected. Household consumption rose 1.9% - a slower pace than the previous quarter (2.9% in 2Q22) mainly due to the increased debt service burden and higher inflation. Investment components were particularly strong. Construction and facility investment rose by 0.4% and 5.0% respectively. Investment in the IT sector expanded despite the recent semiconductor downturn cycle, and transportation equipment investment also increased as mobility restrictions were relaxed around the world and supply bottlenecks in the auto industry eased.

Exports rebounded 1.0% in 3Q22 (vs -3.1% in 2Q) on the back of gains in auto and service exports. But, imports rose even faster than exports, rising 5.8% (vs -1.0%) with high commodity prices and increases in capital goods imports. As a result, the net exports contribution to GDP was a drag of 1.8pp more even than the 1.0pp drag in 2Q22.

By industry, manufacturing fell for the second consecutive quarter, while construction and services gained strongly.

3QGDP was led by domestic demand

GDP outlook : 2.6% in 2022, 0.7% in 2023

The latest data show the reopening boost starting to fade, and we expect this trend to accelerate in the current quarter. We think consumer spending will decline in the near term due to debt deleveraging and the debt service burden. Regarding investment, we expect IT equipment investment to continue to rise but other components of investment to weaken. The recent credit market squeeze will likely negatively impact investment due to high funding costs and increased uncertainty, with the construction sector being the hardest hit. Exports are also likely to turn weak again, due to the economic slowdown in major trade partners such as the US, EU, and China and sluggish semiconductor exports. Thus, we maintain our view that the economy will experience a moderate recession early next year.

The Bank of Korea's policy outlook

With consumer price inflation back above 5%, the BoK is expected to raise its policy rate by 25bp in November instead of a 50bp hike. By doing so, the BoK's commitment to price stability can continue to be communicated to the market, while the BoK also needs to calm down the market's anxiety about the recent credit market squeeze to some extent. Although there is still a risk of inflation, an aggressive 50bp hike will probably be avoided as prices are expected to stabilize after a temporary rise in October.

The BoK's MPC will meet today. This is a regular meeting and the BoK will discuss policy response to the recent credit market issue. We believe that the BoK will not inject liquidity directly into the market as this would work against their current tightening policy stance. But, the BoK will likely adjust its micro-policy tools. Thus, we expect that options like reactivating Special Purpose Vehicles (SVPS) to purchase corporate bonds and CP and unlimited RP are not going to be delivered at this time. Instead, it is possible that the BoK will expand its purchases of bonds from commercial banks.

Source: think.ing

Risk Warnings and Investment Disclaimers

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A Beginner's Guide to Investing in DeFi

The inner workings of DeFi

DeFi: CeFi without the middleman

How to get in the DeFi game

The road ahead

Source: thenationalnews

Italy: New Meloni Government Passed Both Confidence Votes

Meloni government easily passed both confidence votes

Meloni keen to reassure on Atlantic alliance and relationship with European institutions

Prudent approach on economic matters, for the time being

Frictions among coalition to remain under control in the short run

2023 budget and RRF implementation as forced priorities

Source: think.ing

UK's Lloyds Braces for Housing Crunch, Bad Loans as Profit Slides

HOUSING CRUNCH

Source: reuters

NTUC FairPrice Offers 15% Discount on Rice to Address Inflation Concerns

Source: channelnewsasia

Japan Will Allow Digital Salaries Starting 2023, but Crypto Is Excluded

Crypto, a Popular Option for Salary Payments

Japan Opening Up More to Crypto

Source: beincrypto

LNG Ships Play Waiting Game off Spain's Coast as Higher Prices Eyed

Source: reuters

South Korea: GDP Growth Decelerated in 3Q22

Growth supported by domestic demand while net export contribution contracted even further

3QGDP was led by domestic demand

GDP outlook : 2.6% in 2022, 0.7% in 2023

The Bank of Korea's policy outlook

Source: think.ing

Risk Disclosure