DeFi: what is it and how you can make money on it (Part 2)
Decentralized Exchanges (DEX)
To exchange one crypto currency for another you can use exchanges such as Coinbase or Binance. Such exchanges are centralized and act as intermediaries and custodians of the traded assets. Users of these exchanges do not have full control over their assets which puts their assets at risk when the exchanges are hacked and cannot repay their liabilities to users.
Decentralized Exchanges (DEX) solve this problem by allowing users to exchange crypto currencies without having to transfer their coins to a custodian. When users do not keep their funds on centralized exchanges they do not need to trust these exchanges.
How to make profit: commissions for providing liquidity to trading pairs on decentralized exchanges. For example, on DEX #1 (UniSwap.org) the commission for liquidity providers is 0.3% from each trade. It is also possible to profit directly from trading operations.
Staking
Stacking of tokens is a process of transferring tokens to the storage which implies remuneration payout for their freezing in the same token which is frozen on the deposit.
How to make profit: on extra tokens paid for deposit. Interest is usually accrued and paid automatically in the same token that you placed on the deposit.
Liquidity Mining or Farming
Liquidity mining is a way of organizing the market in which the exchanger or issuer of tokens rewards the community for providing liquidity for trading pairs or pools. Liquidity miners generate income through payments made by the initiator of this process. The source of payments can be both project tokens and the share of commissions paid by traders or investors for the swap of tokens.
How to make profit: on tokens which you are paid for providing liquidity. The principal difference from stacking is that the reward is paid in a different token than the one in which you have provided liquidity.
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