Summary: In the past few years, decentralized finance (DeFi) has been offering secure, transparent, and decentralized alternatives to traditional finance management. In this guide, you’ll learn how to invest in DeFi stocks on online stock trading platforms such as eToro and find a few recommendations in regard to what companies you should consider when building your investment portfolio.
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What is DeFi?
DeFinition
In a DeFi ecosystem, smart contracts automate various transactions. This increases efficiency and security while reducing the need for centralized intermediaries. The decentralization of a DeFi platform is achieved through:
- Decentralized Exchanges (DEXes) that enable peer-to-peer trading of cryptocurrencies;
- DeFi lending and borrowing platforms that allow users to lend or borrow assets, such as cryptocurrencies, without intermediaries;
- Stablecoins, which are pegged to traditional assets like fiat currencies and minimize price volatility;
- Yield farming, which encompasses methods used by investors to earn passive income by lending out their digital assets.
Together, these components offer users increased autonomy and efficiency in managing their assets within the DeFi ecosystem.
How to invest in DeFi stocks: Step-by-step
The DeFi world is in a state of constant flux, with more and more companies either incorporating DeFi solutions within their platforms or offering tools necessary for others to benefit from decentralized finance and related technologies, such as blockchain. This means investors will have plenty of options at their disposal but also plenty of research to do, as only careful and well-thought-out investments are profitable.
To invest in DeFi, you can follow these simple steps:
- Step 1: Choose a broker;
- Step 2: Analyze the market to find stocks;
- Step 3: Place your order;
- Step 4: Monitor your portfolio.
Step 1: Choose a broker
The first step involves finding a well-suited broker that lists DeFi stocks you want to invest in. The fundamental factors when choosing a broker include commission fees, UI friendliness, customer support, and other features.
We recommend eToro, a popular stock trading platform with millions of active users, a transparent fee structure, and features such as:
- Commission-free stock trading;
- Access to global stock exchanges;
- Charting patterns;
- Fractional shares;
- Copy-trading and Smart Portfolios.
Highly Rated Stock Trading & Investing Platform
-
Invest in 2,800+ stocks and other assets including 70+ cryptocurrencies and commodities.
-
0% commission on buying stocks - buy in bulk or just a fraction from as little as $10. Other fees apply. For more information, visit etoro.com/trading/fees.
-
Copy top-performing traders in real time, automatically.
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eToro USA is registered with FINRA for securities trading.
Step 2: Analyze the market to find stocks
Investing in DeFi can be a fruitful venture. However, it comes with inherent challenges. For one, DeFi is relatively new and therefore volatile, and there are risks associated with regulatory uncertainties and the limited track record of many projects that promise a lot but likely cannot deliver it.
Moreover, the complexity of some DeFi platforms and the potential for market manipulation and scams only make things more difficult to manage. Therefore, investors must carefully assess their risk tolerance, do their own thorough research, and always stay informed if they wish to navigate the evolving and dynamic nature of the DeFi market effectively.
Some of the best DeFi stocks to watch for in 2024 include:
1. Coinbase (COIN)
Coinbase is one of the largest cryptocurrency exchanges, with around 100 million verified users from more than 100 countries and an annualized cryptocurrency trading volume in the trillion ballpark.
While originally not a DeFi platform in the strictest sense, Coinbase allows retail and institutional users to access various DeFi assets and protocols. Namely, the company has taken steps toward integrating DeFi services within its platform, allowing users to access Web3 dApps with Coinbase, enhancing user experience for those delving into decentralized finance.
The key advantage for Coinbase from the perspective of a DeFi investor, though, is its popularity. That is, the exchange is positioned to benefit from all leading tokens as its vast user base is bound to trade them on the Coinbase platform.
Coinbase stock price today
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2. Block (SQ)
Block is a fintech company that has shown a lot of interest in incorporating additional DeFi features within its platforms. Namely, its Cash App enables users to swiftly buy and sell Bitcoin, and it maintains an open-developer platform for blockchain and DeFi applications called TBD.
Block stock price today
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3. Nvidia (NVDA)
Nvidia is a prominent graphics processing unit (GPU) producer. GPUs play a pivotal role in cryptocurrency mining, allowing transactions to be processed on the blockchain and letting miners earn new digital coins as a reward. As the DeFi sector expands, the demand for coin mining is sure to rise, amplifying the necessity for high-performance GPUs.
Nvidia also enjoys a steady presence in other industries, particularly in artificial intelligence and gaming, both of which are highly profitable.
Nvidia stock price today
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Step 3: Place an order
Once you have made your account and decided what stocks you wish to invest in, you can place an order and shares to your portfolio. To do that, you can:
- Log into your brokerage account;
- Search for DeFi stocks you wish to buy;
- Specify the order type: market order to buy shares at their current price or limit order to set a price at which you wish to buy shares later;
- Enter the number of shares or specify the dollar amount you wish to invest;
- Review your order one more time;
- Confirm and execute the order.
Step 4: Monitor your investment
Investing in DeFi companies requires continuous vigilance and proactive portfolio management because the DeFi sphere is constantly changing. In other words, investors should actively track the industry and its ever-changing trends to understand the intricacies that influence it.
That entails staying ahead of market developments, financial news, and the financial performance of the companies you are investing in. Staying knowledgable ensures you can make informed decisions and respond effectively to changes within the industry.
Pros and cons of investing in DeFi
Pros
- Decentralization: DeFi operates on the blockchain, which promotes decentralization and removes the need for traditional intermediaries;
- New tech: DeFi seeks to transform financial services and offer users new ways to lend, borrow, trade, and manage their money. For some investors, investing in new technology can bring a sense of satisfaction;
- Some DeFi companies are highly profitable: Platforms such as Coinbase and companies such as Nvidia see large revenues.
Cons
- Volatility: Crypto projects are known for high volatility, which can lead to rapid price fluctuations;
- Regulatory challenges: The regulatory framework is still evolving, as DeFi is relatively new;
- Scams and similar issues: Many DeFi companies are still young, so they lack a solid track record. Moreover, crypto attracts a large number of scammers.
Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.
FAQs about how to invest in DeFi stocks
What are DeFi stocks?
DeFi stocks are shares in companies involved in the decentralized finance sector. These companies leverage blockchain technology to provide traditional financial services, such as lending and borrowing, without having to rely on traditional intermediaries, such as banks.
Where to buy DeFi stocks?
DeFi stocks are available on major online brokerage platforms, such as eToro.
How to invest in DeFi stocks?
To invest in DeFi stocks, you can open a trading account with an online stock brokerage, such as eToro.
What are the best DeFi stocks to buy?
Some of the best DeFi stocks to buy in 2024 include Coinbase (NASDAQ: COIN), Block (NYSE: SQ), and Nvidia (NASDAQ: NVDA).
Are DeFi stocks risky?
Yes, DeFi stocks carry risks. The sector is young and volatile, there are regulatory uncertainties, and cryptocurrencies attract a lot of hackers, all of which can affect DeFi companies and their performance.
Highly Rated Stock Trading & Investing Platform
-
Invest in 2,800+ stocks and other assets including 70+ cryptocurrencies and commodities.
-
0% commission on buying stocks - buy in bulk or just a fraction from as little as $10. Other fees apply. For more information, visit etoro.com/trading/fees.
-
Copy top-performing traders in real time, automatically.
-
eToro USA is registered with FINRA for securities trading.
