[TP Academy⑥] Claiming to offer 10 times the interest of banks? The bright and dark sides of 'Decentralized Finance'

For investors shaken by the noise in the cryptocurrency market, ‘TokenPost Academy’ with 8 years of live experience will provide genuine investment standards. We invite you to embark on a seven-stage master class journey that replaces “intuition” with “data,” “luck” with “strength,” and challenges the top 1%. [Editor’s Note]

“Bitcoin, isn’t just losing money if you leave it in your wallet?”

That’s right. Warren Buffett once said, “If you can’t find a way to make money while you sleep, you’ll work until you die.” Although the cryptocurrency market has no banks or staff, there exists an innovative system that allows me to act as a bank president and earn interest. That is ‘DeFi (Decentralized Finance).’

But there’s no such thing as a free lunch. High interest rates hide deadly traps that erode principal. Before becoming a DeFi farmer, these survival rules must be made public.

◆ Becoming an Exchange Owner: Liquidity Provision and Yield Farming

The core of DeFi is ‘liquidity provision.’ Decentralized exchanges like Uniswap have no owners. Instead, anyone can deposit their tokens into the exchange’s liquidity pools and earn transaction fees paid by traders as rewards.

On top of that, project teams often give reward tokens, which is called ‘yield farming.’ Doing it well can even yield annualized returns of 20%, 50% or more. But there are reasons why you shouldn’t invest blindly.

◆ The Trap of High Returns — ‘Impermanent Loss’

“Because the interest was high, I invested, but later I saw my principal had decreased.”

The culprit is ‘impermanent loss.’ Liquidity provision requires maintaining a 50:50 ratio of two tokens. If the token prices surge or plummet, the algorithm performs a forced rebalancing by ‘selling the rising token and buying the falling one.’

Ultimately, the more the token price rises, the greater the loss compared to simply holding. If the interest income isn’t enough to cover this loss, the yield farming will be unprofitable.

◆ The Fear of Collateral Loans — ‘Liquidation’

In DeFi, you can borrow against tokens without a credit rating. But due to high volatility, it requires much stricter ‘over-collateralization’ than banks. For example, to borrow 1 million Korean won, you need to collateralize assets worth 1.5 million won.

What if the collateral value drops? The system will mercilessly sell your collateral at market price. This is ‘liquidation.’ Borrowing to invest during a downtrend often leads to the tragic loss of all assets, mostly due to this.

◆ “Know how much, earn how much; if you don’t know, you’ll be harvested”

DeFi offers financial freedom, but with significant responsibility.

Stablecoin Farming: Use price-stable tokens to avoid impermanent loss while safely pursuing 5~10% annualized returns.

Manage LTV: When borrowing, keep the collateral ratio below 50% to prevent liquidation.

For those who find bank interest unsatisfactory but fear losing their principal. Understanding DeFi’s structure and learning to control risks is the path to becoming a smart ‘financial farmer.’

👉 [Practical DeFi] From connecting your wallet to yield farming and liquidation prevention calculations. The most reliable technique to increase your tokens is all in TokenPost Academy’s ‘Stage 5: The DeFi User.’

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