The world of decentralized finance (DeFi) offers exciting opportunities for investors of all levels. However, effectively tracking your investments is critical to maximizing your chances of success in this dynamic environment. In this article, we will provide you with a detailed guide on how to effectively make an investment and track it.
Research before investing
Before investing in any DeFi project, it is important that you thoroughly research the project and its team. Make sure the project has a solid use case and that the team has experience in the field.
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- Robust use case: A strong use case is a clear and detailed description of how the DeFi project will be used. Make sure the project has a strong use case and is supported by an active and engaged community.
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- Team experience: The team behind the DeFi project should have experience in the field. Research the team's background and make sure they have experience in finance, technology and cryptocurrencies.
Establish Clear Objectives
When defining your objectives, consider specific details, such as:
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- Expected Return: Determine a realistic percentage return you want to achieve. For example, if you want a 20% annual return, you can evaluate whether your investment is meeting this objective.
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- Time horizon: Decide how long you plan to hold your investment before reviewing and adjusting your objectives. This can be short term (months) or long term (years).
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- Risk Tolerance: Assess how much risk you are willing to take. If you are conservative, you may want to focus on more established and less volatile DeFi projects.
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- Diversification: Define how much of your portfolio you will allocate to DeFi investments and how much you will keep in more traditional assets, such as stocks and bonds.
Token Performance
To analyze token performance, consider the following:
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- Price History: Examine the token's price history to identify long-term trends and patterns of behavior. This will help you determine if current performance is atypical or consistent with the past.
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- Comparisons: Compare the performance of your token against other similar assets on DeFi. This will allow you to assess whether your investment is outperforming or lagging behind the competition.
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- Project Basics: Thoroughly investigate the project behind the token. Examine its roadmap, development team, adoption and use cases. A solid project is more likely to maintain good long-term performance.
Diversify your portfolio
As with any investment, it is important to diversify your DeFi portfolio. Investing in several DeFi projects can help reduce the risk of total investment loss.
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- Invest in different DeFi categories: Diversify your portfolio by investing in different DeFi categories, such as loans, exchanges and governance tokens. This will help you reduce the risk of total investment loss.
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- Invest in different projects: Invest in different DeFi projects to reduce the risk of total investment loss. Make sure the projects you invest in have a solid use case and are backed by an experienced team.
Impermanent Loss
If you have invested in a liquidity pool in a decentralized exchange protocol (DEX), such as Uniswap, you should be aware of the concept of impermanent loss. In our article What is impermanent loss? you can find more information.
Fees and Associated Costs
When calculating your net profit, take into account the following costs:
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- Transaction Fees: Transactions on DeFi often involve network fees. These fees may vary depending on network congestion and the protocol used.
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- Gas Costs: If you are operating on networks like Ethereum, you need to consider gas costs. These can fluctuate widely and will affect your profit margins.
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- Swapping Fees: When you perform swaps or exchanges on DeFi platforms, fees may apply. These fees vary depending on the protocol and available liquidity.
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- Platform Fees: If you use centralized exchanges to purchase DeFi tokens, be aware of trading and withdrawal fees that may apply.
It is important to subtract these costs from your total earnings to get an accurate picture of your net profitability.
Relevant news and updates
Keep up to date with updates and news related to the project you have invested in. Subscribe to cryptocurrency news channels and follow the project's social networks and blogs. Updates can have a significant impact on the value and security of your investment.
Stay informed about updates and news related to the project or protocol you have invested in. Follow official social media accounts, subscribe to newsletters or join online communities to receive updates on project developments, new launches or important events. This will help you to be aware of any changes or events that may affect your investment.
Don't miss the opportunity to learn even more about DeFi by reading our other articles like the one on consensus protocols!
