DeFi: how to make money on decentralized tokens

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In a traditional financial system, users strongly rely on banks, insurance companies, credit organizations and other intermediaries. In recent years, the DeFi ecosystem that features a set of financial instruments based on the blockchain technology with an open source code is rapidly gaining popularity in various countries. Decentralized finance system is used as an alternative to the banking sector – any participant of DeFi projects can perform financial transactions without restrictions with other users directly, without intermediaries. This kind of approach allows you to not only freely dispose of finance, but also opens new opportunities for crediting and investing in cryptocurrency assets.

This article reviews how the DeFi system works, discusses its potential and the ways to earn a profit on decentralized tokens.

What is DeFi?

DeFi is an independent financial ecosystem that is a set of financial instruments in the format of blockchain-based services and apps. The main task of the decentralized finance sector is to replace the generally accepted technologies of the existing financial system with open source instruments. As the popularity of the DeFi ecosystem grows, an increasing number of users around the world are gaining access to beneficial loans, an ability to quickly perform financial transactions and earn a profit from trading digital assets. This is a promising solution for residents of developing countries and states, who have limited access to banking and credit services. DeFi system currently provides the full range of financial transactions:

Receiving and granting loans.
Registering deposits.
Performing money transfers.
Performing trading transactions.
Managing financial assets through p2p and dApps, etc.

As of 2025, decentralized finance (DeFi) protocols collectively held more than $160 billion in total value locked (TVL), making DeFi one of the largest segments of the cryptocurrency ecosystem.

DeFi project ecosystem

As the digital technologies develop, the DeFi ecosystem is rapidly gaining popularity, as it is the most convenient for making peer-to-peer transactions. Decentralized platforms use secure protocols of smart contracts with an open source, operating on the blockchain. Any user of the network can use them to receive loans, acquire digital assets, earn money on holding and distributing cryptocurrencies, perform money transfers all around the world within any lines and paper red tape.

The decentralized finance ecosystem is developing in several areas:

Decentralized exchanges

Decentralized exchanges (DEX) – clients of these platforms can buy or sell tokens for real money or digital assets without depositing funds on the exchange’s account. These include Uniswap and Kyber.

Insurance services

Insurance services – their users hold funds in smart contracts and can conclude asset insurance agreements. Examples of the services are Opyn and Nexus Mutual.

Lending-deposit platforms

Lending-deposit platforms provide services of issuing loans and making savings deposits directly between users, without the involvement of intermediaries. The most popular platforms are MakerDAO and Compound.

DeFi wallets

DeFi wallets are decentralized wallets that allow you to safely hold, accumulate and dispose of digital assets. The most popular platforms include InstaDApp and Melon. If you are interested in How to choose the best DeFi wallet, read the Traders Union article.

P2P Services

P2p services allow users to exchange cryptocurrencies without intermediaries.

Derivatives

On the UMA Synthetix platforms, users can earn on trading digital asset derivatives (futures, forwards, options, etc.).

Decentralized oracles

These are the platforms for earning a profit on forecasts – Augur and Syntex services offer a feature of making a forecast of the result of a certain event. If your forecast is correct, you get a reward.

The decentralized finance industry is rapidly gaining momentum, with new areas for development constantly emerging in it. Experts predict the emergence of new services in the area of DeFi and an increase in turnover in existing projects in the coming years.

Examples of DeFi projects

The number of DeFi projects in the world is already in the hundreds. Some of them have already made significant progress. Let's take a closer look at some examples of successful projects.

MakerDao

MakerDao is the most popular DeFi project. It was launched in 2017. The platform currently accounts for over a half of locked Ethereum tokens. The platform has a wide functionality, although the Collateralized Debt Position (CDP) option based on smart contracts enjoys particular popularity among users. The position is created by locking collateral (a specific number of ETH) in MakerDAO's smart contract to generate its decentralized stablecoin, DAI. A participant essentially takes out a loan on the MakerDao platform secured by collateral in liquid cryptocurrency. The funds received can be used by clients for their own purposes, creating an alternative to expensive bank loans.

Chainlink

The existence of many decentralized projects is impossible without the oracles. It is necessary for the interaction with different kinds of information. Chainlink platform is currently the leader in this area. It provides a decentralized set of data through the system of oracles and smart contracts. Since 2019, Chainlink has opened over 75 price channels for 300 smart contracts. The platform has a native token named LINK token, which is used internally by the platform to provide grants to crypto initiatives, which the ecosystem considers useful for itself and also for the transactions inside the system.

Avalanche

Avalanche is a smart contracts platform developed for launching decentralized applications. It is focused on finance – apps, assets for the industry, etc. Avalanche is built on a virtual Ethereum machine; it allows segmentation for certain apps. The platform has also gained popularity for supporting programmability of services at the network level and NFT support. Avalanche’s native token, AVAX, operates on a Proof-of-Stake consensus mechanism. Thanks to this, staking is supported. An important feature of the token and the system as a whole is the high speed of transactions, where they are validated in less than a second.

Uniswap

Uniswap is the largest Ethereum-based decentralized cryptocurrency exchange. The platform was established in 2017. The trading protocol at Uniswap operates as an automatic market maker. It automatically determines the price of cryptocurrency based on the ratio of 2 digital currencies in the pool. The important feature is that you can exchange even the tokens of the liquidity provider at Uniswap. If a token is not available at Uniswap directly, but the liquidity provider has it, it will be available for exchange. Users can create new liquidity pools. The platform has its own governance token Uniswap (UNI). It is used for internal transactions inside the platform.

Synthetix

Synthetix is one of the most actively growing companies in the decentralized finance sector. This protocol provides asset insurance. It is Ethereum-based. Synthetix allows you to develop synthetic presentations of real assets in the form of tokens. These tokens are pegged to the price of the asset they are based on. The assets support pegging thanks to the absence of arbitration. In addition, open market liquidity is available on Synthetix for synthetic assets on other DeFi exchanges. The platform uses a native token called SNX.

Discover what SocialFi is and how it merges social media with decentralized finance.

DeFi benefits

The DeFi ecosystem makes asset management easier for ordinary users and opens new investment opportunities. Let’s review the key benefits of decentralized services:

Self-management and minimal impact of the human factor. The DeFi system does not provide for a centralized management structure – the sequence and rules for performing business transactions are laid out in a smart contract. Once the protocol is launched, the application begins to function independently, with minimal human involvement.
Transparency. The decentralized finance system uses open source protocols. This feature allows users to audit and identify possible bugs, and also use the protocols to integrate with other services. All transactions of the platforms are public; the majority of the platforms do not require verification;
Availability. All DeFi systems are available 24/7 to any Internet user. You don’t need to visit a bank, stand in line or fill out paper forms in order to manage finance.
Ability to independently create apps. Thanks to the open source code, the apps on smart contracts can be combined and new products can be built on their basis – DEF exchanges, stablecoins, prediction services, etc.

DeFi drawbacks

However, DeFi also has certain drawbacks, which need to be considered when investing in such projects. The key drawbacks include the following:

High volatility. The volatility factor creates significant liquidity, but also credit risks. If the price of the underlying assets locked in the CDP drops, then mass liquidation of assets is possible. Ultimately, this can lead to the collapse of the entire system. DeFi systems combat these risks by backing loans with an excess amount of assets.
Hacks of smart contracts. There is a technical possibility of interfering with the operation of smart contracts. Due to this, a smart contract may not be executed even if all the necessary conditions are met.
Centralized data flow. Decentralized protocols receive information about the outside world using oracles. However, if the operation of an oracle is changed or is focused only on specific news, the operation of a smart contract may be at risk. This risk can be mitigated by the development of decentralized oracles. The work is already under way.
Shortage of capital in DeFi. The key issue with loans is that there are not enough funds for lending in this sector yet. The loans can be obtained under an appropriate collateral, and while they are small.

DeFi is a relatively new technology; therefore, it will take certain time to remove the key drawbacks, although the work in this direction is already active and the biggest drawbacks may be removed quite soon.

How to invest in DeFi tokens?

There are two ways to invest in DeFi: buying tokens using the “buy-and-hold” strategy and “yield farming”. The first method is the same as for a number of other investment assets. You buy decentralized tokens expecting their value to increase in the future. If the price increases, the investor earns a profit.

Yield farming is an alternative way of earning income. It is a special mechanism that involves receiving native tokens for interacting with DeFi protocols. An investor can receive tokens by providing liquidity to decentralized exchanges, get loans and rewards for them in the form of DeFi tokens, participate in different surveys to improve the ecosystem, etc. A trader gets a reward for performance of certain actions provided by the system. It is also important to know how to choose the tokens to invest in. When making a choice, take notice of the following indicators:

Total Value Locked (TVL) is the amount of funds locked in smart contracts. The higher the total value locked, the more actively the users interact with the platform, which has a direct impact on the prospects of the project.
Market capitalization is the total value of assets calculated on the basis of current market prices. Capitalization increases as the quotes at the exchanges grow.
Interest rates in DeFi protocols. In DeFi, the interest rates are calculated separately for each asset. The logical decision would be to invest in a digital asset that offers a higher rate.
The number of issued tokens and model of operation. The model can be inflationary (without emission limits) or deflationary (with strictly limited emission). Bitcoin is an example of a deflationary cryptocurrency – there cannot be more than 21 million crypto coins. However, there are many projects without limits, and the more coins that hit the market, the lower their price.

The best decision would be to distribute the investment budget among several types of tokens, as it will help diversify the risks.

Where to buy DeFi tokens

DeFi tokens are available on both centralized and decentralized cryptocurrency exchanges. For most investors, centralized exchanges offer the easiest entry point thanks to their user-friendly interfaces, fiat payment options, and access to hundreds of digital assets. When choosing an exchange, it's worth comparing factors such as supported cryptocurrencies, trading fees, security features, minimum deposit requirements, and additional tools like copy trading or trading signals.

The table below compares some of the best crypto exchanges for buying DeFi tokens, helping you choose a platform that best matches your investment goals and trading preferences.

Best crypto exchanges
	Coinbase	OKX	BTCC	Cryptohopper	Crypto.com
Min. Deposit, $	10	10	10		1
Coins Supported	400+	600+	399	1000	400+
Spot Taker fee, %	0.5	0.1	0.3	0	0.5
Spot Maker Fee, %	0.5	0.08	0.2	0	0.25
Alerts
Copy trading
TU overall score	8.5	8.46	8.08	7.8	7.76
Open an account	Go to broker Your capital is at risk.	Go to broker Your capital is at risk.	Go to broker Your capital is at risk.	Go to broker Your capital is at risk.	Go to broker Your capital is at risk.

Invest in the protocol, not just the token

Successful DeFi investing requires looking beyond short-term price movements. Before buying a DeFi token, evaluate the project's fundamentals, including its total value locked (TVL), user adoption, security audits, tokenomics, and long-term development activity. These indicators often provide a better picture of a protocol's sustainability than market hype alone.

Diversification is equally important. Rather than concentrating your portfolio in a single project, consider spreading investments across different DeFi sectors, such as decentralized exchanges, lending protocols, and liquid staking. This can help reduce project-specific risks while maintaining exposure to the continued growth of decentralized finance.

Conclusion

DeFi is fundamentally transforming the way individuals access and manage financial services by offering open, transparent, and peer-to-peer alternatives to traditional banks and intermediaries. As platforms like MakerDAO and Uniswap demonstrate, users can now earn, lend, trade, and manage digital assets with unprecedented autonomy and flexibility. While DeFi brings undeniable benefits such as accessibility and self-management, potential investors must remain mindful of inherent risks like volatility and smart contract vulnerabilities. Ultimately, the most successful DeFi strategies hinge on understanding both the underlying protocols and market trends, and diversifying investments across different sectors to capture the dynamic growth of decentralized finance. As the ecosystem matures, those who combine strategic insight with careful risk management will be best positioned to profit from DeFi's rapidly evolving landscape.

FAQs

What are the main risks associated with investing in DeFi tokens?

The main risks when investing in DeFi tokens include high volatility, which can lead to sudden asset devaluation, technical vulnerabilities in smart contracts that may be exploited by hackers, risks related to centralized data flow through oracles, and the potential shortage of capital available for lending. Investors should consider these factors and perform due diligence before allocating funds.

How does yield farming work in the context of DeFi, and what should beginners know?

Yield farming in DeFi involves providing liquidity or participating in specific protocol activities to earn native tokens as rewards. Investors can supply assets to decentralized exchanges or lending platforms and, in return, receive incentive tokens. Beginners should understand that yields can fluctuate, risks are present, and it’s important to research the platform's security and tokenomics before participating.

Which criteria are important when choosing DeFi tokens for investment?

Key criteria for evaluating DeFi tokens include the platform's total value locked (TVL), market capitalization, interest rates offered, number of tokens issued, and whether the token model is inflationary or deflationary. Assessing these indicators helps investors understand a project's adoption, profitability, and risk profile.

How does diversification benefit a DeFi investment strategy?

Diversification in DeFi investing helps reduce exposure to risks associated with individual projects by spreading investments across different sectors, such as decentralized exchanges, lending protocols, and staking services. This approach can provide more stable returns and safeguard against the failure or volatility of any single protocol.

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Team that worked on the article

Andrey Mastykin is an experienced author, editor, and content strategist who has been with Traders Union since 2020. As an editor, he is meticulous about fact-checking and ensuring the accuracy of all information published on the Traders Union platform.

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Olga Shendetskaya has been a part of the Traders Union team as an author, editor and proofreader since 2017. Since 2020, Shendetskaya has been the assistant chief editor of the website of Traders Union, an international association of traders.

Yield

Yield refers to the earnings or income derived from an investment. It mirrors the returns generated by owning assets such as stocks, bonds, or other financial instruments.

Volatility

Volatility refers to the degree of variation or fluctuation in the price or value of a financial asset, such as stocks, bonds, or cryptocurrencies, over a period of time. Higher volatility indicates that an asset's price is experiencing more significant and rapid price swings, while lower volatility suggests relatively stable and gradual price movements.

CFD

CFD is a contract between an investor/trader and seller that demonstrates that the trader will need to pay the price difference between the current value of the asset and its value at the time of contract to the seller.

Futures contract

A futures contract is a standardized financial agreement between two parties to buy or sell an underlying asset, such as a commodity, currency, or financial instrument, at a predetermined price on a specified future date. Futures contracts are commonly used in financial markets to hedge against price fluctuations, speculate on future price movements, or gain exposure to various assets.

Copy trading

Copy trading is an investing tactic where traders replicate the trading strategies of more experienced traders, automatically mirroring their trades in their own accounts to potentially achieve similar results.

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