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Guide to DeFi Tokens and Altcoins

Guide to DeFi Tokens and Altcoins

One area in cryptocurrencies attracting huge attention is DeFi or decentralized finance. This refers to financial services purposes using smart contracts, which are automated enforceable agreements that don’t need intermediaries like a bank or lawyer and use online blockchain technology instead.

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Between September 2017 and the time of writing, the total value locked up in DeFi contracts has exploded from US$2.1 million to US$6.9 billion (£1.6 million to £5.3 billion). Since the beginning of August alone it has risen by US$2.9 billion.

What Are Altcoins?

Altcoins are cryptocurrencies other than Bitcoin. They share characteristics with Bitcoin but are also different from them in other ways. For example, some altcoins use a different consensus mechanism to produce blocks or validate transactions. Or, they distinguish themselves from Bitcoin by providing new or additional capabilities, such as smart contracts or low-price volatility.

As of March 2021, there were almost 9,000 cryptocurrencies. According to CoinMarketCap, altcoins accounted for over 40% of the total cryptocurrency market in March 2021. Because they are derived from Bitcoin, altcoin price movements tend to mimic Bitcoin’s trajectory.

However, analysts say the maturity of cryptocurrency investing ecosystems and the developing markets for these coins will make price movements for altcoins independent of Bitcoin’s trading signals.

Coins vs. Tokens

Experts from the 100% secure Change Vivienne establishment, located in the 2nd arrondissement of Paris, believe that there are 3 major differences between a token and a coin, since to the naked eye, these two products appear similar.

This is the first big difference that the experts at Change Vivienne, who specialize in buying and selling gold and silver, want to highlight.

To cite an example: the Maple Leaf silver coin has a face value of $ 5. In theory, therefore, it can be used as a $ 5 bill.

Of course, this is to be avoided as you would get a lot more by selling this coin for its precious metal content.

Also, the new ounce of gold EpargnOr, which has no face value, is considered a token.

The coin has a face value while the token does not

As a reminder, the face value of a coin, generally inscribed on the coin, corresponds to the value given to the coin at the time of its edition.

The token, on the other hand, displays no face value and is a popular product for investors and collectors.

For example, the Epergne gold token, which has neither legal tender nor face value, is a preferred investment product.

The coin and the token do not have the same taxation

One of the advantages of the token lies in its advantageous taxation: it is not subject to the tax on precious metals and the capital gain as can be the investment coins and collector coins.

Categorization of Cryptocurrencies

Well, when talking about cryptocurrencies, bitcoin is quite a popular name that comes to and everyone's mind. But let me tell you that, there are many more currencies that exist even before the bitcoins. But the bitcoins creation has changed the milestone of digital currencies.

Also, the creation of bitcoin precipitated a more diverse ecosystem, and the cryptocurrencies were further categorized into two parts, the coin as well as the token. Well, today we are going to study the Categorization of Cryptocurrencies in detail. So, let's take a further look at the categorization of cryptocurrencies, the coin, and the token.

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The most important factor to know before moving further is that all the coins, as well as the token, comes under cryptocurrencies. Even though, most of the coins are there who are not considered as the medium of exchange as well. So, now let's take a look at the comparison of the coin and the token.

Coin v/s Token

There can be thousands of tokens built on a single blockchain but there can only be a coin of its own. For instance, the most prevalent coin is Ethereum; this can have many of its fork or tokens.

Following are the five most famous crypto coins:-

-> Ethereum
-> Bitcoin
-> NEO
-> Monero
-> Ripple

So, these coins can have many tokens of their own.

Deciding between coins and tokens, you must consider two important aspects - Time & Cost. This should be kept in mind that starting your own blockchain is very much costly and time-consuming, requiring lots of technical expertise and knowledge. Creating a Bitcoin fork also requires technical know-how but it’s comparatively less complicated than starting a coin. Also, I will recommend that if you are still planning to create a crypto coin, you should hire someone who has years of experience in this field for a successful start. You can know more about the coins and tokens on 1k Daily Profit and to access the knowledge base, you need to login here/Register.

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My suggestion to you is to go with the bitcoin fork or blockchain of any of the well-known cryptocurrencies such as Ethereum or NEO if you don’t have technical knowledge.

Make Sure To Effectively Manage Risks When Trading Tokens

In addition to the risks associated with its local activities, a company with international activities must deal with several risks specific to the development of international business such as currency risk, credit risk, risks associated with intellectual property, transport risks, ethical risks, etc. All these risks can hinder the development of activities abroad, but the company has the means to limit the impact on its business.

Risk of change

Currency risk generally concerns receivables and payables for contracts in progress or to be completed soon. As the rate of foreign currencies fluctuates constantly, the company may be forced to convert sums from its international activities on less favorable terms than initially budgeted. It is therefore essential for the company to adopt an exchange rate policy to:

  • stabilize its profit margins on sales
  • mitigate the negative effect of exchange rate fluctuations on supply and sales
  • improve control over its cash flow
  • Facilitate the process of setting prices on national and international markets.

To have an adequate exchange rate policy, the company must diagnose exchange rate risks and their relative importance, list the tools available on the market that allow these risks to be hedged, and carry out a comparative and recurring analysis of the tools and select the most relevant.

Credit risk

Credit or counterparty risk is the risk of loss on a receivable. For a company that is developing its activities internationally, a few protective measures exist.

Full payment on order or open account payment:

The Company seeks to obtain 100% of the funds payable at the time of the order before starting the service. Such an approach makes it possible to finance operations, reduce financial and administrative costs and eliminate the risk of non-payment. It can be difficult to use this method for a new exporter or a company with little negotiating room.

Letter of credit:

This is a conditional payment commitment issued by a financial institution. Using this letter, the institution undertakes to pay a determined amount to the supplier of a product or a service in exchange for the delivery, within a fixed period, of documents proving that the goods have been dispatched or that the service has been rendered.

The letter of credit protects both the seller and the buyer in a transaction. The conditions of sale and a very precise description of the shipment are included. Funds are reserved while the letter is in effect and cannot be used by the buyer.

Intellectual property risks

The risks associated with the intellectual property may be observed by a non-authorized use by a third party of strategic information unique to the company (studies, research results, agreements and contracts, list of clients, trade secrets, etc.), but also by the use of elements having a direct or indirect value in connection with the products or services of the company (patents, designs, brands, know-how, etc.).

Internationally, these risks are obviously increased tenfold because of the difficulty in defending company ownership from a distance in the various aspects mentioned above.

For example, those using Binance Staking enjoy an APY (annual percentage yield) of 8%.

While it is recommended that the company register its corporate name and trademarks before signing, for example, any distribution contract in a given country, it seems complex and expensive to file and seek to defend a patent in certain regions. of the world unwilling to respect intellectual property.

It will then be necessary for the company to continually modify or improve its offer to remain competitive and ahead of its competitors and to limit the impact of counterfeiting or potential copying.

Transport risks

As with local shipments, goods transported internationally are at risk (breakage, loss, theft, vandalism, accident, seizure, contamination, etc.). Before shipping the goods, it is important to give the responsibility for transport to the buyer or seller and to obtain sufficient cover.

The international conditions of sale (Incoterms), drawn up by the International Chamber of Commerce, serve to clearly define the roles and responsibilities of each relative to transport risks. The support offered by a freight forwarder is therefore strongly recommended.

Ethical risks

Maintaining a high level of ethics and behaving like a good citizen, no matter where business activities take place, can be complex. A company carrying out international activities may find itself confronted with situations that call into question its values.

It must redouble its vigilance because customs and traditions and human realities are not the same in all countries.

It is therefore important to ensure that foreign partners and suppliers follow the ethical rules and moral values ​​of the company and behave as such in their different areas of activity.

You can count on Desjardins' expertise to do international business, to maintain healthy relationships with your customers and your foreign suppliers, and manage the risks associated with your activities

DeFi Crypto Tax Guide Lending, Liquidity Pools, Yield Farming, and Loans Tax

DeFi?

DeFi stands for decentralized finance. One of the biggest problems in the centralized financial system we have today is the involvement of intermediaries and the high cost and inefficiencies associated with processing transactions. For example, to process a mortgage, a bank would charge many different fees and take weeks to process the transaction!

Lending

In the case of lending, a user locks an asset in a DeFi protocol in exchange for a protocol token that represents their locked position. Examples of protocols that support these types of tokens are: Compound (tokens), yearn. Finance (tokens), and A Lending, Liquidity Pools, Yield Farming, and Loans Taxes (a Token).

Example

Bruce locks 1 ether (ETH) which he purchased a few years ago for $20 in a DeFi protocol. At the time of the deposit, 1 ETH is worth $100. Bruce receives 50 meths, a protocol token, representing his contribution to the liquidity pool. Meth is tradable at other exchanges and is worth $1 per coin.

Liquidity pools

A liquidity pool is a smart contract where crypto users’ funds are grouped to provide liquidity for the market as a whole. Crypto holders who provide cryptocurrency tokens into liquidity pools are called Liquidity Providers (LPs).

So why provide your hard-earned cryptocurrency tokens into a liquidity pool? Because LPs are rewarded with interest for locking in their tokens. Liquidity pools are used in various DeFi applications ranging from lending/borrowing platforms to cryptocurrency exchanges.

Yield farming

Recently, a new phenomenon known as yield farming has exploded in popularity. Yield farming is essentially a process to maximize returns by putting your cryptocurrency assets to work.

For example, users can deposit their crypto assets in a DeFi protocol like Compound and earn reward tokens (similar to interest), which are lent out to other DeFi platforms to earn more rewards. The goal of yield farming is to deposit some initial capital and use leverage and arbitrage strategies to maximize interest earned.

Loans Tax

Personal loans can be made by a bank, an employer, or through peer-to-peer lending networks, and because they must be repaid, they are not taxable income. If a personal loan is forgiven, however, it becomes taxable as cancellation of debt (COD) income, and a borrower will receive a 1099-C tax form for filing. crypto exchange

Ether to a wallet you control

MyEtherWallet is a decentralized online platform for generating and managing ethereal wallets. It is entirely intended for ETH, ETC, and ERC20 tokens.

This free Ethereum wallet allows you to interact directly with the Ethereum blockchain while keeping control of your private keys and funds. In addition, unlike exchanges, MyEtherWallet does not ask for any personal information when creating the ETH wallet and there are no account management fees.

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Owning an Ethereum wallet on MyEtherWallet will also allow you to participate in ICOs and cryptocurrency airdrops based on the Ethereum blockchain.

The MyEtherWallet hot wallet offers additional security by not storing private keys with a third party, unlike exchange platforms. Thus, you will have to take precautions so as not to divulge your private key.

It is a popular choice for Ethereum cryptocurrency holders who value an easy-to-use online interface without sacrificing security. This is because MyEtherWallet is a web wallet with a unique approach to security, as it allows you to control your private keys by storing them on your device, not on an online server.

Once you have your ICO tokens

The capital market is transforming and offers previously unthinkable possibilities. These are aimed at (almost) all types of businesses and investors. As long as you know what you are doing and are aware of the very real risks, as shown by the excesses of 2018. Zoom in on an area where Switzerland is a pioneer and has a great card to play.

Do you run a business that needs financing to grow? Do you have some funds aside and want to invest like a venture capitalist by betting on a young company whose technology seems promising to you, but by putting only a modest sum? Good news: solutions have emerged that allow real democratization of the capital market, both for companies and average savers.

Enough to boost the economic fabric and Swiss innovation! These solutions are called Initial Coin Offering (ICO), Security Token Offering (STO), and asset tokenization. These three approaches have a common basis: they are based on the blockchain, which makes possible the transfers of digital assets without going through intermediaries.

You may be able to put your Ethereum to work and earn up to 6% APR.

Let's say it straight away: since the ideal world does not exist, these solutions also come with unknowns and risks. The world of ICOs has also experienced setbacks after the period of euphoria of late 2017-early 2018, which cleaned up the market and now requires companies to present more solid offers. But what are we talking about exactly? Zoom on the question in fifteen points.

How to store them

Register for an ICO through the project’s website

Every legitimate project that sources funds through an ICO has a website, where they specify what the project is all about, its goals, the amount of money needed, how long the funding campaign will go on, and so forth. This website is where you can register for the ICO.

Beware of ICO campaigns that don’t require any registration whatsoever. Of course, there is still a chance that it is a fully legitimate operation, but as of late most trusted and high-profile ICOs require investors to register.

Get Bitcoin or Ether

Yes, you will need one of the two major cryptocurrencies in your possession to be able to participate in an ICO. Check out our dedicated guides on buying Bitcoin and Ether.

Bitcoin, still being the single most dominant cryptocurrency, is accepted pretty much anywhere in the crypto world. However, as Ethereum offers a stable and convenient Blockchain platform for developers to set up their projects, it became a platform of choice for ICOs. So, Ether, being the native token of the Ethereum platform, is widely used for purchasing tokens during ICOs.

The minimal amount that you can invest

Depends on a particular ICO. It can be anywhere between $10 to $100, and 0.02 ETH to 1 ETH. The minimal investment amount is usually stated in the project’s white paper, which can be found on its website.

Move your Bitcoins or Ether to a wallet you control

We have said this countless times already: refrain from keeping your cryptocurrency in a wallet provided to you by an exchange. It jeopardizes the security of your funds, as you are essentially not in control of that wallet.

The rise of smart contracts and new DeFi products have continued to weaken Bitcoin's cryptocurrency market cap dominance, which currently sits around 60% compared to its 2017 highs above 85%.

Instead, move your tokens to a software wallet that keeps your passwords on the device of your choice. Alternatively, you can invest in a hardware wallet for added security. You can read more about Bitcoin and Ethereum wallets in our dedicated guides.

Buy ICO tokens

Once you’re registered for an ICO and have your funds available and ready, all you need to do is send your cryptocurrency to the campaign’s address.

Participate in an ICO by sending your crypto to their address

The primary goal of every single ICO campaign out there is to get your money. For that reason, they do try to make the process as trivial as possible. Most of the time, the project’s website will provide you with thorough guidelines on how to invest.

But, you have to be extremely careful when sending your funds.

First of all, check the website’s address as many times as you feel is necessary.

There might be fake ICO Websites listed as ads on top of your Google search results. Those will look identical to actual websites, with one or two symbols of the address being slightly different.