Since the collapse of large crypto projects like FTX and BlockFi, investors have been cautious about parking their funds with centralized exchanges, which, some believe, are susceptible to collapse in ways that might leave their customers empty-handed.
To access services like staking rewards, centralized exchanges often require customers to “lock up” their tokens in accounts that can’t be accessed for a period of time, or might be used by an exchange for other purposes. So when panic strikes or there’s a bank run, as in the case of FTX, customer funds can be lost altogether. With the collapse of these firms, investors learned that when their funds are delegated to a third party, it no longer fully belongs to them. As the expression goes, “not your keys, not your crypto.”
But with the use of smart contracts, that doesn’t need to be the case. With customer safety in mind, a new crop of DeFi protocols has risen to provide customers with the ability to earn rewards from staking and yield farming – without those tokens ever leaving their wallet. With smart contracts, there’s no lock up period on invested funds, transactions are fully anonymous and customers can withdraw at any time. In other words, investors can get the benefits of DeFi, without the risk of trusting centralized firms.
Launched in 2023, this is the model currently offered by DeFi protocol YieldFlow. In the words of Peter David, “it’s simply a better way of HODLing your cryptos.”
A better model for staking
When the Ethereum network launched its Beacon Chain in December 2020 and began testing the requirements of shifting to a proof-of-stake consensus system, a new way of earning money from crypto holdings was brought into the world: staking. Staking is a process which allows cryptocurrency holders to earn a yield on their tokens by helping to validate transactions on the blockchain – in other words, to check that the ledger adds up.
In proof-of-stake blockchains, this process of “checking” is done by coin holders, known as “validators” or “stakers.” These actors lock up their cryptocurrencies for a period of time, and in exchange, they receive the chance to propose new blocks and earn rewards. The idea is that, by locking up their tokens, validators have “skin in the game,” which ensures that they will act honestly and for the good of the network. After all, if a blockchain was corrupted through malicious activity, its native token would likely plummet in price, and the perpetrator(s) would stand to lose significantly.
But a stake doesn’t have to be exclusively composed of one person’s coins. Often, validators raise funds from a group of token holders through a vehicle called a “staking pool.” By delegating their funds to such a pool, coin holders can lower the barrier to entry for accessing these types of rewards. For example, on Ethereum, by delegating funds to a third-party validator, the minimum required “staking” amount is reduced from 32 ETH (or around $60,000) to as little as $1.
Until recently, most investors have accessed staking pools through centralized exchanges. Companies like FTX made it simple for users to delegate their coins and earn a passive yield. However, delegating coins to a centralized exchange comes with considerable risk. In 2022, billions of dollars were lost by coin holders who trusted centralized exchanges – only to discover that, once delegated, these coins could be used for other purposes. Under pressure, these funds were lost with the firms themselves.
But investors don’t actually need centralized exchanges to access staking pools. Technically, anyone with access to the right smart contracts can join them. Most investors have shied away from this approach because it’s been technically demanding, requiring knowledge of blockchains and smart contract functionality. But with improvements in user interface and customer experience, there is another way.
Yieldflow acts as a connector between investors and staking pools, making it simple to earn a yield – without those funds ever leaving a user's wallet. With its easy-to-use interface, investors can access the technical side of blockchain networks without the hassle of coding or development knowledge. All the smart contracts used on the platform are listed in the firm’s whitepaper, which provides users clear vision into what’s going on beneath the surface.
Also unlike centralized projects, YieldFlow never stores user’s assets. By connecting their wallet to the Yieldflow interface, users can easily access the benefits of decentralized financial systems – like anonymity, transparency, security and self-custody – without the risk. No KYC is necessary because Yieldflow deals exclusively in crypto rather than fiat currency. Further, because Yieldflow does not take withdrawal or deposit fees, users can transact as frequently as they like (unlike other platforms that limit the number of transactions by charging customers high fees).
Hand-selected investment options
Of course, staking isn’t the only way to earn passive income in DeFi. Users can also put their crypto to work in other ways, including “liquidity mining” and lending. Similar to staking, liquidity mining involves earning a reward, or yield, for providing liquidity to a network. Users can also earn money by lending their funds to other users and earning interest while the loan is being executed. All loans are over-collateralized, meaning that in DeFi, more money is placed upfront as collateral than the value of the loan itself. By using smart contracts, users can trust that their funds are being used securely.
Yieldflow not only provides users with access to these opportunities, but also curates the available options to ensure the highest quality. Using advanced analytics, Yieldflow monitors the existing DeFi landscape and provides its users with the best ways to earn income passively on crypto. Yieldflow regularly adds new products and coins to the platform, including, most recently, the Pepe-ETH liquidity pool.
As a simple smart contract “forwarding system,” there are no “lock periods” on withdrawals and no fees for withdrawals or deposits. Users can access the best of DeFi without the risk of impairment loss from relying on a centralized exchange. As David said: “The issue of working with centralized exchanges is not that it's a blockchain-based service. It’s the centralized link to them.”