Crypto Prices & Staking Yields
April 2024

Are All Cryptocurrencies Fully Decentralised?

Decentralisation of cryptocurrencies is not absolute, but instead encompasses a range of decentralisation levels. There is much debate in the crypto community about what true decentralisation means.

Some cryptos such as Bitcoin are highly decentralised. They have no active CEO, no headquarters, no controlling company and are operated by a network of thousands of separate computers. These computers check all the transactions that are taking place on the network and record them in a public ledger known as a blockchain.

Many other cryptos are centralised to some extent. Most still run on a public blockchain that is controlled by thousands of independent computers, however the cryptocurrency may still be centralised to some extent as there may be a founding company or individual that has a controlling quantity of the cryptocurrency, or is able to influence the direction the crypto takes or the quantity of currency in circulation.

What is Decentralised Finance?

Many of the products offered in traditional finance on fiat currencies (e.g. US Dollars, Euro etc.) are now being replicated for cryptocurrencies. This includes products such as crypto staking accounts and loans.

The majority of the platforms offering these types of products are centralised in the sense that they are traditional companies with a physical office, management team, investors etc. However they would still be considered DeFi platforms as they are operating with decentralised currencies.

Some platforms are fully decentralised and these can be known as Decentralised Autonomous Organisations (DAOs).

Whilst the centralised nature of most platforms may seem to run against the decentralised ethos of crypto, all of these platforms fully embrace the significant benefits of centralising the underlying currency. As professional, competent organisations they offer the features that you are used to receiving from traditional banks such as customer support and insurance of your funds.

What's the Difference Between DeFi and CeFi?

DeFi refers to Decentralised Finance. CeFi refers to Centralised Finance. Some crypto based platforms prefer to refer to themselves as CeFi platforms as they are a centralised business with a headquarters, CEO and controlling management team.

Whilst the company itself is centralised (CeFi) many of the financial assets that they handle are decentralised (DeFi).

What is Crypto Staking?

Crypto staking is similar to putting your fiat currency (Dollars, Euros etc.) in a traditional savings account. You deposit (stake) your crypto on a DeFi platform and in return you can earn interest (yield) on those funds.

In traditional banks that handle fiat currencies, the moment you deposit your currency into your bank account, you relinquish control of that money to some extent. In fact you have technically granted the bank a loan of your currency and you need to hope the bank will pay it bank when you make a withdrawal.

It is the same with most forms of crypto staking. When you deposit your crypto with the DeFi platform you are effectively granting the platform a loan of your crypto and in return the platform will pay you interest. When you withdraw your crypto from the platform, the platform is effectively repaying your loan.

Is Staking My Crypto to Earn Interest Right For Me?

If you already have some cryptocurrency holdings then you may be thinking about whether to transfer it to a crypto platform and start earning some interest on it.

In deciding whether to invest your crypto holdings you need to weigh up your earnings potential against against any security and safety concerns that you may have.

The earnings potential is certainly substantial, with many platforms offering rates in excess of 5% on the big cryptocurrencies such as Bitcoin and Ethereum. Smaller cryptos, especially gaming tokens can offer rates substantially higher than that.

So, investing your crypto on one of the platforms can earn you a nice slice of passive income, at a rate substantially higher than you would be offered on fiat currency in a high street bank. Holding your crypto on the platform may present other advantages as your funds will be insured on most major platforms, you will benefit from customer service in case any issues arise and you be able to monitor your crypto holdings and earnings via an easy to use app.

The downside of investing your crypto is that in the majority of cases you are relinquishing control of your crypto to the platform. You are in effect granting the platform a loan of your crypto and in return they will pay you interest. When the time comes to withdraw your funds then the platform is effectively repaying the loan. It is exactly the same when you deposit fiat currency such as dollars in a high street bank. You are technically loaning the currency to the bank.

It's therefore important to research the platform carefully and make sure you are confident that they will look after your funds carefully.

Points worth considering include:

• What are the reviews like?
• How long has the platform been in business for?
• Which country is it based in?
• Who are the owners / founders?
• What level of insurance do they offer?
• What is the platform's regulatory status?
• Have there been any major hacks or problems on the platform in the past?
• Are there any fees?
• Do I have instant access to my funds?

Here at Definda we have done a lot of this research for you. Just go to one of our platform pages for an in depth look, as well links to further resources where you can research the platform even more.

Advantages and Disadvantages of Crypto Staking

How High Are Crypto Interest Rates?

Crypto interest rates vary by cryptocurrency. Some cryptocurrencies can attract interest rates of 30% APY or higher, whilst others may be as low 1% APY. It depends how in demand each currency is and what rate the platform is able to lend out the currency at.

Can I Invest without Buying Any Crypto?

Yes! Some of the crypt platforms offer good interest rates on fiat deposits. Just open an account as you would with any normal bank (except in crypto world this process tends to be very fast streamlined). Then transfer your fiat currency to the platform either by wire transfer or using a debit card. Then follow the platform's instructions for investing this money in a fiat savings account.

If you decide that you want convert some of your fiat currency to a cryptocurrency, most platforms will let you do this directly on the platform without having to use another service.

What are KYC and AML checks?

Most DeFi platforms are regulated or seeking regulatory approval in each of the countries that they operate in. Just like a traditional bank they need to complete a number of checks on each of their customers and the currency that they deposit. These checks include KYC and AML checks.

KYC checks refer to a process known as "Know Your Customer". This is a regulatory requirement in most jurisdictions and requires the DeFi platform to verify the identity of each customer. Identity is normally proved by submitting an ID document such as your passport or driving license and submitting proof of address such as a recent utility bill. Many crypto platforms have partnered with services that fully automate this process and allow it to be completed painlessly in just a few minutes using the camera on your phone.

AML checks refer to "Anti Money Laundering" checks. These checks require the platform to verify the source of funds that are deposited with them. Often this only applies to deposits above a certain amount. The customer support team at the platform may ask you where you got the crypto from or what funds you originally used to buy the crypto. They may ask for documentary proof of the source of these funds such as previous bank statements, pay slips or sales receipts. If you are asked to complete an AML check just remain calm and polite and answer the platform's questions as best you can. Remember, the platform wants to accept your deposit and finds these regulatory checks just as tiresome as you do.