How to invest in DeFi and earn double digit interest on your savings

How to invest in DeFi

Part 3 of our series DeFi: the new financial frontier

In part 2 of our DeFi: the new financial frontier series we talk about how Blockchain technology is causing tectonics shifts in the global money system with something called DeFi crypto. As bank interest rates tank to record lows, company dividends take a hit and inflation climbs (see our inflation post here), financial freedom seekers and FIRE investors are at risk of falling behind. If financial freedom starts with saving more of your income, but your savings are going backwards, how do you get ahead? In this post, we talk about how to invest in DeFi crypto to earn double digit interest on your money.

Lending with Decentralised Finance

We’ve already mentioned in our DeFI series that using Blockchain, anyone can lend their own money directly into DeFi crypto lending protocols and earn far better interest rates than the bank. This can all be done basically with a little bit of set up leg work and a few clicks of your mouse button. If you missed that post its important background for this one – you can find it here.

In this post, we’ll run through an example of how to make better than bank or term deposit interest on your fiat currecny, using DeFi.

We’re going to use a combination of the following resources so if you haven’t set these up yet that is a good place to start:

  1. An account somewhere you can buy Stablecoins and some Ethereum token – like a crypto exchange. We’ll use Binance. If you set up your account using our link you’ll save 5% on Binance commissions and it supports our blog. So please share the love peeps!
  2. A web wallet to transfer your coins between the exchange and the lending protocol. We’ll use a browser extension wallet called Metamask but another is MyEthWallet. Actually there are tonnes of different wallets you can use – if you want to find the safest kind use a Hardware Wallet.
  3. A lending protocol. We’ll use Aave but others are Maker and Compound. You don’t need an account with them to lend money into their liquidity pool.

What interest rates can you get with DeFi?

The thing to know about DeFi crypto is interest rates fluctuate with market supply and demand. Shock horror I know. A world where banks don’t control interest rates, actual lending markets do!

We start on a DeFi crypto borrowing and lending platform called Aave. This example runs you through a web based step by step, but there are a bunch of mobile based apps (wallets) that you can use pretty seamlessly to access an entire ecosystem of DeFi lending products. Its a whole new world of banking out there peeps! Here is a great resource if you want to earn interest on your crypto on the go with a list of the best mobile crypto wallets.

If you open Aave and click ‘deposit’ at the top of the screen you can find the lending and borrowing rates for different DeFi Stablecoins. If you’re not sure what Stablecoins are or how they are different to other crypto coins, take a look at part 1 of our DeFi series.

Now, not all of these are Stablecoins so the ones you are looking for are in red.

How to invest in DeFi
Aave lending protocol V2 interest rates

I currently have some Tether (USDT) which is a Stablecoin I bought with my Fiat money. It’s sitting in my Binance wallet. I’ve decided to lend that USDT on the Aave platform. Today’s interest rate is 5.22%. If you don’t own coins already, your first step will be to buy some on Binance and once you do it will appear in your Binance wallet.

The next step is to transfer the USDT from my Binance wallet to my MetaMask web wallet. Think of this step like taking fiat currency out of your bank account and putting it in your physical wallet so you can use that money.

If you’re using MetaMask for the first time, here’s a great article with some basic set up instructions for MetaMask wallet.

This is as easy as going into your Binance wallet, selecting the coin, then clicking transfer and entering in the amount you wish to transfer.

You then need to go into your web wallet and click and copy your MetaMask web wallet address for the Ethereum network. Once you have the address copied to clipboard, go back into the Binance transfer page and follow the prompts to paste in that address into the transfer screen. You then click transfer. Some verifications will happen and this all takes a few minutes.

I also need to transfer some Ethereum into my web wallet to pay the gas fees for using the Ethereum Blockchain. I use the same process to do this on Binance with same web wallet address from MetaMask but by selecting ETH instead of USDT as the coin I want to transfer.

Once you’ve completed the transfer you should see the coins in your Metamask wallet, but you may need to add the coin types to your MetaMask wallet first before they appear.

A word on ETH gas fees

As AAVE is built on the Ethereum blockchain, you need to use the Ethereum network and its token (ETH) to interact with AAVE. The ETH token acts as your ‘gas’ to use the Ethereum network. You’ll often see this referred to as ‘gas fees’.

One caveat in using DeFi crypto is that gas fees on the Ethereum network can be very, very high. The fees change with supply and demand and with transaction complexity. The fees work out to be exorbitant on small transactions, so economies of scale matter when you are moving Stablecoins around in order to lend them out or use them as collateral to borrow. If the gas fee is $225 (which it was when I went to use the Ethereum network this morning), then you need to move at least $7000 USD worth of USDT in order to recover the gas fees in your interest (transaction in and out of Aave) and stay ahead based on the lending rate for USDT in this example.

One way to get around the high Ethereum gas fees is to transact through the Matic network. This requires a slightly more advanced tech level. Matic acts as a sidechain to the Ethereum Bockchain. You will need to add the Matic network to your web wallet add funds to the Matic Layer 2 protocol to do this. Once you have the Matic sidechain set up and funded in your MetaMask web wallet, you then open the Matic Mainnet in your web wallet and connect your web wallet to Aave. The Aave integration should show that you’re in the Matic/Polygon sidechain.

There are a bunch of other ways and DeFi crypto products that help you to avoid ETH gas fees and we’ll go over these in other posts.

If you take a look on Aave using the Matic network you don’t have the same range of Stablecoins open for deposit or the same interest rates as you do using the Ethereum network. Fees are lower using Matic, but so are interest rates. So Matic is better if you’re lending smaller amounts but Ethereum pays off if your lending larger amounts.

How to invest in DeFi
Matic Polygon sidechain version of Aave lending protocol

DeFi crypto is still early days

Here we come across the catch with DeFi. Its nascent, so the actual use of the DeFi system isn’t quite living up the decentralised finance ethos because of the fees involved sometimes on the Ethereum network. Developers are working on computational ways of reducing fees and only once this happens will DeFi become practical for many smaller users. It can also be tricky to navigate at first and integrations between exchanges, wallets and protocols can be a bit buggy.

Depositing into Aave Liquidity Pool

After moving the USDT and ETH to my web wallet, I have to connect my web wallet to the Aave protocol. This is a simple click at the top right corner and a process of following their prompts.

How to invest in DeFi
Connect your wallet to the Aave lending protocol

Once connected I can transfer the USDT in my web wallet to the Aave lending pool by hitting ‘deposit’ at the top of the screen. This will take you to your web wallet interface so you can select the coin and transfer amount. Before I confirm the transaction, Aave shows me the gas fees involved.

The final word – higher interest is just a few clicks away

So now, my savings have gone from fiat, to USDT and have been deposited into the Aave lending pool. I’m now earning the market rate, which today you can see is 5.22%, but tomorrow could be different. You can still make money in your sleep if you’re prepared to lend larger amounts into these DeFi liquidity pools. Be sure to manage your risks as we mention here. Test the tech first with small amounts. Aave is a well known platform with over $18B USD equivalent in its Liquidity Protocol and the likes of Mark Cuban lending through it. But don’t put all your eggs in one basket because true to the Blockchain ethos, it’s a non-custodial protocol and that means if things go to custard, there is no protection for you.

Til next time – have fun, be happy, do good!

The game of money is changing – so what is DeFi?

what is DeFi

Part 2 in our series DeFi: the new financial frontier

A new financial architecture is being built by super smart computer technologists and even some economists. It’s called DeFi crypto and it’s about much more than just crypto. It’s going to be bigger than Bitcoin. Perhaps even bigger than the internet V2.0. In fact, it’s the single most important thing you as a financial freedom seeker can get your head around – now. But what is DeFi? What does in mean for your financial freedom in practical terms?

Our DeFi: the new financial frontier series is helping financial freedom seekers understand the monumental shifts in the tectonic plates of our global money system. If financial freedom is all about how well you play the game of money, then that game just got new rules so stay tuned to this series as we explain them.

Who controls the ledger controls the money game

Ledgers have historically recorded financial and commercial transactions between people – the ‘who owns what when’ – since, well, a long time.  If you think about it, for any significant exchange of value, there’s a central record of the transaction kept by someone. Ledgers are more than just a record. They’re also about trust. An independent third-party bearing witness to the exchange of value between strangers and so on. Whoever controls the ledger has significant power in the game of money. Over the rules that is. How transactions must occur, between whom, and how much they cost.

So, who controls the ledgers? Middlemen such as banks, insurers, brokers, auditors and policy makers, and the institutions they have created do. And through this the centralised control of money has become the norm. But will it always be?

What is DeFi? The new rules of decentralised money

what is DeFi

DeFi is the decentralisation of financial products using blockchain technology.

DeFi uses Blockchain technology to replace the role of middleman in financial and commercial transactions and decentralise the control of money.

Blockchain was created to act as a ledger that no one entity could control but that needs the participation of many to operate. It seems simple on the surface but in its very design, blockchain technology fundamentally ‘up-ends’ the money game as its currently played. That’s why there is a lot of scrambling going on in the halls of traditional financial institutions, about Bitcoin and cryptocurrency. But cryptocurrency and bitcoin are just white noise once you step back and take a look at the bigger picture of Blockchain meets Money.

Blockchain meets money

Blockchain technology’s decentralisation of money – Decentalised Finance (DeFi) – will profoundly change our money future.  The changes have already started. The introduction of Blockchain technology to the world of finance is seeping into the money system under the cover of crypto and Bitcoin. Over the coming decade, DeFi crypto will likely impact the way you save, where you put your money, how you borrow, where and how you invest in assets, how you manage them, the stocks you buy, your retirement nest egg, your investment income and any trading you might do. Just about everything to with your money.

You see, Blockchain changes the money game in four critical ways:

  1. It acts as an immutable public ledger through which participants can validate transactions automating the trust element between third parties,
  2. Its design decentralises control over that ledger,
  3. it allows the tokenisation of assets by fractionalising ownership of those assets, and
  4. It transcends national borders, putting opportunity in the hands of the masses and millions of unbanked across the globe.

What does DeFi mean for your financial freedom?

The real-life impacts on your financial freedom due the structural changes being bought borne out through Blockchain and DeFi crypto are profound peeps! Here are just a few we can think of:

  • Faster financial and commercial transactions – blockchain now provides an easy way to send money quickly and cheaply across the globe
  • Fewer middlemen and rent takers = fewer fees and charges = you keep more of your hard earned assets
  • Lower barriers to entry – no minimum investment requirements for example that apply to some of the most profitable instruments in financial markets
  • Lower cost to buy in to financial opportunities so greater access to markets
  • Fairer ways to grow wealth
  • More transparency to replace the opaque rules that currently apply to the game of money – particularly gold investing, and
  • The biggest of them all: You get to control your money – no custodians, banks, no gatekeepers clipping the ticket or saying no to your financial future

The final word – may the odds be ever in your favour

I really want to focus on that last dot point because it is exactly what financial freedom is about. You taking control of your money. DeFi crypto can give you new tools to do exactly that – if you learn the rules of the game and get comfortable with the tech. Don’t be afraid, but do get educated. And do manage risk! The new game of money is here.  It involves investing in cryptocurrency and decentralised finance. As they say in the movies, may the odds be ever in your favour!

Check out part 3 in our DeFi series to see how to earn double digit interest on your money with DeFi crypto.

Until next time – have fun, be happy, do good!

Airbnb passive income – can you make good money in 2021?

Airbnb passive income

You may have heard the horror stories of Airbnb hosts having to shut down and losing all of their Airbnb income as the pandemic raged globally in 2020. It wasn’t just Airbnb hosts losing their pants – a lot of businesses and families struggled. But it did bring into sharper focus the risks of hosting on Airbnb. We lived it. We’re here to tell the tale. So is Airbnb profitable for hosts in 2021? How much can you make on Airbnb in a post pandemic era? Or is it all too damn risky now? In this post, we’ll look at how much you can make in Airbnb profit in April 2021, starting with our own one bed apartment. We’ll also delve into how to manage the financial risks of setting up Airbnb passive income. Read on peeps to see for yourself what an Airbnb side hustle can be worth.

The perfect ‘lil Airbnb passive income property

We have a little one-bedroom apartment on Airbnb in regional town in Australia. It’s located close to the city centre and next to a nice golf course. It’s about 52m2 internal, with a full galley kitchen, bedroom, separate bathroom/laundry and open living dining. The place has its own private, sunny courtyard with nice seating area and lovely garden.

We used to rent it on the long-term rental market for $210 per week or around $10,080 per year, factoring in vacancies between tenants. $10,080 was gross income, and after mortgage and bills we were in the red (negatively geared) by a little each year. A dumb position to be in looking back and I’m not sure why we let so many years go by with it negatively geared. But that’s another story.

We began thinking a few years ago when we were looking at how to better our financial equation that our little one bedder would be the perfect property to trial on Airbnb. We had renovated the place in 2014 and it wouldn’t take much in terms of capital to turn it into a short-term rental. Airbnb side hustle number one, here we come!  

We set up the property for short term guests, (another capital outlay), had professional photos taken and listed the place in May 2019. We weren’t sure who would book as there was not a lot of data on that regional market, but we knew how much moolah we had in the deal. We did our best with the data available and knew the nightly rate we needed, based on local market occupancy, to make a good profit.

How much money can you make on Airbnb in 2021?

Fast forward to April 2021 and that little one bedder has long since paid back its initial set up investment and is no longer negatively geared. Here is how much we made in Airbnb profit from this property in April 2021:

Airbnb passive income
Our one bed Airbnb listing in regional Australia
how much can you make on Airbnb in 2021

So the answer financial freedom seekers is yes – you can make money on Airbnb in 2021. Even with a global pandemic holding back the reins on international travel. This one bed apartment that used to lose a few grand for us each year on the long-term rental market made a profit of $1559 in April alone. The first of our 4 Airbnb properties turned out to be the perfect toe in the water….

If you want to know how to make Airbnb but don’t have any investment properties – we’ve got your covered too! The good news is there is a strategy to make Airbnb profit with zero investment properties that we’ve used and made good money from. Check it out here along with all of the other tools and resources we know and love to make money with Airbnb.

Airbnb passive income

The beauty of that $1559 is that it ranks pretty highly on the passive income scale. During the month of April we put a total of no more than 5 hours into running that apartment on Airbnb. We’re able to do this because we have set up the operating and financial systems and processes to run the listing passively. So that’s a cool 300 bucks an hour. For a little one bedder with a small initial investment risk, turns out it was no-brainer. But taking that first step financially was not easy until we really got a handle on the risks.

Taking your first step to Airbnb profit

Time to pimp your assets peeps! If you want to escape the rat race and you own some property, then one of the first places to start is reviewing those assets. Are they costing or making you money? Have you got the best cashflow strategy in place? Can you use them to live financially free here and now? Airbnb can be a very rewarding passive income strategy and we’ve shown here Airbnb is profitable for hosts in 2021. If you can pimp your property assets financial freedom seekers, we say get on it!

If you’re thinking about an Airbnb profit strategy for yourself but are worried about losing money, then it’s a simple case of doing the numbers. One of my favourite bosses of all time has a sign on his office wall:

“in God we trust, all others bring data”.

I’m not into god but the rest is plain truth. Actually, I’m not into data either, but there’s no financial freedom without it! What I’m getting at is that the financial risk with Airbnb is tangible and manageable. So where to get started?

AirDNA

We’ve lauded the benefits of AirDNA in a previous post so no need to go on about it too much here. In short, it’s a genius tool if you’re worried about taking the first steps into making killer Airbnb passive income. It gives you critical insights into the nightly rate you can charge and the occupancy you can expect in your local area – based on real data. And it’s darn cheap at under $50 for the month, no ongoing subscription – especially for information you get.

How do you work out potential Airbnb income and profit?

So what do you do with the AirDNA data, once you get it? You’re going to want to turn it into useful financial information to help your investment decisions. Sign up for our free Airbnb Profit Estimator to put your Airbnb data into action!

Airbnb Profit estimator – The Airbnb Profit Estimator is our simple to use spreadsheet tool for wannabe Airbnb investors, and time poor Airbnb hosts. The aim?  To help y’all with the financial side of investing in and making money on Airbnb. Here’s what’s in the bundle:

This is where you plug in the AiDNA research. The profit estimator helps you see the potential Airbnb profit you can make based on the nightly rate you can achieve and the occupancy rates in your local market. This data is available through AirDNA. Or you can work it out in a round about way on the Airbnb App – its just way more complex and time consuming.

Airbnb set-up budget planner – this will help you make sure you don’t over capitalise when setting up your first Airbnb. It works in tandem with the Profit Estimator. It calculates your investment breakeven in weeks based on your potential profit and projected (or actual) set up costs. Spend too much early and you’ll be slogging it through months before you see any actual profit.

Income statement – helps you record your Airbnb income and expenses from day one. It calculates monthly and annual profit, profit margin as well as capitalisation rate. This one is for time poor Airbnb hosts or Airbnb side hustlers. If you have a real job, this will make the finances of running an Airbnb a breeze.

This tool is designed to help you take the first step to Airbnb passive income and stay on top of the numbers as you grow your Airbnb profits and maybe even your Airbnb business.

The final word – knowledge is only power with action!

Don’t be held back by disinformation or false news. But also, probably don’t make investment decisions based on the numbers we give you here. Do the numbers yourself like you would for any investment. Start with out free Airbnb Profit Estimator.

If you want to become an Airbnb Host, here is a link to the platform. As they say in the (wherever they say it)…. the rest is up to you!

Until next time – have fun, be happy, do good!

Inflation forecasts for 2021: how to hedge for financial freedom

Inflation forecast

Well that was a few hours of my life I’ll never get back. Researching the latest inflation figures and economist viewpoints. Now, let’s see if I can turn those few hours into a three minute engrossing read for you. Challenge accepted!

In this post we take a look at inflation forecasts for 2021, the debasement of fiat currency, how these might impact our passive income and financial freedom goals and how to hedge against them.

Mainstream media, at least in Australia, has been awash with stories about increasing house prices in capital cities and skyrocketing prices in regional areas. Apparently prices in February rose in every capital city and every rest of state region in the entire country. This hasn’t happened since 2010. Fuelling the growth, they say, is the recovery after lockdown.  Government building incentives and low interest rates. Add to that the fact that Aussies have returned in their droves from overseas and now need a place to live. It’s certainly not population growth as gone are the days of immigration led economic boom times. At least temporarily.

Stocks have also been on an unrelenting run up throughout 2020 bar the March dip. Price to earnings ratios are through the roof. Economists keep calling the top, but we never quite seem to hit it. By any Warren Buffet measure, markets are overheated and a correction is imminent.

Are we in an inflation economy?

We’re all aware that governments have been printing money at record levels to keep the economy afloat during Covid. Quantitative easing that has dwarfed the money printing of the Global Financial Crisis. But did you know that in March, the International Monetary Fund magic-ed out of thin air $650 billion in what they call ‘Special Drawing Rights’ – cash they intend to lend to a bunch of member countries? This didn’t make the 6 o’clock news.

Special Drawing Rights were a tool created a few decades back to deal with what was thought to be an impending US Dollar crisis. They’re a basket of 5 fiat currencies that used to be pegged to the Gold price but now are pegged to nothing. Since their creation in 1969 $200 billion has been issued in SDRs, so this year’s efforts are a tripling of that. SDRs can fly under the radar because they prop up member economies without adding to their official debt levels.

What I’m getting to with all of this is, if you thought the world was awash with cash already, you can add another $650 billion to that tidal wave that won’t show up as debt on government books and that no-one we know really knows about.

So are house prices really going up because of economic recovery and returning expats, or is the value of the fiat cash in your pocket or bank account dropping like a lead balloon with inflationary monetary policy?

So what the hell is going on?

Some economists say it’s a myth that money printing causes inflation, but if you’re worried about the price of goods and assets going up and things becoming unaffordable, you’re not alone.  Just search on Google Trends and you can see the search engine data for yourself. And here’s some Australian consumer price data as a cherry on the top.

Inflation 2021 - consumer price growth
ABS & CBA data. Australian consumer prices. Source

It is true that inflation as calculated by economists has many inputs including wage growth and spending. If you look at the money printing that happened during the GFC and inflation rates afterwards, you’d be put somewhat at ease about what’s coming. Quantitative Easing didn’t lead to rife inflation in the OECD post 2008.

Inflation forecast 2021
OECD inflation data and forecast from the GFC until now.

You could argue that wage growth and spending were the two missing factors then and now. They’re just not happening. The velocity of money (transactions) in the economy has fallen through the floor. Companies and people are hoarding their cash uncertain about what the future brings. Household savings rates have ballooned. Who can blame us?

Inflation 2021 - household savings
ABS data. Australian Household savings jumped during Covid as did savings rates around the world. Source

So without wage growth and spending, inflation forecasts for 2021 are moderate across the board. The OECD has them ticking upwards along with the Reserve Bank here in Australia, but at historically moderate levels.

The answer is no-one really knows. Read this and you’ll see that the head of Australian economics at the Commonwealth Bank of Australia isn’t even sure. To take a trading view, he argues you could build a bullish and a bearish inflation forecast for 2021.

Fiat currency debasement

Meanwhile, is anyone else thinking that the prices you’re paying for property and other assets seem to bely what the government data and forecasts say? Has anyone noticed that stock markets are on an unending tilt upwards while the economy and jobs have tanked? Has anyone realised that since 2008 central bank balance sheets have been growing by around 13% each year? If you haven’t heard about this, have a listen to Raol Pal or Michael Saylor.

So maybe it’s not inflation at all (with CPI based on the price of a basket of consumer goods). Maybe with the printing of money world wide and the crazy growth balance sheets what we are actually experiencing is the debasement of fiat currency on a global scale. Maybe this is just causing assets to rise (or just to hold their value against fiat currency), but not consumer goods. It’s something to get your head around but without a doubt, things are changing. Quietly in a way that is creeping up on us, we’ve moved into unchartered financial territory.

So, what we’re saying is, if you’re planning to be financially free at some point in the next 5 years then it’s time to keep your eye on the ball. We may not know until afterwards whether covid economic recovery will be inflationary or whether all fiat currency is debasing and hence the value of assets rising against fiat. But in this time of enormous uncertainty you need to hedge your bets.

How to hedge against inflation or debasing currency

If the value of your cash disintegrates over time and you didn’t do anything about it when it was happening, financial freedom will be much harder to attain. But what do you do financial freedom seekers, to hedge against inflation?   How do you keep moving forward on your financial independence journey?

Cashflow is still king

Let’s face it, income is your first concern to pay your bills and put food on the table. So passive income is still a massive focus in your financial independence journey and will continue be a cornerstone of our blog.

On top of maximising your income, FIRE (Financial Independence Retire Early) talks about savings rates being the single biggest determinant of financial freedom and your retire early strategy. In 2020 the RBA provided explicit forward guidance that we won’t be getting anything for our savings anytime soon by stating that “the Board does not expect to increase the cash rate for at least 3 years.”  If we’re in an inflation economy or fiat is debasing, cash is a losing game – you’ve got to use it or lose it peeps!

So what do you do with your excess cashflow and passive income? What do you invest in if inflation surprises to the upside?

Digital assets

Let’s face it, if banks are going to keep giving you 0% on your savings for the next 3 years, your cash in the bank is going backwards. Bank bail-out laws, at least in Australia, also put your cash in the bank at risk in event of some kind of catastrophe. One thing is sure, with uncertainty comes risk. Don’t assume your cash in the bank is safe and you’ll be protected dear readers. Squirrelling may not be as safe as you once thought. The independence part of financial independence is more important now than ever.

Bitcoin was made for this very situation and while the price is pulling back there may be an opportunity to hedge any currency risk right there. If fiat currency is debasing at the same rate as central bank balance sheets are growing, you’re looking for assets that can maintain a growth rate over 13% just to tread water. This would explain the growth in equities and in crypto. And as blockchain brings tokenisation to more assets, Bitcoin is just the start of a migration to digital assets and the internet of value.

DeFi

There are other ways to beat the bank rates but they involve more risk. You want to find returns for your cash that sit above the real inflation rate or currency debasement rate to stay ahead. We’d personally be aiming for something over 5% for short term interest. With companies stashing their cash too, these kinds or returns in dividends are harder to come by. Check out this post where we talk about ways to generate more passive income from your savings in the emerging DeFi financial services arena. We staking crypto and lend stablecoins and are earning rates as high as 30%. But remember, it’s buyer beware as always when it comes to the wild, wild west of crypto. But we’d say that cash and investment risk is rising across the board with mainstream products, you just don’t know or hear about it because rules of the centralised money game are transparent to but a few.

It’s time to think about your wealth allocation

Another strategy worth giving some thought is to migrate some or more of your tertiary wealth (paper and digital wealth) into secondary wealth (products) and primary wealth (primary resources, raw materials). For the average person, primary wealth building is usually with property, land, or monetary metals. We think over the next 5 years you can add Bitcoin to this list of primary assets and some other digital assets that don’t exist yet but will emerge as assets tokenise on the Blockchain.

Most of the wealthy 1% already know that if fiat currency is debasing then a way to hedge against that is to borrow fiat now and buy assets, which will adjust upwards as currency weakens. Governments are applying oil to the wheels of big debt by relaxing lending rules. Stimulus packages too. So if it’s available to you, this is one strategy you might think about. It’s definitely why we will not be parting with our real estate investments any time soon.

What we’re not saying is put more of your wealth into ETFs that claim to be back by those primary and secondary resources. Have a read of this article on The illusion of Owning Gold. If it smells fishy, it usually is. Resource ETFs are a tertiary asset. You need to make sure whatever assets you invest in, the legal title for the asset is in your name in part or in full. Like it is with digital assets on the Blockchain.

The final word – we’re not stashing our cash

Inflation and fiat currency debasement can be like the proverbial frog in boiling water for financial freedom seekers. We don’t know it’s eroded our wealth until it has. Keep a watching brief on the prices of primary products – monetary metals like gold, sliver and copper. Stay across the price of raw commodities like timber. Watch the prices of asset classes and real estate instead of the consumer price index and government inflation numbers. If assets are what we need to build our nest egg and produce income, any price rises in assets will flow though to your financial future. No matter what the economic data says, this is where the rubber hits the road to financial freedom.

The temptation in uncertain times is to save for a rainy day and collectively we’re doing it more than ever. But right now, if you’ve got your wealth in cash and you’re on a wage you’ll be going backwards. And that’s not a recipe for financial independence. None of this is financial advice dear readers but definitely food for thought.

 Until next time – have fun, be happy, do good!

The 2021 DeFi lowdown – time to pay attention peeps!

2021 DeFi lowdown
What is DeFi?

Part one of our DeFi: the new financial frontier series

Y’all know we’re passionate about financial independence, passive income and the FIRE movement. But not many of the leading FIRE advocates or blogs are talking about DeFi or decentralised finance. Well we at The Live Life Project think it’s time to pull back the covers on what we predict will become the new frontier of personal finance over the next 5 years. Like all good new frontiers, DeFI is still a bit wild, wild west. So in this post we’ll explain what DeFi is, why financial freedom seekers should know about DeFi, and some passive income ideas from DeFi to get you started.

This is the first post on our DeFi: The new financial frontier series, where we will give you the lowdown on DeFi in 2021.

What is DeFi?

DeFi is a ‘peer to peer’ internet system of executing financial transactions. Transactions like lending or borrowing are performed directly between two parties using blockchain ledger technology. Transactions are executed by computer code, and secured by cryptography. Because it uses blockchain technology, DeFi is typically associated with cryptocurrency. Critically, DeFi is designed so it doesn’t require any middle men and gatekeepers like banks, exchanges and lenders. This means no more banks controlling our access to financial opportunities and earning a fat percentage profit of every financial and banking transaction we make.

To demonstrate just how DeFi has exploded, take a look at this graph of the total value of USD locked in DeFi. That number has skyrocketed from $914 million 12 months ago to more than $75 billion in 2021. And it’s still early days financial freedom seekers. You can also access a pretty reliable DeFi index here.

What is DeFi
DeFi explosion over the last 12 months. Source DeFi Pulse.

Traditional banking BS

I wanted to share an annoying bank anecdote that happened to us personally just this year to set the scene for ‘why’ DeFi. We have a couple of investment properties as I’ve mentioned and in March were in the process of selling our home. In addition to the owner mortgage against the home, we had a small equity loan of $60,000. Before we sold our home, we wanted to transfer the equity loan to one of our investment properties. We wanted to do this maximise the cash we have to buy our next home.The bank had valued the investment property as containing plenty of spare equity so easy peasy right?

When we went to the bank with this request, the answer was a flat ‘no’. But why, we asked? It’s just a matter of transferring the loan from one asset to another. The reason – there was no internal process to make this happen. Sigh. Because there was no process the bank required of us a completely new loan application on the investment property. This meant a total reassessment of our finances, tonnes of paperwork, another $500 in bank application fees, plus broker fees blah blah blah.

I bet most of y’all have a similar frustrating anecdote about unreasonable policies in getting financial services from traditional banks. We could all have a massive bank whinge-off into eternity. Yay us. But that’s the thing with decentralised finance, no more banks to deal with and more control over your equity and your money. Huzzah to that we say!

A new world of money

DeFi is about more than just crypto. It’s an entirely new world of money. A new finance system built on trustless transactions that use blockchain and internet technology. Here’s a real world example of DeFI applied to lending. DeFi loan transactions are executed through what’s called ‘lending protocols’ like Aave, Maker or Compound. These protocols use ‘smart contracts’ – code on the blockchain – to execute a financial agreement between two parties when predetermined conditions are met. ‘What the hell….???’ I hear you say. Sounds like gobbledegook. But put simply, its computer code (program) to execute financial transactions on an immutable public accounting ledger (blockchain), so you no longer need a ‘trusted third party’ like a bank.

DeFi is fast morphing into an alternate financial system with many of simple personal banking financial products offered by the traditional finance sector. Think borrowing, lending, term deposits and credit cards just to name a few.  But this all happens without the middle man taking a big fat cut of the profits or adding fees on fees. You see, instead of the bank paying you 0.5% interest on your hard-earned savings only to lend that money on for 3.5% themselves, DeFI gives you the option to provide the liquidity directly and earn the higher interest rate. And that’s just one example of why people will start flocking to DeFi. DeFi takes on the role of banks, exchanges and insurers today—like lending, borrowing and trading. It puts this role in the hands of regular people like us so we earn more from our own assets. Booyaah!

If you are sick of earning 0% interest on your cash or bemoaning the lack of options in traditional finance to earn income from your savings, then it’s time to pay attention to DeFi people!

Making passive income from DeFi

There are two low-tech, beginner level ways to make passive income from DeFi with interest rates well above anything you can get in traditional finance. We’ll go into these in more detail in our next posts in this series. But here’s a summary to give you some simple passive income ideas from DeFi:

Stablecoin high interest savings accounts

You can earn interest on stablecoins you own by depositing them with different crypto currency liquidity providers.  Stablecoins are cryptocurrencies that are pegged to and often backed by fiat currency – usually the US dollar. They’re called stablecoins because their prices don’t fluctuate as much as the prices of other crypto coins (they’re pegged to fiat that doesn’t fluctuate as much). Examples of popular stablecoins are USDT, DAI, USDC, TUSD.

Think of this product as a high interest savings account that you would ordinarily put your fiat dollars in, but with better rates than you can get from any traditional bank. Protocols or platforms like Aave, BlockFi, Gemini and Nexo offer stablecoin passive income products. Interest rates range from 2%, which is not really worth it, up to 10% or even more. You usually get paid in the same stablecoin you deposited.

All you need to do to earn stablecoin passive income is buy the stablecoins with your fiat dollars on an exchange like Binance, Kucoin or Coinspot. You then set up an account with one of these liquidity providers and transfer or deposit your stablecoins into that account and start earning. Some larger exchanges like Binance will pay you to hold your stablecoins in their wallet on flexible terms (unlocked).

Crypto staking 

Crypto staking is more like a term deposit for your crypto currency. You deposit your crypto coins into a staking wallet. The coins are used to support the consensus process (validating blockchain transactions) needed to run a particular blockchain network. Stakers need to hold coins in order to validate blockchain transactions, for which they earn incentives. The more coins they hold, the better. When you stake your coins in a staker’s wallet they can either be locked or unlocked. In return for staking your coins you receive interest. If your coins are locked, then they must be held there for an agreed time period or the interest rate is foregone – similar to a term deposit.

You can stake your crypto directly on some of the larger crypto exchanges like Binance, in a hard wallet with providers such as CoolWallet, Trezor or Ledger, or via a staking platform such as Stake Fish. It’s easiest to stake on an exchange if you’re a beginner. Just like term deposits, rates depend on the type of coin and the term of your deposit as well as other native factors. Read the fine print! You can get terms from one to 12 months routinely. You get paid in kind (the same coin you deposited) or in what’s called a token. Tokens are a form of reward for partaking in an activity within a blockchain. They are blockchain network specific but are often tradeable on cryptocurrency exchanges like Binance or Kucoin. You can trade your tokens for other coins or exchange them into fiat currency via these exchanges.

Staking is higher risk than passive income from stablecoins because you are exposed to the fluctuating market price of your crypto while it’s staked. Crypto coin prices are extremely volatile and can and often do move either up or down more than 30% in a single day. You’re looking to stake crypto coins that are in a long-term uptrend. This way, you benefit from both the coin price and the passive income.

The final word – managing risk

Like traditional bank savings accounts and term deposits, DeFi staking and savings products differ. But unlike traditional bank products the risks are higher. It’s your responsibility to understand the product and the risks. Remember, decentralised finance is about you controlling your money. There isn’t the same government protection and regulation in place if things go awry. DeFi coin prices are more volatile and returns can fluctuate. You must be comfortable with this to invest. You must manage your risk, such as by only using well established platforms with cold storage security, diversifying across platforms, and sticking to core Stablecoins. If riskier investments are for you we’d still suggest allocating a nominal portion of your investment portfolio/assets that you don’t rely on for weekly income or retirement. Start small! As the DeFi finance system grows in size and trust, your risk defuses and you can invest more.

We’ll review which platforms and DeFi passive income products are best in 2021 in an upcoming post in this series so stay tuned financial freedom seekers!

Til our next post in this DeFi series – Have fun, be happy, do good!

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