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The Cryptocurrency Industry Poses Risks for Inexperienced Investors - Financial Times

Thu, 07/01/2021 - 12:42
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Alihuseyn Gulu-Zada
The Financial Times has released an article on the possible risks of decentralized finance
The Cryptocurrency Industry Poses Risks for Inexperienced Investors - Financial Times
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According to the information provided, traders make good profits because of the fast-growing field of decentralized financing. Nevertheless, this trend, while offering new opportunities, is very risky for earning.

Thus, the number of platforms offering returns on cryptocurrencies with an annual interest rate of 7% to 12% is increasing every year.

Taking advantage of this moment, traders can seek to earn even more income through "profitable farming".  Much of this depends on the advertising campaigns with interest rates ranging from a minimum of 4.4% to several thousand percent.

In fact, this kind of high stakes and earning opportunity has some complicated technicalities that are not fully understood by newcomers. In particular, it is not clear whether cryptocurrency investors fully understand all the aspects of this type of investing.

The whole point is that cryptocurrency platforms advertise and offer high-interest income to their clients and can really be real alternatives to traditional banks. At first glance, you can see their obvious advantage. While offering their clients interest-bearing accounts or wallets, they are nonetheless trading their clients' funds.

Still, compared to bank accounts, the security conditions of the cryptocurrency accounts are far inferior to bank regulations. This is due to the fact that they operate without regulatory oversight and will not be able to offer their investors ready solutions in the event of a loss.  

Thus, DeFi projects with high stakes due to faulty protocols, potential hacks or market fluctuations are also in the risk group for inexperienced investors. DeFi can also contribute to real losses because of its structure.

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About the author

Alihuseyn graduated from Yale University with a focus on linguistics and philosophy. He has worked as a journalist-analyst for Trend News Agency. At the same time, he is an academically trained singer (baritone) and a composer. Alihuseyn has been involved in cryptocurrency and blockchain since 2017 and is an enthusiast in this field, considering blockchain technology revolutionary and capable of changing society. In this area, he has written several theoretical and analytical pieces.