Pros and Cons of DeFi Wallets, Evaluating the benefits and drawbacks of Defi wallets. If you have money on centralized exchanges that you want to move to Defi wallets but want to understand more about the risks involved then you’re in the right place.
In this article, I’ll give you 3 advantages and 3 disadvantages of Defi wallets and cover the best and most popular Defi wallets out there. As always do your own research because Defi truly is the wild west at this point, so informing yourself on the risks involved could save you lots of time and money in the long run.
Pros of DeFi Wallets
If you’re not careful decentralized finance or Defi can be treacherous because the space is still in its infancy. There are numerous dangers that rushing investors might easily fall into. Despite this Defi wallets for crypto storage offers some very pleasant perks that are worth taking advantage of. So let’s dive into those advantages.
Self-custody is the first advantage the ability to have full custody of your own tokens is arguably the most appealing feature of crypto wallets in general. If you’ve been around cryptocurrency for any length of time you’ve probably heard of the term, not your keys, not your coins. In a volatile financial climate like crypto, this term is critical for keeping your tokens safe. When you store your tokens on a platform such as a centralized exchange like Coinbase it takes ownership of your crypto. While that may sound comforting from the perspective of security over your crypto assets it’s actually safer to have full control and ownership over your crypto in the long run. Consider what happened in the mount gox catastrophe. Defi wallets on the other hand allow full ownership of your crypto.
Continual Trading Access
Another significant advantage of holding a cryptocurrency in a Defi wallet is complete access to dependable trading for speedy token swaps. One of the most significant challenges for traditional centralized exchanges is that they’re stressed during peak trading hours. In many cases, these exchanges can go down due to excessive trading leaving traders hoping to buy or sell out of luck until the servers reboot.
Defi wallets completely avoid this issue by providing easy access to decentralized exchanges or Dexes. Unlike a centralized exchange which is often hosted centrally and hence prone to instability a dex decentralizes ownership of the protocol allowing them to manage significantly higher trade volumes without the fear of falling offline. So if you have cryptocurrency in your Defi wallet you should never have to worry about being unable to buy or sell it on time.
Unlike traditional financial institutions which have many barriers in place for fundamental financial services, Defi provides you with permissionless access to a comprehensive suite of multiple decentralized financial protocols. Whether you want to lend your cryptocurrency and earn a return, take out a loan or use other financial services Defi has no boundaries and enables rapid access to all of these platforms without requiring you to authenticate your identity or provide personal information.
Cons of DeFI Wallets
However, despite the freedom the Defi wallets provide nothing is ever truly free and there are some problems and disadvantages to be aware of.
The first disadvantage is uncertainty. The glaring red flag of d5 is that the entire space is vulnerable to a great deal of uncertainty. The technology is less than a decade old and regulatory agencies have failed to effectively regulate the Defi industry. Nobody knows whether the new regulations will be beneficial or detrimental to the exploration and expansion of space. Nonetheless, you definitely don’t want to be putting all of your life savings into a digital wallet with absolutely no control. However, the space is becoming increasingly legitimized by the day with computer gurus like jack Dorsey leading the charge to integrate the controlled and decentralized financial realms.
Scalability is the second disadvantage. The second issue with Defi is the scalability concerns that plague some blockchains. The most notable Defi platform Ethereum or eth is now suffering from this issue as network transactions can cost three to four digits and poor transaction speeds can leave your transactions waiting in line for longer than you would like. In a fast-paced industry like crypto investors must be prepared to move just as rapidly. Other platforms such as Solana or avalanche give up security for scalability, thus there are trade-offs with each layer one platform you employ. It’s critical to conduct research and test many methods to determine which one works best for you.
Inadequate insurance is the third disadvantage although Defi wallets allow you to keep your crypto in your own hands it also means you’ll be exposed to some of the hazards associated with not keeping your money in a fully licensed institution like a bank. There are no insurance policies in place in Defi land. As a result, you’re totally liable for your own cryptocurrency. If you send it to the wrong address or provide your account information to a shady protocol you risk losing all of your funds with no way of recovering them.
However, if all you want to do is use a Defi wallet to take self-custody and nothing more you shouldn’t be too concerned. The only risk you face is losing access to the device on which your tokens are kept, on the other hand knowing your seed phrase will fix this problem for you. If you lose your crypto storing device all you have to do is download the wallet on another device and enter your recovery phrase to restore access to your tokens. For true peace of mind, some experts advise keeping your cryptocurrency completely off the internet. If you want to go a step further and secure your crypto with a hardware wallet see our guide on crypto cold storage and setting up your own hardware wallet.
Related: Custodial vs Non custodial wallets
Best DeFi Wallets or wireless wallets
The best wireless wallets, after you’ve learned about the benefits and drawbacks of Defi wallets the next step is to determine which wallet is ideal for you. There are other choices available but the Metamask wallet is by far the most popular. Many crypto natives trust and utilize Metamask on a daily basis and it’s also a terrific alternative for novices wishing to get their feet wet with Defi. Trust wallet is another popular alternative a trusted wallet like Metamask provides you access to a wide range of Defi platforms, so you’re not limited to a single native blockchain.
Other Defi wallets that are blockchain-specific include Solana’s phantom wallet and tara’s terra station wallet. Whatever blockchain preference you have make sure to conduct your homework on what wallets are available to use on the platform and weigh the advantages and cons of each before making your choice. I hope you got value from this video so I’m curious what are your thoughts on Defi wallets? Which one do you use?