DeFi Wallet

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defi-wallet
DeFi Wallet

Decentralized finance (DeFi) is a rapidly growing industry, and much of its success depends on the DeFi wallets. While DeFi wallets of the past were clunky and slow, great progress has been made in recent years, and DeFi wallets keep getting better.

They allow freedom, accessibility, and transparency while ensuring that the user can control their funds. In this article, you walk through what DeFi is, what a DeFi wallet is, and the best DeFi wallets available.

What is DeFi?

In very simple terms, decentralized finance or DeFi is an ecosystem of different financial applications built on top of blockchain networks. The Ethereum blockchain has been the most popular to build so far due to its smart contract capabilities, which will discuss later.

The main objective of DeFi is to create an open-source and transparent financial services ecosystem. In theory and practice, DeFi is available to everyone and works without any central authority. DeFi’s current products and services include banking services, decentralized markets, custodial services, investment services, decentralized exchanges, loans and credits, and more.

Most DeFi applications make use of smart contracts. While a normal contract makes use of legal terminology to specify the details of the relationship between the entities entering into a contract, a smart contract makes use of computer code. Since the terms are written in computer code, smart contracts can also enforce the contract terms. This enables the automation and reliable execution of many business processes that would normally require manual monitoring.

What is a DeFi Wallet?

The main purpose of a DeFi wallet is to allow users to store their funds without relying on a third party to hold their assets. Essentially, it leaves you in charge of your funds with the complete freedom to do whatever you want. The only person in charge of your funds is you, a revolutionary concept when you consider that banks are ultimately in control of your money.

Unlike centralized wallets, DeFi users do not have to verify their identity or provide any background information. The anonymity of DeFi wallets is attractive to many and means that your identity is never at stake. However, does this mean that DeFi wallets are not secure? The answer here might surprise you. DeFi wallets are possibly one of the most secure options on the market. The only downside is that since you are in charge of your wallet if you lose important login information, there is usually no way to get it back.

Most DeFi wallets are native to Ethereum, which means they are compatible with Ether, ERC20 tokens, and ERC721 tokens. Furthermore, most DeFi tokens are supported as they are also built on the Ethereum blockchain.

Most DeFi wallets are web3 wallets, and they tend to have some similar features. The building blocks of most DeFi wallets include:

  • Noncustodial – Users can send and transfer funds knowing that they are the only person who can access those funds.
  • Key-based – All noncustodial wallets have a unique key pair, and the user is responsible for the custody of their private keys. It is different from a centralized wallet, where the platform can help you retrieve your keys. Private keys are typically entered through a 12-24 word opening phrase.
  • Compatibility – As mentioned above, almost all DeFi wallets are accessible through a connection to a web3 wallet. Mobile wallets are starting to focus on compatibility, which means you can connect to DeFi apps without ever leaving the app.
  • Accessibility – Almost all noncustodial wallets can contain a wide variety of virtual assets. Ethereum-specific DeFi wallets allow users to deposit not only ETH but also other DeFi stable coins and tokens.

What to consider when choosing a wallet for DeFi?

The first thing to consider is which assets are supported on the platform. Naturally, different wallets support different assets, and your wallet must support what you want to store. For example, some DeFi wallets are not compatible with Bitcoin, so they will not be suitable for someone who only has Bitcoin.

Second, DeFi wallets are essentially your access point to the greater DeFi ecosystem, so it is important that whatever wallet you choose is backed by the product you hope to use. Make sure to research the topic and make sure that what you are looking for is supported.

Another thing to keep in mind is the social presence of the DeFi wallet you are looking to use. Any reputable DeFi portfolio will be active on social media and engaging with their community. If you’re unsure of a wallet, check their social media accounts for the level of engagement and activity on the wallet.

Finally, and most importantly, is your secret phrase (“seed phrase”). If you lose your opening phrase in 99% of the situations, it is impossible to recover your portfolio, including the funds that may be in it. Therefore, you must remember your secret phrase. It is generally recommended to write down your secret phrase and keep it in a safe place on your phone or computer.

The Best DeFi Wallets
  1. MetaMask

It is primarily used as a browser extension, which means users can easily access DeFi through their Internet browser. In addition, MetaMask is preparing to launch a mobile application, which means that you will soon be able to manage your virtual assets from anywhere.

Since MetaMask is built on the Ethereum blockchain, it only supports Ethereum-based assets, and there is no indication that this is going to change in the future. That being said, the platform has over a million registered users and is one of the best-unguarded wallets on the market.

  1. Coinbase Wallet

You’ve probably heard of Coinbase before, but Coinbase Wallet is their DeFi app. It is one of the friendliest wallets for those looking to dive into the DeFi space for the first time. It’s easy to transfer funds, buy and store tokens, and interact with other decentralized applications.

Coinbase Wallet has no custody, but its private keys are stored directly on your device, making it easy to retrieve your wallet if necessary. Furthermore, it is one of the few DeFi wallets that store Bitcoin.

  1. Argent

By taking a mobile-centric approach, Argent is extremely friendly to non-technical users and new to the DeFi space. The focus on user experience means that the app offers a Venmo-like experience that is simple but effective. Also, there are no fees in Argent, and there is no need to deposit ETH to get started.

Argent has another unique feature: you can get your wallet back without your opening phrase and centralization. Yes, you read that correctly! Argent Guardians allows you to add trusted people and devices to help you get your wallet back.

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