How To Start a Wedding DJ Business in 9 Essential Steps

Want to hone your DJ skills? Or maybe show them off?

Wedding DJs are in high demand these days.

Industry experts expect 2022 to be the busiest wedding season in 40 years, thanks to lockdown romances and postponed ceremonies during the pandemic.

A wedding DJ is the focal point of great wedding receptions. They set the mood, engage with the crowd and keep the couple happy.

They make good money, too. Wedding DJs make $1,000 per gig on average, according to WeddingWire, with experienced pros fetching upward of $2,000 or more.

But it takes a lot of hard work and planning to DJ a wedding. To start a successful wedding DJ business, you’ll need seed money for gear, reliable transportation — and great people skills.

How to Start a Wedding DJ Business in 9 Steps

Nick Smith started DJing weddings in southwest Indiana when he was 20 years old. His first set of speakers and audio equipment came from a bar that was going out of business.

Sixteen years later, Smith’s business has booked over 200 weddings.

“It’s a great gig if you love people and music,” he said.

Ready to spin up your own side hustle? Follow these nine steps to start a wedding DJ business.

1. Research and Talk to Other DJs

Before you invest major money into gear and advertising, make sure you’re comfortable with this type of gig.

Talk to other wedding DJs and ask what challenges they faced in the beginning — and how they overcame those hurdles.

If you’re new to DJing in general, it’s a good idea to shadow a professional wedding DJ. Search Google, Yelp or the Knot to find some in your area.

Send a friendly email asking if you can help them out at an event or two because you’re interested in being a wedding DJ.

On the day of the wedding, show up early and stay for the entire event. Observe how the wedding DJ interacts with the crowd and the type of music they play. Take notes.

Ask yourself the following questions:

  • How do they make announcements?
  • What do they do when the dance floor thins out?
  • How do they handle requests?
  • What equipment do they have?

In exchange for the experience, offer to help the other DJ by unloading gear from the car and setting up the speakers.

2. Hone Your Skills

Practice makes perfect. You need to be comfortable behind the booth before you’re ready to book gigs.

Play for family and friends first. You can also book other, smaller events — like birthday parties and company parties — to get your feet wet. Online classes are another way to grow your knowledge base.

Practice playing songs, using a microphone and flowing from one song to another.

If you’re not ready to start your own wedding DJ business quite yet, consider working for a multi-op — a mobile DJ company that employs several disc jockeys.

3. Create a Business Plan

Creating a business plan is important if you plan to invest time and money into becoming a wedding DJ.

Your business plan should include:

  • Your business name and location
  • Customer demographics and target audience
  • Price points
  • Suppliers for your equipment
  • Initial start-up costs and how long until you’re profitable
  • Competitors

You can use one of these templates from the U.S. Small Business Administration to create a more detailed business plan.

Looking for more tips? Check out these 10 things you should know before you start a business. 

Setting Your Rate

The best way to set your initial rates is by researching prices for wedding DJs in your area, then offering a lower price.

How much you charge also depends on where you live: A wedding DJ in a big city earns more money than a wedding DJ in a small town.

Still, a good starting rate for a novice wedding DJ is roughly $500. You can raise your rates as you gain more experience. According to The Knot’s Real Weddings Study, couples spent an average of $1,400 on a DJ in 2021.

Wedding DJs usually pick one or more of the following pricing structures:

  • Flat fee or hourly rate
  • Packages
  • A la carte services
  • Custom quote

You should also be open to negotiating when you first start out.

Decide What DJ Services to Offer

Smith said offering additional services to clients is one of the best ways to make extra money as a wedding DJ.

“Additional services can really help add value,” Smith said. “You can offer things like uplighting, or doing sound for both the ceremony and the reception.”

Consider add-ons that earn you extra money with minimal effort. For example, some DJs offer photo booth services for guests, but Smith said photo booths are labor intensive to transport and set up.

“Unless you have someone else helping you, you want to keep things simple,” he said.

4. Buy Your DJ Gear

A big hurdle for many new DJs is acquiring equipment. It can cost a couple thousand dollars to purchase all your DJ gear.

“It’s a big cost up front for sure,” Nick said, “but you’ll earn it back quickly with gigs.”

While you don’t need state-of-the-art equipment to be a great wedding DJ, you do need a solid foundation to get started.

Wedding DJ gear checklist:

  • Laptop with at least 6 GB of internal memory and three USB inputs
  • DJ software, like Serato or Traktor
  • PA system (amplifier and speakers)
  • DJ controller / mixer
  • Over-the-ear headphones
  • Cables
  • MP3 music files

On a budget? Smith recommends looking for deals on sites like eBay and Craigslist. Check out sales at your local music store, too.

You could even borrow equipment from a friend or neighborhood church for your first couple gigs.

“You can start with a cheaper set-up, then upgrade it up over time,” Smith said.

You’ll also need to be comfortable setting up and tearing down your own DJ equipment. Figuring out how to efficiently store and transport your gear is also important if you want to be a mobile DJ.

Buy the Music

Buying music is important if you want to run a successful wedding DJ business.

Professionals caution against using streaming services like Spotify or YouTube. It isn’t technically legal and you shouldn’t rely on anything that requires Internet access anyway.

You have several options to legally purchase music for your wedding DJ business:

  • Buy mp3s through Amazon or iTunes/Apple Music.
  • Subscribe to a DJ pool like Promo City. This is a paid service that gives you access to volumes of modern music for download.
  • DJ subscription service like Virtual DJ or Pulselocker.
  • Buy used CDs and rip them to your laptop.

Set aside a little money from each gig to buy more music, and it won’t take long to compile a competitive professional DJ library.

5. Market Yourself

You have the gear. You have a plan. Now it’s time to get some customers.

You’ll need to create a DJ website and social media accounts to attract potential customers. Look at websites for other wedding DJ businesses to get ideas.

At the bare minimum, your website should include:

  • Your rates
  • Where you’re located (and how far you’re willing to travel)
  • A contact email address and phone number
  • What makes you unique from other DJs in the wedding industry
  • Testimonials and positive reviews

You can use a service like Wix or Weebly for free, or hire a professional to design a website for you.

Word of mouth is huge in the wedding business, Smith said. It’s about who you know and who knows you.

“Recommendations are everything,” Smith emphasized.

Give discounts for referrals. Make it easy for the bride and groom to leave glowing reviews about your wedding DJ business on Google and Facebook.

You’ll want to create some business cards and maybe some flyers, too.

Leave a space in your budget for marketing costs. Advertising on sites like The Knot and WeddingWire can really help pull in new customers because couples often visit these sites to find venues and vendors.

6. Meet the Couple for a Consultation

Meet up with the wedding couple several weeks before the event to discuss the playlist.

Ask about their favorite genres and bands, then create a short list of must-have songs, including their pick for the first dance and other important dances.

Perhaps more importantly, get a list of songs they don’t want played. The Chicken Dance, for instance.

“Get an idea of what they’re looking for,” Smith said, “then execute that to the best of your abilities.”

Print a questionnaire for the couple to fill out at the consultation with a timeline of the wedding, names of important people in the wedding party and other key details you should know.

You’ll also want to create contracts you can customize for each couple.

Your business contract should cover things like cancellation fees and damaged equipment policies. Make sure to discuss these policies with clients during the initial consultation.

Finally, prepare to spend several hours communicating back and forth with the couple before the wedding. Smith said he usually spends about 10 hours total preparing for the big day.

Two brides dance at their wedding reception.
Getty Images

7. Create the Playlist

Your goal as a wedding DJ is to create a memorable experience for the couple and keep the party going.

Don’t slide your original deep house remix into the wedding playlist. Remember, focus on the bride and groom — not your personal taste in music.

Play music to match the festivities. Break your songs into different blocks for the ceremony, cocktail hour, introductions, dinner and dance floor.

Each block should have different music to the atmosphere: Classical music at the ceremony, light jazz for the cocktail hour and soulful tunes for dinner, for example.

You can flex more creativity and play new music for the dance floor. But remember: You’re playing for a diverse audience. Don’t be afraid to bust out crowd favorites like “Don’t Stop Believin’” and “Livin’ On A Prayer.”

“People are at a wedding to have a good time,” Smith said. “Your job is to play the right music and create a fun atmosphere for everyone.”

8. Be On Time and Professional

You can’t be late to the party when you’re the DJ. Get there early, set up on time and prepare for a late night.

Before the wedding, write out a script of everything you plan to say. Practice pronouncing names. You don’t want to butcher the best man’s last name on stage.

Make sure to bring backup chargers, cables and other necessary gear. Things go wrong, break and run out of battery. Don’t let something unexpected (but easily preventable) ruin your wedding gig.

9. Work the Crowd and Keep the Party Going

Successful wedding DJs set the tone and vibe for the entire reception.

Be friendly, energetic and don’t forget to smile!

It’s not all about the music, though: You’ll be in charge of making announcements, calling for special dances and fielding song requests from (often intoxicated) guests.

You’ll need to communicate with other vendors at the wedding, too. You don’t want to start playing music for a special dance, for example, without the photographers and videographers in place.

Be observant, flexible and keep the party going.

It’s a lot to manage but pulling off your first successful gig can be the start of a rewarding and lucrative wedding DJ business.

Rachel Christian is a Certified Educator in Personal Finance and a senior writer for The Penny Hoarder




The Best Apartments in Miami in 2022

It’s tough to tell what’s a resort and what’s not in Miami, so equipped are the apartment communities with amenities most people expect only on vacation.

Any renter who wants every regular day to feel like they’re at a Sandals resort should make haste to Miami, where crystal-clear rooftop pools, maxed-out fitness centers, beach access and such are the norm in many communities. Of course, some of these properties come with pretty steep price tags, as there’s a wide cost of living range in Miami, not to mention many neighborhoods to choose from. However, it’s still totally possible to compromise here and there to get the unit of your dreams, even if it means a rental further away from the action.

This list of the 25 best apartment communities is a great way to begin any search for the perfect rental in Magic City. Get those flip-flops and bikinis ready — Bienvenido a Miami!

Source: Living

Kicking off our list of the best apartments in Miami is the swank community of 850 Living, a brand-new “urban development” designed as an oasis right in the heart of Miami’s hustle and bustle. The property’s 70-foot, zero-entry pool is a stunner for sure, as is the fitness center complete with a spin room. Quartz countertops grace the kitchens and bathrooms of each luxe unit.

The neighborhood is also a serious perk to life in 850 Living, as it’s steps away from all types of restaurants, shopping, green spaces, entertainment and so on. The airport is also a scant two miles away, so it’s perfect for frequent travelers! The Magic City Casino, Grapeland Water Park and the University of Miami are also just around the corner.

Source: Apartments

Smack in the heart of Kendall, a hot suburb only minutes from Miami, is the community of Sunset Apartments. Many Miami locals choose to settle here because it’s close to everything at a fraction of the cost, plus, it boasts excellent schools and proximity to all the major roadways.

The community also has a decidedly Floridian feel to it with its architecture, lush tropical greenery and sparkling pool on site.

Source: Midtown

Arguably the most dog-friendly community on our list, Gio Midtown has a full spate of pooch-related amenities. Furry friends enjoy the dog lounge, dog spa and outdoor dog turf run, all on-site! Gio Midtown also has electric car charging stations, keyless entry, a “salt room,” and even a meditation garden. Points for creativity, right?

Since the design of the overall property is “mid-century modern,” the sleek aesthetic of the spaces is fresh, clean and updated to the -nth degree. This is so appropriate, given the fact that it’s located in Midtown, arguably one of the hottest neighborhoods in Miami right now.

Source: Verde at Deerwood

Found in suburban Miami right near the Miami Zoo, Vista Verde at Deerwood welcomes people of all cultures and persuasions. This community is particularly great for families, thanks to the on-site “tot lot,” pool and picnic area. Pets are also welcome at this attractive property, which is fabulous for dog-lovers because that’s not the case everywhere!

Renters also enjoy a volleyball court, tennis court, fitness center and balconies/patios in every unit. The community also hosts monthly events so that tenants can mix and mingle with each other.

Source: Point

The totally updated property at Waterford Point has all types of unit options, including studios, townhomes and standard apartments. The property has the amenities one would expect of a Miami apartment, including two pools and spas, a fitness center and even a steam room! Select units even have dual master suites, for those roomies who need a little extra breathing room.

Located in the quaint suburb of Kendall, Waterford Point nonetheless offers enviable access to Miami’s businesses and nightlife, but at a more affordable price point.

Source: Landing

Waterford Landing is an excellent option for the budget-conscious renter who still wants to enjoy some pretty sweet amenities. The homey property features two lighted tennis courts, an indoor racquetball court, two swimming pools and two spas. The beautifully landscaped community is also ideally situated near the Florida Turnpike, a serious bonus for commuters. Full-sized washers and dryers in each unit (except studios, but they have access to a free laundry facility) are much appreciated by residents. Units have been recently remodeled and renovated, so they’re practically brand-new!

Source: Colony Apartments

Just west of Miami near the Florida Everglades, Kings Colony has an impressive array of amenities not found in many other properties. For example, the car wash area and door-to-door valet trash service alone are reasons enough to sign a lease! This smoke-free living community is also equipped with smart home technology and attractive white shaker cabinets.

There are plenty of fun things to do on the property, as well, with two indoor racquetball courts and two swimming pools available to residents and guests. Although they allow cats and dogs on the property, certain dogs with “aggressive tendencies” aren’t allowed, so look into that before moving in with your German Shepherd or Rottweiler.

Source: Bay

Next on our list of the best apartments in Miami is the perfect community for people who long for bay views. Look no further, as 22 Biscayne Bay offers this amenity in every unit. This 14-floor tower is conveniently situated only 10 minutes from South Beach and 5 minutes from Downtown.

Like most high-rises in the area, it sports a luxe pool, total fitness center and luxury appliances in all units. Covered parking for residents is another major bonus, although virtually everything a renter needs is within walking distance!


Created with aesthetics top of mind, CORE is the sister tower to nearby CASCADE. Both buildings are architectural knockouts, with “architectural elements running diagonally down the facade,” per the property’s site. The units have a decidedly modern, urban vibe, and the entire property is liberally sprinkled with unconventional, fresh touches like modern art, designer lighting features and attractive patterns laid into the floor.

The rooftop pool, complete with cabanas, grilling stations and ridiculous views, is a chill way to spend the days and nights. Many locals also hop on over to any of the area’s numerous greenspaces to picnic or stretch their legs. Back at the property, there’s even an on-site family grocer for residents to stock up on mouth-watering fresh fruits and vegetables!

Source: River Park Village Apartments

The stunning pool surrounded by tanning chairs isn’t the very best thing at Terrazas River Park Village Apartments, but it’s close. Located on a property with gorgeous, mature trees, this community offers leases that range from seven to 12 months in duration and is pet-friendly. Each tenant gets a parking space, so a place to park the car is never an issue. Access to the hot tub, as well as in-unit balconies and washer/dryer, make it an ultra-convenient place to call home. Although slightly inland and thus, a bit further from South Beach, this community is just a short walk from the Miami River.


Stunning views of the waterfront are virtually everywhere on this property, located on 22nd Street in the desirable Edgewater neighborhood of Miami. Skyview tenants often move there to get in the mix of everything related to Miami, as it’s close to so many local attractions. Each unit comes with brand-name appliances in a fully-equipped kitchen. Residents love to work up a sweat in an up-to-date fitness center, followed by time in the lap pool or Jacuzzi on-site.

Source: Plaza

With 156 units, Oak Plaza is just the right size for those who want to avoid mega-Miami living. This pet-friendly property is ideal for people who work at or otherwise require access to the local healthcare facilities. In fact, it’s very close to the Miami Health System campus, the VA hospital and Jackson Memorial Hospital.

Residents also enjoy super close proximity to LoanDepot Park, home of the Miami Marlins baseball team. The sparkling pool, up-to-date fitness center and stunning views are the icings on the cake of this community.

Source: Square

A smidge further inland, this colorful community is affordable living at its finest. Practically new, residents appreciate the clean and modern feel of this property. Complete with everything a person or family really needs to get by, Pinnacle Square does have some nice extras, like a playground, business center and fitness center. There’s even a community clubhouse and library! Beloved restaurants, like The Citadel and La Santa Taqueria, are just around the corner, perfect for happy hour and such.

Source: Place

Lush with palm trees, Pinnacle Place is a new high-rise community that prides itself on affordability. Renters who’re lucky enough to find an open unit here appreciate its proximity to the Design and Arts District, not to mention all of the local shopping and entertainment.

Although the apartment community doesn’t allow pets, it does offer residents access to 24-hour maintenance, a parking garage, energy-efficient appliances, a fitness center and a children’s playground, among other amenities. Restaurants like CHICA Miami and Sullivan Street Bakery are popular spots for locals to Pinnacle Place.

Source: Lake

Slightly further inland, this Centre Lake is conveniently found near the I-95 expressway. Although this community has something of a fancy name, it has fewer frills than a lot of other apartments on our list. This shows in the rental rates, however, making it one of the more affordable options in the Miami area.

A pet-friendly neighborhood (maximum allowed, two), renters in Centre Lake enjoy a beautifully landscaped courtyard, their own private patio and private unit entry. These ranch-style, single-story apartments also come equipped with standard utilities, and renters have access to additional attic storage.

Source: at the Falls

Renters with children flock to Residences At the Falls because it’s zoned for one of the area’s best school districts. There’s also plenty for kid and adult residents alike to enjoy on the property, including a basketball court, community garden, four tennis courts, plenty of green space and two Olympic-size swimming pools. The community also has 24-hour security on-site, as well as a gated and monitored entrance.

Source: Place

Located in the Buena Vista neighborhood of Miami, Design Place oozes charm in all the best ways possible. The carefully tended grounds, colorfully painted buildings and white picket fences lend extra whimsy to this suburban neighborhood. It’s also just a short drive to Miami hotspots like South Beach, Downtown, Brickell and Midtown, but there’s still plenty of entertainment, dining and shopping to enjoy within walking distance.

Units with backyards are available for rent, plus the property has a community garden, cabana-style sundeck, picnic area, sand volleyball court, expansive pool and a poolside cafe.

Source: Apartments

This community is the perfect balance of not too big, but not too small. Located in the Coconut Grove area of Miami, Gibraltar Apartments is relatively new, having started taking occupants only in 2015. It’s delightfully close to Miracle Mile and Coco Walk, as well as the Miami Metro Rail and international airport. The area’s walk score is an impressive 84, making it a pedestrian paradise. No pets here, though, so don’t sign on the dotted line if Fido or Fluffy will pay the price.

Source: Village Apartments

The last non-high-rise on our list, Hampton Village Apartments are nonetheless just as cute as can be. These units are ideal for people who don’t want to spend a ton of time going up and down in an elevator. Complete with a clubhouse, common area, fitness center and playground, Hampton Village is perfect for renters who don’t want to pay a ton more in rent for amenities they won’t use. With a walk score of 60, the area is not ultra-walkable, but some people do get around on foot when they’re really motivated.

Source: Tower

No doubt Melody Tower gets its name from residents who whistle a happy tune as they come and go from this conveniently located, relatively affordable property. Although it’s not right on the water, it’s only a short walk from beach access. It’s also within walking distance to major Miami attractions, like the Midtown shops, Design District, Brickell City Center and the Adrianne Arsht Center.

Close proximity to major roadways makes it a no-brainer for commuters who don’t want to spend all their time in traffic. The fitness center has everything a gym rat could possibly want, plus the pool and Jacuzzi are the perfect finishing touches.

Source: Plaza

This pet-friendly community boasts 425 units among its 36 stories, not to mention 8,000 square feet of commercial space. Miami Plaza’s crown jewel is likely the stunning lap pool, but residents also take advantage of a state-of-the-art fitness center, business center and multi-level garage with security.

Units also come with oversized formal dining rooms and living rooms, making it extra easy to stretch out at the end of the day. “Fine European cabinetry” adds an extra-special touch to these apartments.

Source: Plaza

Apartment living feels more like resort living in this Miami high-rise apartment community. The practically new units have gorgeous hardwood flooring, a balcony/deck, stainless steel appliances and much more. The smoke-free community also includes a picturesque pool, hot tub, game room, gated access and on-site patrol. Plus, it’s close to just about everything Miami has to offer, whether on foot, by car or on a bicycle.

Source: 5th

Smack in the city center are the units of Downtown 5th, billed as “brand new luxury rental apartments.” This area of Miami is especially known for being extremely walkable, close to public transit options and bikeable, to boot! It’s also surrounded on all sides by amazing entertainment options and arts/culture opportunities. Not to mention, of course, the fact that it’s a hop, skip and a bike ride from the sandy white beaches that Miami is known for. It also butts right up to the Wolfson Campus of Miami Dade College, giving the area a decidedly youthful vibe.

Source: Station

Location is what makes the community of Square Station extra special. Only a 10-minute drive from both Miami Beach and Miami International Airport, Square Station is ideal for people who don’t like to waste a lot of time in the car. It’s also within walking distance of major local attractions, like American Airlines Arena, the Perez Art Museum Miami (The PAMM) and the local science museum.

While resting on the property, residents enjoy the onsite 80-foot lap pool, fitness center and panoramic views of the coast. This gated community also features covered parking, always a plus during those hot Miami summers.

Source: Tower

It doesn’t get much more Miami than Panorama Tower! This stunning high-rise is pricey, but worth it if what you’re after is Miami-luxe. With ocean views and sunset pools to take it all in from, this property boasts the most impressive spate of amenities in Miami, possibly the world. Among other high-end amenities, Panorama Tower residents and their guests can enjoy the billiards room, children’s playroom, onsite dry cleaner, high-tech fitness center, interactive splash pool, interactive golf simulator, pet spa, pet hotel, three private movie theaters, two social lounges and much more without ever leaving the property.

The best apartments in Miami

Miami, when done right, feels like a permanent vacation. If this sounds like a good fit for you, check out our search tool to find apartments for rent in Miami. There’s something out there to suit the budget, location and amenity needs of even the choosiest would-be resident!

We looked at all available multifamily rental property inventory from January to June 2021 on to determine which properties with a [city] mailing address are most viewed by organic internet searches. The information included in this article is used for illustrative purposes only. The data contained herein does not constitute financial advice, availability or a pricing guarantee for any apartment.


Decentralized Finance (DeFi) Decoded: What Is This Blockchain Tech?

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Cryptocurrency was built on the idea of decentralization. The blockchain technology itself that powers the Bitcoin network was purpose-built to be powered by independent operators so that no central authority could govern it.

Decentralized finance is one of the most popular innovations to come from cryptocurrency, allowing anyone to transact on the blockchain directly. Decentralized finance (DeFi) apps allow users to connect their digital wallets and access financial services, such as crypto trading and lending. 

Read on for a breakdown of DeFi, what it is, how it works, and the most popular cryptocurrency in the DeFi space today. We’ll also cover some of the risks to consider before investing in and using DeFi platforms.

What Is Decentralized Finance (DeFi)?

Decentralized finance (DeFi) refers to the applications and networks that allow users to exchange cryptocurrency for goods and services on a decentralized blockchain. These transactions are typically managed by smart contracts, which are programs that govern financial transactions on the blockchain.

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Although that may sound complicated, the real-world use cases of DeFi are much simpler. 

Users can connect their digital wallet to an application and choose to trade, lend, borrow, invest, or make a purchase with the crypto in that wallet. This activity can range from purchasing a non-fungible token (NFT), to transferring crypto to another user, to playing a decentralized online game, to depositing crypto to earn interest.

There are many use cases for decentralized finance. Here’s how it works:

How Decentralized Finance (DeFi) Works

DeFi uses peer-to-peer networks of computers and servers (known as “nodes”) to process transactions and host applications (such as a lending application). Users interact with these applications with a digital wallet that carries a compatible cryptocurrency. 

DeFi applications are specifically built to be decentralized, relying on node operators and validators to confirm transactions and secure the network. The distributed nature of DeFi means that there is no central governing authority to regulate the applications, but is instead a “trustless” system that uses smart contracts and a blockchain ledger to automate and secure transactions.

It’s easier to understand DeFi when comparing it to how traditional banking systems work. 

When someone wants to borrow money from a bank, they need to prove their creditworthiness, provide detailed financial statements (including income and debt), and may be required to provide proof of collateral to secure the loan. There may be a down payment required, and a written agreement on payback terms and conditions that both parties sign. 

In DeFi, when applying for a loan, a user can deposit their cryptocurrency as collateral (such as Bitcoin), select how much they wish to borrow against that balance, and the funds are instantly transferred to their digital wallet. Repayment typically happens at the borrower’s convenience, and the interest charged is simply added to the user’s debt balance over time. 

DeFi removes banks from the middle of financial transactions. Money transfers, borrowing, lending, and crypto trading happens in an automated fashion.

Here’s how the blockchain and smart contracts are designed to facilitate DeFi applications:

The Blockchain

The blockchain is a public distributed ledger that processes and validates cryptocurrency transactions. When a transaction is processed, a record of that transaction is created and multiple other users verify the transaction to confirm it is valid. 

The transaction is added to a block on the network, where multiple transactions are stored in sequential order. After the transactions within a block are completely validated, the block is closed, and placed in sequential order just after the previous block.

This continuous chain of blocks makes up the blockchain, which cannot be altered, or it breaks the chain and invalidates the entire blockchain. All this data is encrypted and validated by independent parties, ensuring no bad actor or central authority can alter the blockchain.

DeFi applications are built on this blockchain, and all transactional activity uses the native blockchain of the application to record the activity. For example, if you use a decentralized exchange based on Ethereum like Uniswap to trade crypto, your transactions are all recorded on the Ethereum blockchain.

Yes, this sounds complicated. But you, as a user of DeFi apps, are simply connecting your digital wallet and interacting with an app. The blockchain manages all the data in the background.

Smart Contracts

Smart contracts are programs that automatically execute transactions on the blockchain when certain conditions are met. 

For example, when a user of a DeFi lending application deposits cryptocurrency, a smart contract executes to automatically start paying interest to the user. Or, when executing a trade on a decentralized exchange, a smart contract automatically executes the trade at the agreed-upon price without a broker acting as a middleman.

There are infinite uses of smart contracts, and DeFi applications continue to find innovative ways to program smart contracts into their applications. They are the foundation of how DeFi apps function, and are used by most modern blockchains.

DeFi Applications

DeFi applications are the heart of decentralized finance and are built to allow users to buy, sell, and trade crypto, as well as perform other financial transactions, such as borrowing and lending. Here are a few examples of DeFi apps:

  • Borrowing. Users who want to borrow against their crypto holdings can connect to a decentralized lending platform, deposit their crypto holdings as collateral, and borrow against those holdings. Users can borrow cryptocurrency up to a certain percentage of their collateral value, but can also be automatically liquidated if the value of their collateral drops too much.
  • Lending. Crypto lending platforms allow users to borrow crypto, but on the flip side, users can deposit crypto to earn interest on their holdings. Users can deposit stablecoins to earn high interest rates, and the lending platform will lend out those coins to borrowers. This is how many use DeFi to earn passive income.
  • Decentralized Exchanges (DEXs). A decentralized exchange is where users can trade crypto directly from their digital wallet. You can connect your wallet and select which crypto you want to trade. Buying and sellers are automatically matched to facilitate the transaction, and the DEX charges a small fee to pay for liquidity and transaction costs.
  • Derivatives. Users can trade derivatives on DeFi applications, which are cryptocurrencies that are tied to the value of real-world items, such as a stock market index fund. DeFi apps use an “oracle” smart contract that ties in value data from real assets and attaches that value to a cryptocurrency or contract to allow users to trade derivative products. 
  • NFTs. Although not technically an application, non-fungible tokens (NFTs) are essentially a serial number for digital assets, such as artwork and metaverse items. These items are recorded on the blockchain, giving users verifiable ownership of a unique item. These items can be purchased on exchanges or traded within DeFi applications.

There are a growing number of DeFi applications as the space continues to evolve at a rapid pace. Time will tell how these applications will expand and impact the financial world.

Pros and Cons of DeFi

DeFi is exciting, innovative, and sometimes confusing. With so many applications and use cases being launched on a weekly basis, it is hard to keep up with the growth of this space. And while this creativity is sparking changes in the financial world, there are definite risks involved in DeFi. Here are a few awesome things about the space, as well as some concerns to be aware of:

Pros of Decentralized Finance (DeFi)

DeFi allows users to access financial services in a fast, unmoderated way. With around the clock functionality, lightning-fast transactions, and minimal fees, DeFi offers many advantages over traditional banking systems. Here are a few features that make DeFi great:

  1. 24/7 Availability. DeFi is decentralized and hosted on networks that are available 24 hours a day, seven days a week. With no governing authority to stop trading and transaction processing, users can transact whenever they want without waiting days for approvals and market availability.
  2. Low Fees. In general, DeFi offers low fees to process transactions, typically charging less than 1% of the total transaction. Compared to fees upwards of 4% for companies like PayPal, this is a major discount for services.
  3. (Partially) Anonymous. Although transactions are recorded on a public ledger and are traceable through the blockchain, users do not have to verify their identity or sign up for any account with any personal information to use DeFi applications. This allows a certain level of anonymity when transacting within DeFi apps.
  4. Fast Transactions. DeFi is fast and is getting faster as networks and protocols are continually upgraded. Users can get approvals for DeFi loans instantly, and transactions can be processed in just seconds.

Cons of Decentralized Finance (DeFi)

Although DeFi is rapidly changing the world of finance, there are some risks involved. Namely, scammers and hackers are in the business of trying to access the enormous amount of wealth being transacted within DeFi applications. Network fees can also fluctuate, causing a sharp spike in prices for transactions. 

Here are a few risks of DeFi to be aware of:

  1. Scams. Unfortunately, with lack of regulation comes an influx of scammers and criminals trying to steal your money. Billions of dollars were scammed from DeFi users in 2021 alone, and the number is rising. Stolen digital wallet private keys and “rug pulls” (newly-issued tokens that become worthless) are two common types of these scams.
  2. No Insurance. While DeFi is unregulated by design, this means most DeFi applications do not have any consumer protections, including insurance. If you transfer your coins to the wrong digital address or an application gets shut down while it holds your tokens, you cannot recover any of those funds via insurance.
  3. Liquidations. Specific to lending apps, a liquidation happens when you provide collateral for a loan (say, Bitcoin), and the price of that collateral drops. Because DeFi lending is automated, if the price of your Bitcoin drops below a certain threshold, the DeFi can automatically liquidate your collateral to pay off the loan, leaving you with no collateral left.

There are other risks in DeFi, mostly stemming from the fact that it is unregulated, and anyone can create a DeFi app that looks legitimate, even if it is not. As always, protect your digital wallet private keys and always do your research before connecting your wallet to any DeFi application.

How to Get Started With DeFi

DeFi requires that users connect to applications using a digital wallet with some cryptocurrency in it. To get started, you can download a digital wallet application as an add-on to your browser or as a mobile app. 

Once you have your wallet set up, you will need to purchase crypto and transfer it to that wallet. You can use a crypto exchange to make the purchase, and then transfer the funds to your wallet address.

Once you have the right crypto in your wallet — for example, ethereum (ETH) for use on Ethereum-based DeFi apps — then you can go to the website or application and connect your digital wallet. This allows you to transact on the DeFi app, including borrowing, lending or trading.

FAQs About Decentralized Finance

As a brand-new technology, DeFi can be confusing. Here are some answers to common questions about DeFi to help you get started.

Is Bitcoin DeFi?

Bitcoin is the original DeFi protocol — a decentralized distributed ledger to facilitate peer-to-peer payments without the need for a central bank or processing company. It laid the groundwork for all other cryptocurrency protocols, and created the blockchain.

That being said, in today’s vernacular, Bitcoin is not really known as DeFi. Today the term typically refers to DeFi applications that use smart contracts, which are mostly built on the Ethereum network and a few other blockchains. 

Bitcoin is used as a payment system and is seen as a store of value, but not a DeFi application.

What Are the Top DeFi Coins?

The top DeFi coins are cryptocurrencies that support the underlying networks DeFi applications run on. This includes Ethereum — which hosts a majority of DeFi today — as well as Solana (SOL), Avalanche (AVAX), Cardano (ADA), and Terra (LUNA). These blockchain networks host DeFi applications, and their native cryptocurrencies are well established, worth tens of billions of dollars (or more).

As for DeFi projects that build decentralized applications, some of the top coins include MakerDAO (MKR), SushiSwap (SUSHI), Aave (AAVE), and Uniswap (UNI). These applications boast large daily transaction volumes and billion-dollar market caps.

What Are the Top DeFi Platforms?

There are hundreds if not thousands of DeFi platforms today, with more being launched in rapid fashion. Some of the top platforms are the native blockchains that host DeFi applications. Here’s a few of the top DeFi platforms available:

Ethereum. Ethereum was one of the first blockchain networks to launch smart contracts, and it was developed to allow users to create applications on top of the Ethereum network. There are hundreds of DeFi apps that run on Ethereum, and it is the most popular cryptocurrency outside of Bitcoin.

Solana. Solana is a blockchain platform that promises lightning-fast transactions and extremely low fees. Many DeFi applications have already been built on Solana, including borrowing, lending, NFT marketplace, and trading applications.

Avalanche. Avalanche is another fast blockchain network that offers extremely low fees and quick transactions. It hosts many decentralized exchanges and other DeFi apps, making it one of the top DeFi platforms available today.

Decentraland. Decentraland is a DeFi gaming platform that allows users to buy and sell digital assets for the metaverse, including digital real estate, digital avatar wearables, and names.

These platforms have proven track records and massive valuations, with millions of daily users. 

How Are DeFi Transactions Taxed?

DeFi covers a wide range of financial services, and the taxes on each of these services vary depending on the type of DeFi application you’re using. DeFi taxes will either be classified as income or capital gains, depending on how it is earned.

When earning interest or rewards within a DeFi app, this is typically taxed as income. The same goes for mining crypto or receiving an airdrop of a token.

Buying and selling crypto also incurs taxes, similar to buying and selling stocks. When these transactions happen in DeFi, it is no different. Crypto held for under one year is taxed at short-term capital gains rates, and those held for one year or longer are taxed at long-term capital gains rates.

Overall, taxes of DeFi transactions can get fairly complicated, and it’s best to connect with a tax professional to understand the tax implications of your particular DeFi application use case.

How Will Ethereum 2.0 Impact DeFi?

Ethereum 2.0 is a network upgrade to the Ethereum blockchain, and will allow a much larger number of transactions. This will help lower the cost of network fees on the Ethereum network, as well as speed up transaction times. 

Because most DeFi applications are built on Ethereum, this upgrade will drastically improve the overall performance of DeFi.

Are NFTs DeFi?

Sort of.

Although NFTs themselves are simply tokenized ownership of an asset (physical or digital), NFTs can be traded over the blockchain, making them a DeFi-compatible asset. 

There are NFT marketplaces built on the blockchain that allow trading and listing of NFTs, and NFTs act as a store of value on the decentralized network. NFTs can also be used as collateral for DeFi loans, or “staked” to earn interest on DeFi applications.

So, although NFTs themselves are not DeFi items, they function within the DeFi ecosystem.

Final Word

Decentralized finance (DeFi) is here to stay. There are thousands of applications providing financial services across the globe, and the number of use cases continues to grow exponentially. Investors in DeFi cryptocurrency anticipate this growth, with institutional investors joining at a rapid pace, investing in protocols such as Ethereum and Solana.

DeFi faces quite a few regulatory hurdles in the coming years, with scams on the rise and billions of dollars worth of crypto being stolen on a yearly basis. This is a problem that requires a solution, and authorities like the SEC and FinCEN are starting to get involved. 

Although some view regulation as a bad thing for DeFi, creating a regulatory environment that allows DeFi to thrive while protecting consumers could help boost its popularity even more.

Overall, DeFi is a new technology that marries the blockchain with real-world use cases. Only time will tell how it impacts the world of finance in the coming years.

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