Published April 24, 20227 min read

What Is a DeFi Wallet and How To Use It?

CoinMooner Team

Decentralized finance is the latest solution in the digital financial industry. Thanks to blockchain technology, it becomes possible to perform transactions without intermediaries. This increases the safety of all financial operations greatly, although the users need to have a dedicated DeFi wallet.

What Is a DeFi Wallet?

It is a type of electronic wallet used for keeping crypto assets. Such digital wallets differ from the classic cryptocurrency storage solutions by eliminating middlemen. No institutions or companies have access to these wallets, as only the owners have a key phrase used as a password and, thus, can access the funds.

Characteristics

While crypto DeFi wallet solutions are similar to traditional cryptocurrency wallets, they have a few unique characteristics. Here is what defines a decentralized finance wallet:

Non-custodial nature. Being a non-custodial wallet means that no bank or company can access your assets and manage them in any way. The only person who gets access to it is the one knowing the keyword phrase.

Powerful key. The wallets do not use classic passwords, even if they are very strong. A long twelve-word phrase is generated to be used as a key. It is up to the wallet owner to keep the phrase secured.

Accessibility. These e-wallets can store numerous cryptocurrencies at once. Each wallet has a specific list of cryptos supported.

Compatibility. Many desktop DeFi solutions operate as browser extensions, which is extremely convenient for the users. Mobile devices on iOS and Android have started incorporating dApps for easier access to the wallets as well.

Overall, the key characteristics of DeFi wallets are the best security to date and user-friendliness.

What Is It Used For?

All DeFi wallets might have different functionality, but the primary objective for each one is to keep the assets safe. There, you can store your assets for additional safety, as centralized e-wallets can be controlled by crypto exchanges and other companies. Apart from storing crypto assets, it is possible to receive transactions and send cryptos to other wallets and users. Some wallets allow swapping currencies without having to use a separate exchange. In addition, solutions like MetaMask or Coinbase allow storing non-fungible tokens.

Types of DeFi Wallets

There are several types of DeFi wallets based on their access to the Internet and devices they are compatible with.

Web Wallet

Web wallets usually come in the form of browser extensions. This is one of the most convenient solutions, as users do not even need to install any programs on their computers. Some of the most prominent web wallets are MetaMask and Coinbase. Both of them offer diverse functionality and can be installed as browser extensions within seconds.

Desktop Wallet

Desktop wallets require downloading and installing a client program on your PC. Most crypto wallets offer a range of solutions, from web clients to PC programs, so users can pick the most suitable options themselves. While certified web wallets are most commonly used now, some of them also provide desktop clients, for example, Guarda, Exodus, Electrum, etc.

Hardware Wallet,

The safest solution for storing crypto is definitely a hardware wallet. These are physical gadgets as opposed to browser extensions and mobile apps. Such DeFi wallets are not connected to the Internet, which makes them as safe as possible. Hardware crypto wallets can come in different forms, and one of them resembles a common USB stick. Some of the most popular hardware solutions are Ledger and Trezor.

Mobile Wallet

Mobile wallets are becoming more popular because of their convenience and accessibility. They are also constantly evolving to deliver the best experience for users. The latest mobile wallets use dApps to make connecting to various wallets easier. Some of the crypto wallets offering mobile solutions are Coinbase Wallet, Trust Wallet, Argent, and more.

How Secure Are DeFi Wallets?

DeFi wallets are incredibly secure in comparison with other crypto wallets. DeFi solutions are non-custodial, which means there are no intermediaries that have access to your personal data and assets. It is, however, crucial that each user pays close attention to keeping their private access keys safe, as it is their full responsibility. In addition, there are hardware or cold wallets that do not connect to the Internet, which makes them protected from hacker attacks and viruses.

How to Choose a Good One

It is essential to spend some time selecting the best DeFi wallet for your needs. Apart from security, it should also offer convenient access and a bunch of other features. Here is what to look for when picking:

Type of wallet. This is definitely one of the most important factors. It is often better to combine various types of wallets for maximum security, such as using both web and hardware options. Mobile wallets are incredibly convenient, and people who use portable devices more than PC should consider opening such an account. A hardware wallet would be a good addition nonetheless, as it can be used for storing most of the assets for added safety.

Security. Two-factor authentication is a must for blockchain solutions since they have a high risk of being attacked by hackers. This type of authentication increases security immensely.

Blockchain support. Pay attention to the blockchain your wallet is based on. Is it Ethereum-based, or are different blockchains supported?

Utility. Apart from simply storing tokens and transferring them, it is always convenient to have additional features. A built-in crypto exchange is one of the most useful options that a DeFi wallet can have.

Connectivity. A high-quality crypto DeFi wallet should be able to connect to Web 3.0 solutions, such as decentralized apps, AI features, etc.

Web/Desktop/Mobile support. The more platforms are supported by a certain wallet – the better. This way, users can pick convenient solutions and combine them in the most efficient way.

Ease of use/UI. While blockchain and DeFi users should all have certain expertise in technology, it does not mean that the wallets should be difficult to navigate for an average user. Make sure that the wallet of your choice has a user-friendly interface.

Can You Develop It?

Yes, these solutions can be developed by companies and individuals based on their requirements. There is a high demand for cryptocurrency wallets nowadays, and many companies build their own platforms to incorporate required features and achieve compatibility with various blockchains and currencies. In order to develop a DeFi wallet, it is necessary to know coding and blockchain technology.

How to Use DeFi Wallet

Upon answering the question “What is a DeFi wallet?”, let’s figure out how to get started with it. Crypto wallets are usually very easy to use, and most DeFi solutions should have a similar installation and usage strategy. Here is how you can utilize them:

Install the wallet application. Based on the wallet of your choosing, install a browser extension, a desktop app, or a mobile app. The software for each wallet can be downloaded from the official website.

Create a personal profile. Follow the registration guide to create your own profile in the crypto wallet.

Secure the access key. Non-custodial wallets use word phrases instead of classic passwords to enhance protection. Write down your 12-word keyphrase so that you do not forget it and store it somewhere safe.

Add crypto. When the wallet is ready, you can start transferring crypto bought on a digital currency exchange or purchase coins right in the wallet in case such an option is available.

Features of DeFi Ecosystem

Some of the key features of the decentralized finance system are:

the elimination of fees imposed by banks and other intermediaries;

keeping assets in a secure e-wallet that cannot be accessed by third parties;

swift financial transactions that can be performed within seconds;

cross-platform compatibility, etc.

Pros and Cons of Crypto DeF,i Wallets

DeFi solution, have their strong and weak points. Here are the pros and cons of crypto wallets in DeFi:

Overall, DeFi wallets are known for their security, which compensates for some of the existing drawbacks. In addition, the blockchain industry is developing rapidly and continues to deliver improved solutions in every sector. DeFi has a bright future ahead, and it is definitely worth checking out.

Frequently Asked Questions

What Is a DeFi Wallet?

A DeFi wallet is a non-custodial digital wallet for storing cryptocurrencies. It is non-custodial because the only person who can access the stored assets is the owner of a unique key phrase. Unlike centralized wallets, these e-wallets cannot be controlled by a company or a governmental institution. Since the wallets are not controlled by banks, the assets cannot be accessed or frozen by other people.

What Is a DeFi Wallet Used For?

DeFi wallets, much like any other virtual wallet, are used for keeping some assets safe. They can store a variety of cryptocurrencies and tokens. Each wallet is compatible with certain currencies, and it is important to ensure that your preferred currencies are on the list. It is also possible to send cryptos, swap them, and even earn interest.

How to Use DeFi Wallet?

After creating a DeFi wallet and saving your 12-word keyphrase, it is possible to use it. Certain wallets like MetaMask allow buying ETH and other currencies with fiat money right away. Another way of adding funds is to transfer them from other crypto wallets.

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Contents

What Is a DeFi Wallet?Types of DeFi Wallets How Secure Are DeFi Wallets?How to Choose a Good One How to Use DeFi Wallet Features of DeFi Ecosystem Pros and Cons of Crypto DeF,i Wallets Frequently Asked Questions

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