Disclaimer: This article is for educational purposes only. The information provided through Binance does not constitute advice or recommendation of investment or trading. Binance does not take responsibility for any of your investment decisions. Please seek professional advice before taking financial risks.

Key Takeaways

Catizen (CATI) is a play-to-earn blockchain game within the TON ecosystem, where players raise virtual cats.

The game features multiple tokens like vKITTY for in-game purchases, FishCoins to boost progress, and wCATI for cryptocurrency trading.

Catizen plans to distribute 43% of its CATI token supply via events and airdrops. 15% was allocated to Season 1 players, and 9% was reserved for the Catizen Binance Launchpool. The other 19% will be airdropped in future seasons and airdrop events.

What Is Catizen?

Catizen (CATI) is a blockchain game where you get to raise virtual cats. The game is part of the Telegram Open Network (TON) ecosystem and combines play-to-earn (P2E) elements with blockchain features, offering players a chance to earn cryptocurrency rewards.

Similar to Hamster Kombat and other popular Telegram games, Citizen managed to attract millions of users worldwide in a relatively short period.

How Catizen Works

Catizen is a virtual pet-raising game where you look after their cats and ensure they are healthy and happy. Beyond basic care, players can engage in mini-games, participate in tasks, and join events to earn rewards.

You can combine cats to breed higher-level cats and increase in-game currency generation. The game has multiple currencies:

vKITTY: In-game token points that you generate based on your cats and upgrades.

FishCoins: In-game currency used to boost your progress in the game. FishCoins can be earned through in-game tasks or purchased with real money.

wCATI: Tradable token that you can exchange for cryptocurrency.

xZEN: Special in-game currency earned through tasks and events.

You can also earn bonuses by completing daily tasks and quests and use boosts for faster progression. You can open the booster menu by tapping the little rocket icon near your vKITTY balance.

The Fishing mini-game requires FishCoins to be played, but it can give you a large number of vKITTY tokens. The rewards vary according to your fishing speed.

The Auto feature automates the process of combining and breeding cats. It can be bought with FishCoins.

The Shop menu at the bottom left of your screen is where you can buy FishCoins for real money. You can also find free cats and other daily rewards in the Shop.

The Earn menu includes a list of daily tasks and achievements you can do to get FishCoin rewards.

The Feed section is where you buy new cats using vKITTY tokens.

The Invite menu is where you can copy your link to invite friends and get referral bonuses.


Catizen Airdrop

According to the official documentation, the team plans to airdrop 34% of the total CATI token supply to players. 9% of the total supply was reserved for the Catizen Binance Launchpool.

Out of the 34% of CATI reserved for airdrops, 15% will be rewarded to Season 1 players, and the other 19% will be used for future seasons in quarterly airdrop campaigns.

CATI Token

Key metrics

Token name: Catizen (CATI)

Blockchain network: The Open Network (TON)

Binance Launchpool Token Rewards: 90,000,000 (9% of total supply) 

Total supply: 1,000,000,000

Binance Launchpool

Catizen was introduced on Binance Launchpool on September 13, 2024. Users could farm CATI tokens by locking BNB or FDUSD over a period of four days. For more information, please refer to the official announcement.

The Launchpool farming period is over, but you can easily buy or sell CATI tokens on Binance.

Roadmap

Catizen is in the early stages of development, but the roadmap includes many other features, such as AI-driven companions, expanded interactive gameplay, and collaborations with other TON-based projects.

According to the team, their goal is to release over 200 mini-games by 2025, giving players more ways to enjoy the game and earn tokens. They’re also exploring new ways to make the game more social, adding multiplayer elements and collaborations with other projects in the TON ecosystem.

Closing Thoughts

Catizen (CATI) is a game that combines the enjoyment of pet care with play-to-earn rewards. With its integration into the Telegram platform, Catizen is both accessible and engaging for anyone curious about blockchain gaming.

Further Reading

What Is Hamster Kombat (HMSTR)?

Your Guide to Binance Launchpad and Launchpool

Your Guide to Binance Trading Bots

What Is the Binance Airdrop Portal?

Disclaimer: This content is presented to you on an “as is” basis for general information and educational purposes only, without representation or warranty of any kind. It should not be construed as financial, legal or other professional advice, nor is it intended to recommend the purchase of any specific product or service. You should seek your own advice from appropriate professional advisors. Where the article is contributed by a third party contributor, please note that those views expressed belong to the third party contributor, and do not necessarily reflect those of Binance Academy. Please read our full disclaimer here for further details. Digital asset prices can be volatile. The value of your investment may go down or up and you may not get back the amount invested. You are solely responsible for your investment decisions and Binance Academy is not liable for any losses you may incur. This material should not be construed as financial, legal or other professional advice. For more information, see our Terms of Use and Risk Warning.

Disclaimer: This article is for educational purposes only. The information provided through Binance does not constitute advice or recommendation of investment or trading. Binance does not take responsibility for any of your investment decisions. Please seek professional advice before taking financial risks.

Key Takeaways

Hamster Kombat (HMSTR) is a play-to-earn mobile game hosted on the Telegram platform.

Launched in March 2024, the game attracted millions of players with its mix of fun gameplay and crypto rewards.

HamsterKombat was introduced on the Binance Launchpool in September of 2024, allowing users to lock BNB or FDUSD to receive HMSTR airdrops.

What Is Hamster Kombat?

Hamster Kombat (HMSTR) is a crypto mobile game built on The Open Network (TON) and hosted on the Telegram messaging platform. Launched in March 2024, the game attracted millions of players with its mix of fun gameplay and crypto rewards.

The Hamster Kombat game stands out for its simplicity, engaging users through tapping and upgrading mechanics. As the name suggests, the Hamster Kombat features little hamsters. But these aren't just ordinary rodents—they are hamster CEOs tasked with managing a fictional crypto exchange.

How Does Hamster Kombat Work?

Hamster Kombat is a play-to-earn (P2E) game, a popular model in blockchain gaming that rewards engaged players with real cryptocurrency. Players can earn HMSTR tokens by winning battles and completing in-game quests. The Hamster Kombat game is built on The Open Network (TON) blockchain, known for its scalability and low transaction costs.

The game is designed for both crypto enthusiasts and casual gamers, appealing to those who want to earn while playing without needing in-depth knowledge of blockchain technology. With its ease of access via the messaging app Telegram, Hamster Kombat has grown quickly, attracting millions of players worldwide.

How to Play Hamster Kombat

To play Hamster Kombat, you have to launch the game on mobile via their official Telegram bot.

1. Tapping for coins

Use your energy to tap your hamster and collect coins. These coins are essential for upgrading your hamster's crypto exchange, helping you earn more in-game money as you go.

2. Exchange upgrades

You can reinvest your earnings into better upgrades for your fictional crypto exchange. Each upgrade boosts your hamster's ability to generate more coins over time.

3. Daily missions

Each day, you're given tasks. If you complete them, you get bonuses that help you earn coins faster.

4. NFT hamsters

Every hamster in the game is a unique NFT (non-fungible token). This means each hamster has its own special traits and powers, and you can trade them with other players. The rarer your hamster, the more valuable it is.

5. Games and minigames

You can take your hamsters into a wide variety of battles and games, which can earn you rewards like keys and in-game coins, which you can use to buy cards and upgrades.

Hamster Kombat (HMSTR) Token

Binance Launchpool

On September 13, 2024, HamsterKombat was introduced on the Binance Launchpool. Users can lock BNB or FDUSD to receive HMSTR token airdrops over a period of three days, with farming starting on September 23. For more information, please refer to the official announcement.

Key metrics (as of September, 2024)

Token name: Hamster Kombat (HMSTR)

Blockchain network: The Open Network (TON)

Binance Launchpool Token Rewards: 3,000,000,000 (3% of total supply) 

Total supply: 100,000,000,000

Hourly hard cap (per user): 

3,541,666.66 HMSTR in the BNB pool.

625,000 HMSTR in the FDUSD pool.

Hamster Kombat Airdrop

According to the Hamster Kombat documentation, the team plans to airdrop 60% of the total HMSTR token supply to players.

Hamster Kombat’s team has announced an airdrop on September 26, 2024, on the TON blockchain. Players who accumulate in-game coins by engaging in daily tasks, completing missions, or participating in referral programs can receive tradable HMSTR tokens during the airdrop. The goal is to reward active players and increase engagement.

To participate in the TON airdrop, players must link their TON wallet through the Hamster Kombat Telegram bot and continue earning in-game coins. The more coins collected, the higher the airdrop rewards.

How to Withdraw Hamster Kombat Coins

To turn your in-game coins into HMSTR tokens during the airdrop, you have to claim the tokens inside the app and go through the withdrawal process. There will be multiple options for withdrawal, including Binance and other centralized exchanges. 

You can also withdraw with an on-chain TON wallet by following these simple steps:

Link your wallet: Connect a TON wallet like Tonkeeper to your Hamster Kombat account.

Convert coins: Exchange your coins for HMSTR tokens using the Hamster Kombat application.

Withdraw tokens: Once converted, you can manage and withdraw your tokens with Tonkeeper.

Trade tokens: After listing, you can send your HMSTR tokens to exchanges like Binance to enjoy high-liquidity trading.

Should You Try Hamster Kombat?

If you're into simple games that come with crypto rewards, Hamster Kombat is worth a try. Whether you’re a crypto newbie or a veteran, the game is free to play and offers a fun way to dip your toes into the world of blockchain without too much technical hassle.

Closing Thoughts

With its play-to-earn model, daily bonuses, NFT collectibles, and exciting battles, Hamster Kombat has plenty to keep you entertained. If you’re looking for a way to pass the time, strategize, and possibly make a little money, Hamster Kombat might be a good game choice for you.

Further Reading

Your Guide to Binance Launchpad and Launchpool

Your Guide to Binance Trading Bots

What Is the Binance Airdrop Portal?

What Is Binance Megadrop and How to Use It?

Disclaimer: This content is presented to you on an “as is” basis for general information and educational purposes only, without representation or warranty of any kind. It should not be construed as financial, legal or other professional advice, nor is it intended to recommend the purchase of any specific product or service. You should seek your own advice from appropriate professional advisors. Where the article is contributed by a third party contributor, please note that those views expressed belong to the third party contributor, and do not necessarily reflect those of Binance Academy. Please read our full disclaimer here for further details. Digital asset prices can be volatile. The value of your investment may go down or up and you may not get back the amount invested. You are solely responsible for your investment decisions and Binance Academy is not liable for any losses you may incur. This material should not be construed as financial, legal or other professional advice. For more information, see our Terms of Use and Risk Warning.

Key Takeaways

HODL means "Hold On for Dear Life," a strategy that involves holding onto your crypto even when the market tanks.

It started as a typo but has since become a movement in the crypto world.

HODLing is all about ignoring short-term volatility in favor of long-term gains.

The strategy reflects a belief in the future of cryptocurrencies and blockchain technology.

What Does HODL Mean in Cryptocurrency?

If you’ve spent any time in the world of cryptocurrency, you’ve probably come across the term HODL. It’s not just a typo-turned-meme—it’s now a full-blown investment strategy that hardcore crypto enthusiasts swear by. But what does HODL actually mean, and how did a simple mistake become such a big deal? Let’s dive into the story behind it and why it’s stuck around.

The Origins of HODL

Back in 2013, Bitcoin was having one of its wild rides. After a massive 39% drop in just one day, a frustrated user named GameKyuubi took to the BitcoinTalk forum to vent. In his whiskey-fueled rant, his thread titled “I AM HODLING,” GameKyuubi wrote:

I type d that tyitle twice because I knew it was wrong the first time.  Still wrong.  w/e.  GF's out at a lesbian bar, BTC crashing WHY AM I HOLDING? I'LL TELL YOU WHY.  It's because I'm a bad trader and I KNOW I'M A BAD TRADER.

He didn’t bother fixing the typos, and within hours of declaring “I AM HODLING”, the term “HODL” caught on like wildfire.

GameKyuubi's rant wasn’t just funny—it hit home for a lot of people. His message? Don’t sell when things get rough. Instead, HODL—hang onto your crypto and ride out the storm. What started as a simple mistake soon became an iconic mantra for crypto investors who believe that, despite the rollercoaster prices, holding on to your assets will pay off in the long run.

Why HODL? It’s All About the Long Game

The idea behind HODL is simple: don’t panic sell when the market takes a nosedive. If you’ve been around the block in crypto, you know that prices can swing wildly. Today’s high can be tomorrow’s low, and it’s tempting to cash out when things start looking dicey. But HODLers have a different mindset. They believe that holding on tight through the ups and downs will eventually lead to big rewards when the market bounces back​.

Bitcoin’s wild history proves this. From the sky-high prices in 2017 and 2021 to the dreaded “crypto winters,” those who stuck it out (and didn’t sell) saw the value rise again over time. It’s all about keeping your cool during the storm, knowing the sun will eventually come out.

HODLing Through Market Volatility

The cryptocurrency market is well-known for its extreme volatility. From the record highs of Bitcoin in 2017 and 2021 to the sharp declines in 2018 and the so-called "crypto winters," investors have faced drastic price swings. The principle behind HODL is simple: avoid panic selling during downturns, and hold onto assets in anticipation of long-term price appreciation.

Many in the crypto community argue that timing the market—predicting the lows to buy and the highs to sell—is extremely difficult and often results in losses. By holding through both bull and bear markets, HODLers aim to weather the storms and reap the potential rewards when the market rebounds​.

HODL: More Than Just a Strategy

At this point, HODL isn’t just about making money—it’s a whole mindset. For many, it’s about having faith in the future of cryptocurrencies like Bitcoin and blockchain technology. Hardcore HODLers (also known as Bitcoin maximalists) believe that crypto is the future of money and that it will eventually replace traditional currencies. That belief drives them to hold onto their assets, no matter how rough the market gets​.

Along with HODL comes a lot of other crypto lingo like FUD (Fear, Uncertainty, and Doubt), which is all the bad press and negative rumors that can make investors want to sell. HODLers pride themselves on ignoring the noise and keeping their eyes on the long-term prize.

When Should You HODL?

The general rule for HODLing? Always—or at least, that’s what diehard HODLers will tell you. The idea is to hold through thick and thin, whether prices are skyrocketing or crashing. But let’s be real—not everyone has the nerves of steel needed to watch their investments plummet without hitting the sell button.

If you’re committed to the long-term success of crypto and believe it will go up again eventually, then HODLing makes sense. But for those who aren’t ready to take that leap of faith, it’s a riskier game. The key is understanding that HODLing isn’t just a quick way to get rich—it’s about playing the long game and waiting out the storm​.

HODL vs. Traditional Investing

HODLing might feel like a wild ride compared to traditional buy-and-hold strategies in the stock market, but the idea is kind of the same. In stocks, people buy shares and sit on them, even during downturns, because they believe that over time, their value will go up. The difference is that crypto markets are way more volatile, so it takes a lot more guts to HODL through the chaos​.

The Lingo: Diamond Hands, Paper Hands, and More

In the world of HODL, there’s a whole vocabulary to describe different types of investors. If you’ve got diamond hands, you’re the type who holds on no matter how bad the market looks. On the flip side, paper hands are those who panic and sell at the first sign of trouble. It’s all part of the culture around HODLing, where the strongest survive (or at least they hope to).

Closing Thoughts

As more big players like institutions and governments get involved in cryptocurrency, the future of HODLing looks promising—at least, according to those who swear by it. With the introduction of Bitcoin ETFs and regulatory developments, long-term HODLers feel more validated in their strategy​.

Further Reading

12 Terms Every Crypto Trader Should Know

What Is a Bear Market?

What Is the Crypto Fear and Greed Index?

Disclaimer: This content is presented to you for general information and educational purposes only, without representation or warranty of any kind. It should not be construed as financial, legal or other professional advice, nor is it intended to recommend the purchase of any specific product or service. You should seek your own advice from appropriate professional advisors. Where the article is contributed by a third party contributor, please note that those views expressed belong to the third party contributor, and do not necessarily reflect those of Binance Academy. Please read our full disclaimer here for further details. Digital asset prices can be volatile. The value of your investment may go down or up and you may not get back the amount invested. You are solely responsible for your investment decisions and Binance Academy is not liable for any losses you may incur. This material should not be construed as financial, legal or other professional advice. For more information, see our Terms of Use and Risk Warning.

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What Is Bitcoin and How Does It Work?What Is Purchasing Power Parity (PPP)?How to Set Up a Crypto WalletTop 5 Artificial Intelligence (AI) CryptocurrenciesWhat Are Carry Trades and How Do They Work?

Key Takeaways

PPP helps compare currencies by looking at what a basket of goods costs in different countries, making it easier to see which currency gives you more purchasing power.

PPP is key for adjusting GDP and understanding how far money goes in different places, giving a clearer view of living standards and economic health worldwide.

PPP can be indirectly related to the crypto world, offering insights into how people in countries with weaker currencies can use cryptocurrencies and stablecoins to protect their buying power.

Introduction

Ever wondered why something that costs $10 in the US might cost way less in another country? That's where the concept of purchasing power parity (PPP) is used. PPP is a term economists use to compare the buying power of different currencies worldwide.

In simple terms, PPP can help us figure out how much stuff our money can buy in different places. Whether it's a cup of coffee in Brazil or a pair of sneakers in Germany, PPP gives us a way to make these price comparisons meaningful across borders.

Let's dive into the details of how this works and why it's so important for understanding the global economy.

How Does PPP Work?

So, the idea behind purchasing power parity is based on something called the law of one price. This law says that if there were no barriers, the price of identical goods should be the same everywhere, once you factor in the exchange rate. 

Imagine you’re shopping for a new phone. If the exact same phone costs $500 in the US and 55,000 yen in Japan, then according to PPP, the foreign exchange rate should be 110 yen for every US dollar. Simple, right?

Of course, life isn’t that straightforward. There are things like taxes, shipping costs, and local demand that make goods more expensive in one place and cheaper in another. So, instead of just looking at one item, economists use a basket of goods –- a mix of products like food, clothing, housing, and energy that people in different countries tend to buy. By comparing the prices of this basket, they can figure out the relative strength of different currencies.

Why Is PPP Important?

PPP isn’t just for economists. It has real-world importance, especially when it comes to measuring a country’s economy and the cost of living. When we talk about a country's gross domestic product (GDP), i.e., how much a country produces, we often use PPP to adjust for price differences across countries. This way, we get a better idea of how much people are actually earning and spending.

Take India, for example. On paper, its GDP per capita might seem low if we use regular exchange rates. But, when we adjust for PPP, which takes into account the lower cost of living, the picture changes. Suddenly, the average income looks much more comparable to that of other countries, and we get a better sense of the overall standard of living.

Organizations like the International Monetary Fund (IMF) and the World Bank use PPP-adjusted GDP to provide a clearer picture of global wealth distribution.

Comparing living standards

One of the most useful things about PPP is that it helps compare living standards. By adjusting for local prices, you can see how far your salary might stretch in different countries. $50,000 a year might give you a comfortable lifestyle in one place but be barely enough to get by in another.

Long-term exchange rate predictions

Currency exchange rates can bounce up and down for all sorts of reasons — politics, stock markets, you name it. But over time, they tend to settle closer to what PPP suggests. Economists use this to make long-term predictions about how currencies might behave.

Exposing economic shenanigans

Sometimes, governments tweak official exchange rates to make their currency look stronger than it really is. PPP can be a handy tool in such situations for spotting when a country’s currency isn’t reflecting its real value.

Real-World Examples of PPP: Big Macs and iPads

You may have heard of the Big Mac Index. It’s a fun and easy way to understand PPP, created by The Economist. The idea is simple: since McDonald's Big Macs are pretty much the same everywhere, comparing their price in different countries gives you a quick look at the purchasing power of each currency. If a Big Mac costs $5 in the US but only $3 in India, that tells you something about the value of each country’s currency.

Other similar comparisons have popped up over the years, like the iPad Index or the KFC Index. These tools use everyday products to make it easier to see how PPP plays out in real life.

Challenges and Limitations of PPP

As useful as PPP is, it's not perfect. A common issue relates to the quality of products. For example, a product in one country might be priced higher because it's better quality, even if it looks the same. So, comparing prices isn’t always “apples to apples”.

Another potential limitation relates to non-traded goods. Some things, like real estate or local services (like haircuts or electricity), aren’t traded internationally. Prices for these items can vary widely depending on local conditions.

Inflation and time sensitivity may also present challenges. PPP assumes that prices remain relatively stable over time, but we all know that inflation can throw a wrench into that plan. A price comparison that makes sense today might be outdated a few months later.

PPP and Cryptocurrencies

While purchasing power parity and cryptocurrency markets aren't directly linked like traditional forex markets, PPP can provide insights into how people in different countries perceive and interact with cryptocurrencies.

Bitcoin and other cryptocurrencies are global assets, meaning they are not tied to any single country. However, people in countries with weaker currencies (based on PPP) may find it more expensive to buy crypto, making it a potential hedge against currency devaluation. This is particularly common in countries that have experienced hyperinflation.

In countries with weaker currencies or high inflation, stablecoins can offer a way for people to maintain their purchasing power, making them a practical financial tool in certain regions. While stablecoins may also present risks, PPP can play a role in determining whether it's advantageous to convert local currency into a stablecoin in such cases.

Closing Thoughts

In short, purchasing power parity is a powerful tool for making sense of global prices, incomes, and economies. While it’s not perfect, it gives us a way to level the playing field when comparing countries’ economic strengths.

Whether you’re an economist trying to predict exchange rates, a company figuring out pricing strategies, or just a curious traveler wondering why everything feels cheaper (or more expensive) abroad, PPP has something to offer.

Further Reading

What Is Forex Trading?

What Is Inflation?

What Is a Stablecoin?

What Are Carry Trades and How Do They Work?

Disclaimer: This content is presented to you for general information and educational purposes only, without representation or warranty of any kind. It should not be construed as financial, legal or other professional advice, nor is it intended to recommend the purchase of any specific product or service. You should seek your own advice from appropriate professional advisors. Where the article is contributed by a third party contributor, please note that those views expressed belong to the third party contributor, and do not necessarily reflect those of Binance Academy. Please read our full disclaimer here for further details. Digital asset prices can be volatile. The value of your investment may go down or up and you may not get back the amount invested. You are solely responsible for your investment decisions and Binance Academy is not liable for any losses you may incur. This material should not be construed as financial, legal or other professional advice. For more information, see our Terms of Use and Risk Warning.

Key Takeaways

Crypto wallets come in many shapes and forms. Custodial wallets are easy to set up but offer less control.

Non-custodial wallets give you full control, but you are entirely responsible for the safety of your keys and assets.

Hardware wallets offer strong security against hacks and exploits but are relatively expensive and not as beginner-friendly.

In this guide, we introduce the different types and show how to set up a crypto wallet in just a few steps.

Introduction

Getting started with cryptocurrency? The first thing you need is a crypto wallet! A crypto wallet is a tool to send, receive, and store cryptocurrencies and digital assets. They come in various forms, each with its own benefits, limitations, and risks. Let’s go through the different types so you can choose the best crypto wallet that fits your needs.

Custodial Wallets

Also known as hosted wallets, custodial wallets are provided and managed by a crypto exchange or another third party. Hosted wallets don’t give you full control over your assets, and you rely on the provider’s services when making withdrawals or payments. 

The main advantage is that you don’t have to worry about managing your keys, and you can reset your password if necessary.

How to set up a custodial crypto wallet

1. Choose a platform: Select a reputable crypto exchange and make sure it’s compliant with local regulations.

2. Create an account: Sign up using your email and a strong password.

3. Verify identity: Most platforms require ID verification (KYC) to comply with regulations.

4. Add funds: Once verified, you can link a payment method to deposit fiat currency or crypto into your wallet.

5. Start trading: You are ready to trade or invest. For more details on how to get started with Binance, check out Binance Beginner's Guide.

Non-Custodial Wallets

Non-custodial or self-custody wallets give you complete control over your keys and funds. While these wallets provide greater freedom and control, you are entirely responsible for remembering the passwords and seed phrases that keep your crypto safe.

In the vast majority of cases, if you get hacked or lose access, there is no way to reset your password or recover your funds. MetaMask and Trust Wallet are popular examples of non-custodial crypto wallets.

How to set up a non-custodial crypto wallet

1. Get the wallet app: If you are on mobile, make sure to install a trusted wallet app from official sources (App Store or Google Play). If you are on a desktop, get the browser extension from the official websites. We will use MetaMask as an example.

2. Create a new wallet: Open the app and choose the option to create a new wallet.

3. Set a strong password: This will protect the app from unauthorized access.

4. Back up your seed phrase: Write down the 12 or 24-word seed phrase provided by the app. Keep it private and safe. The seed phrase is crucial for recovering your wallet if you lose access.

5. Add funds: The traditional way to add funds to your non-custodial wallet is by transferring crypto from a crypto exchange like Binance. But, some wallets also offer onramp services with credit card and bank payments.

Your self-custody wallet is ready to use. You can now connect to DeFi platforms like Uniswap, PancakeSwap, and many more. But be careful. Connecting to malicious DApps or phishing websites may lead to loss of funds. 

Make sure you are using reputable and legitimate services before connecting your wallet to Web3 platforms. You can also split your funds and use burner wallets to reduce risks.

Binance Web3 Wallet

The Binance Web3 Wallet is a unique crypto wallet that combines the best of both worlds. It’s a self-custody wallet that eliminates the need to store your private keys in a single place. Binance Web3 Wallet users don’t have to worry about seed phrases and can count on a 24/7 customer support service.

How to set up Binance Web3 Wallet

1. Log in to your Binance account in the Binance app and go to [Wallets].

2. Create a wallet. Click [Create Wallet] and follow the instructions. The Binance Web3 Wallet uses Multi-Party Computation (MPC) technology, so you don’t need to worry about a seed phrase. Instead, it creates three “key-shares” that are stored in three separate locations.

3. Back up your wallet and set up your recovery password. The key-shares are protected by your recovery password. Keep it private and safe.

4. Activate wallet: Once you activate the Web3 wallet, it will be ready to use for trading, staking, or interacting with DApps.

Binance Web3 Wallet provides 24/7 customer service, making it an excellent choice for users who need guidance.

Hardware Wallets

Hardware wallets are physical devices that store your private keys offline. Popular brands like Ledger and Trezor can offer strong protection against malware and hackers. However, hardware wallets can be relatively expensive and are not very beginner-friendly. They are more suitable for experienced crypto users who plan to HODL large amounts as long-term investments.

How to set up a hardware wallet

1. Buy a hardware wallet: Purchase a Ledger Nano or Trezor from the official site or a trusted retailer.

2. Install wallet software: Download the accompanying wallet software (e.g., Ledger Live or Trezor Suite) on your computer or smartphone.

3. Connect the device: Plug in your hardware wallet to your computer using the USB cable.

4. Set a PIN: Choose a secure PIN to protect your device.

5. Backup recovery phrase: The device will generate a recovery seed phrase. Write this down and store it in a safe place.

6. Send and receive crypto: Once set up, you can transfer crypto to and from your hardware wallet.

Closing Thoughts

With a few simple steps, you’ll be ready to securely store, send, and receive cryptocurrencies. Remember, the key to staying safe in the crypto world is protecting your private keys and staying aware of potential security threats.

Further Reading

What Is a Crypto Wallet and How to Choose the Right One?

Custodial vs. Non-Custodial Wallets: What's the Difference?

How to Secure Your Cryptocurrency

Ten Tips for Using a Hardware Wallet Securely

Disclaimer: This content is presented to you for general information and educational purposes only, without representation or warranty of any kind. It should not be construed as financial, legal or other professional advice, nor is it intended to recommend the purchase of any specific product or service. You should seek your own advice from appropriate professional advisors. Where the article is contributed by a third party contributor, please note that those views expressed belong to the third party contributor, and do not necessarily reflect those of Binance Academy. Please read our full disclaimer here for further details. Digital asset prices can be volatile. The value of your investment may go down or up and you may not get back the amount invested. You are solely responsible for your investment decisions and Binance Academy is not liable for any losses you may incur. This material should not be construed as financial, legal or other professional advice. For more information, see our Terms of Use and Risk Warning.

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📖 Binance Academy Knowledge
A Beginner’s Guide to Binance LoansWhat Is Telegram's Meme Coin DOGS?Top 5 Artificial Intelligence (AI) CryptocurrenciesWhat Are Carry Trades and How Do They Work?EIP-7702

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Key Takeaways

Binance Loans is a product that offers a wide range of supported assets and customizable loan terms, making it accessible to both novice and experienced crypto users.

The Binance Loans platform provides competitive interest rates that are calculated hourly. Borrowers have the option to repay loans early without penalties, which helps minimize costs.

It’s important to understand the risks of collateral fluctuations and monitor your loan regularly to avoid liquidation and ensure safe borrowing.

What Are Binance Loans?

Binance Loans allows users to borrow cryptocurrencies or stablecoins by using their existing digital assets as collateral. The service is designed to be user-friendly, with flexible terms, competitive interest rates, and a wide range of supported assets, making it accessible to both novice and experienced crypto users.

Types of Binance Loans

Binance offers three types of loan products: Flexible Loans, Fixed Rate Loans, and VIP Loans. Please note that each product has its own terms and conditions. Make sure you agree with the Binance Loans Terms & Conditions before using Binance Crypto Loans.

1. Flexible Loans

Flexible Loans enable users to unlock more liquidity on top of their existing crypto holdings. It uses your Binance Simple Earn Flexible assets as collateral, meaning you can continue earning APY rewards from Binance Earn as you borrow, improving capital efficiency.

The Flexible Loans product is an isolated, overcollateralized loan that can be kept open as long as the required collateral is maintained. This is known as the Loan-to-Value (LTV) ratio. In other words, if the user maintains the required LTV ratio, the flexible loan can be kept open indefinitely.

If your LTV ratio rises too much, you will receive margin calls to add more collateral or repay your loan to reduce your LTV. Keep an eye on your LTV ratio to avoid liquidation.

Your Flexible Loans can be used to trade on Binance, subscribe to Earn products, invest in more assets, and more. This service supports a wide range of cryptocurrencies, including popular ones like bitcoin (BTC), ether (ETH), SOL, BNB, and stablecoins like USDT and USDC.

2. Binance Fixed Rate Loans

Fixed Rate Loans provide users with more options for stablecoin borrowing and lending with fixed, predictable rates. The APR is fixed for the entire duration of the order, ensuring a smooth experience for borrowers and suppliers.

3. Binance VIP Loans

Binance VIP Loans is an institutional-level service designed exclusively for Binance VIP users. VIP Loans support both fixed and flexible rates and can aggregate assets across multiple accounts to improve capital efficiency.

How to Use Binance Loans

We will use the Binance Flexible Loans as an example, but the process is similar to other products.

1. Go to Binance Loans. Log in to your Binance account and go to [More] - [Loans].

2. Choose your asset. Use the search bar at the right side of your screen to find the asset you want to borrow.

3. Select the loan type. Choose the loan type and enter the amount. Check the box if you agree with the terms and click [Start Borrowing] to confirm.

Note that the value of the collateral you provide will determine the amount you can borrow. Typically, Binance requires that the value of the collateral exceeds the amount you wish to borrow, ensuring that there is enough security in case the market value of your collateral decreases.

4. Receive funds. Binance will automatically transfer the borrowed funds to your account. Your Flexible Loans can be used to trade on Binance, subscribe to Earn products, invest in more assets, and more.

5. Track your loans. You can check the details of your active loans under the tab [Ongoing Orders].

You also have the option to Adjust your LTV ratio by adding or removing collateral.

6. Repay your loan. Repaying your Binance Loan is straightforward. Click the [Repay] button to get started.

You can choose to repay the loan at any time before the due date. If you opt for a Flexible Loan, you can even adjust the amount you repay or repay the loan early without any penalties.

Once the loan is repaid in full, your collateral will be returned to you.

Please note that if you fail to maintain the required collateral (LTV ratio) or fail to repay the loan by the due date (in case there is one), Binance may liquidate your collateral to cover the outstanding debt.

How to Use Binance Loans Safely

Before using Binance Loans, it's important to understand the risks involved. The value of your collateral can fluctuate, and if it drops too much, you could lose your assets. Make sure to monitor the market and your loan status regularly to avoid liquidation. Keep an eye on the LTV ratio of your loans.

As with any financial product, it's important to use Binance Loans responsibly. Borrow only what you can afford to repay, and avoid using your entire portfolio as collateral. Diversifying your assets can help mitigate the risk of losing everything in a market downturn.

Closing Thoughts

Binance Loans are a powerful tool for cryptocurrency users who need liquidity or want to leverage their assets for better capital efficiency. With flexible terms, a wide range of supported assets, and competitive interest rates, Binance Loans offer versatile solutions for a variety of financial needs.

However, as with any financial product, it's important to use Binance Loans responsibly and understand the risks involved. For more details, please refer to the FAQ pages.

Further Reading

Binance Academy Product Guides

A Beginner’s Guide to Binance Earn

Your Guide to Binance Launchpad and Launchpool

What Is Binance Pay and How to Use It?

Disclaimer: This content is presented to you for general information and educational purposes only, without representation or warranty of any kind. It should not be construed as financial, legal or other professional advice, nor is it intended to recommend the purchase of any specific product or service. You should seek your own advice from appropriate professional advisors. Where the article is contributed by a third party contributor, please note that those views expressed belong to the third party contributor, and do not necessarily reflect those of Binance Academy. Please read our full disclaimer here for further details. Digital asset prices can be volatile. The value of your investment may go down or up and you may not get back the amount invested. You are solely responsible for your investment decisions and Binance Academy is not liable for any losses you may incur. This material should not be construed as financial, legal or other professional advice. For more information, see our Terms of Use and Risk Warning.

Disclaimer: This article is for educational purposes only. The information provided through Binance does not constitute advice or recommendation of investment or trading. Binance does not take responsibility for any of your investment decisions. Please seek professional advice before taking financial risks.

Key Takeaways

DOGS is a dog-themed meme coin built on The Open Network (TON) blockchain, inspired by a dog character called Spotty.

The coin has a total supply of 550 billion tokens, with over 516 billion already in circulation, distributed mainly to Telegram users based on their activity.

DOGS gained significant exposure through its launch on Binance Launchpool, but like other meme coins, trading DOGS involves uncertainty and volatility risks.

DOGS Meme Coin

Similar to other dog-themed coins like Dogecoin and Shiba Inu, DOGS is a dog-themed meme coin. Developed on The Open Network (TON) blockchain, DOGS draws its identity from Spotty, a character linked to Telegram's founder, Pavel Durov.

Durov created Spotty as a simple dog sticker used in a charity auction to support orphanages. Soon after that, Spotty grew into a popular figure in the crypto space.

Token Metrics (Dogenomics)

DOGS has a total supply of 550 billion tokens, of which 516.75 billion are in circulation (as of September 2024). The coin’s distribution strategy involved DOGS tokens being airdropped to users based on their activity and engagement on the Telegram platform.

According to the official DOGS Telegram:

81.5% of the total supply will be allocated to the community without any vesting periods or locks. Out of the 81.5%, 73% went to Telegram OGs who earned DOGS through the mini-app tasks and activities. The other 8.5% is allocated to rewards for sticker creators, traders, and future community members.

10% is allocated for the DOGS team and future project development, mostly with a 12-month vesting period.

8.5% is reserved for liquidity on centralized and decentralized exchanges or other liquidity-related events.

DOGS Airdrop

The DOGS airdrop considered factors like the age and activity of Telegram accounts and whether they had a Telegram Premium subscription​. The approach aimed to combine the meme coin culture with Telegram’s user base for wider adoption.

On average, each eligible user received around 9,500 DOGS, with more than 400 billion DOGS tokens distributed by August 20.

How to Claim the DOGS Airdrop?

The last day to earn DOGS tokens from the initial airdrop was August 14, 2024. Eligible users who participated in the DOGS games and Telegram activities before the deadline can still claim their DOGS airdrop via the official DOGS Telegram bot.

Eligible users can choose to claim their DOGS on-chain without fees (slower process) or with a small fee (faster withdrawal).

As of September 3, 2024, there is no official information about the possibility of new airdrops in the future.

Market Presence

DOGS managed to achieve 1 million Telegram users in less than 24 hours and is ranking among the top 100 cryptocurrencies by market capitalization (as of September 2024). However, like many meme coins, its value and long-term sustainability remain subjects of speculation.

Binance Launchpool

On August 21, 2024, DOGS was introduced on the Binance Launchpool, where users could earn DOGS tokens by staking their BNB or FDUSD. This launch provided DOGS with additional exposure and liquidity through the largest cryptocurrency exchange in the world.

Closing Thoughts

DOGS is a meme coin with deep connections to the Telegram platform, mixing elements of charity, crypto, and meme culture. It has gained attention thanks to its listing on Binance Launchpool and its unique way of distributing tokens.

However, like most meme coins, DOGS can be pretty unpredictable, so anyone thinking about investing should be aware of the risks involved. Do your own research and never invest more than you can afford to lose.

Further Reading

What Are Meme Coins?

Your Guide to Binance Launchpad and Launchpool

What Is Dogecoin?

What Is Shiba Inu (SHIB)?

Disclaimer: This content is presented to you for general information and educational purposes only, without representation or warranty of any kind. It should not be construed as financial, legal or other professional advice, nor is it intended to recommend the purchase of any specific product or service. You should seek your own advice from appropriate professional advisors. Where the article is contributed by a third party contributor, please note that those views expressed belong to the third party contributor, and do not necessarily reflect those of Binance Academy. Please read our full disclaimer here for further details. Digital asset prices can be volatile. The value of your investment may go down or up and you may not get back the amount invested. You are solely responsible for your investment decisions and Binance Academy is not liable for any losses you may incur. This material should not be construed as financial, legal or other professional advice. For more information, see our Terms of Use and Risk Warning.

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📖 Binance Academy Knowledge
Top 5 Artificial Intelligence (AI) CryptocurrenciesWhat Are Carry Trades and How Do They Work?Pegged CurrencyEIP-3074

Key Takeaways

NEAR Protocol, Internet Computer, Artificial Superintelligence Alliance, Render, and Bittensor are blockchain projects aiming to make AI technologies more accessible and efficient. 

These projects integrate artificial intelligence in various ways, such as optimizing network performance, enabling autonomous agents, decentralizing AI training processes, and more.

The fusion of AI and blockchain in the cryptocurrency space is driving innovation and offering new opportunities for decentralized applications, which can benefit a wide range of developers and users.

Introduction

The intersection of cryptocurrency and artificial intelligence (AI) is one of the most exciting developments in the tech world. As AI becomes more integrated into various sectors, there is a growing number of blockchain projects focused on leveraging AI to enhance their ecosystems.

This article will explore the top AI cryptocurrency projects by market. As of August 2024, the top 5 AI projects are NEAR Protocol (NEAR), Internet Computer (ICP), Artificial Superintelligence Alliance (FET), Render (RNDR), and Bittensor (TAO). Let’s take a closer look at each project and how they integrate AI.

1. NEAR Protocol (NEAR)

Market cap: $4.68 billion (as of August 2024).

What is NEAR Protocol?

NEAR Protocol is a layer-1 blockchain designed to address scalability issues commonly found in popular networks like Ethereum. Launched in 2020, NEAR utilizes a unique sharding technology called Nightshade, which enables the network to process thousands of transactions per second by distributing the workload across multiple validator nodes.

This approach allows NEAR to offer a highly efficient and scalable platform for decentralized applications (DApps). NEAR also provides cross-chain interoperability through the Rainbow Bridge, allowing users to transfer assets between Ethereum and NEAR. In addition, the NEAR ecosystem offers a layer-2 solution called Aurora, which enhances the network’s compatibility with Ethereum-based applications.

How does NEAR integrate AI?

NEAR Protocol integrates AI in several ways, particularly in its smart contract execution and DApp development. AI is used to optimize network performance by predicting and managing traffic, which enhances the efficiency of transactions and reduces latency. 

Additionally, NEAR is exploring AI-driven developer tools that help automate and streamline the process of writing and deploying smart contracts. This makes it easier for developers to create more sophisticated and reliable dApps without needing extensive knowledge of blockchain technology.

Learn more: What Is NEAR Protocol (NEAR)?

2. Internet Computer (ICP)

Market cap: $3.64 billion (as of August 2024).

What is the Internet Computer?

The Internet Computer protocol, developed by the DFINITY Foundation, is a blockchain project that aims to extend the functionality of the Internet by enabling the creation of all kinds of DApps and Web3 services.

For example, developers can use ICP multi-chain features and full-stack tools to build social media channels, enterprise-focused platforms, gaming, virtual reality, and more. While traditional blockchains usually rely on cloud services to run DApps, ICP runs them directly on its decentralized network. This approach can offer better security, scalability, and efficiency.

How does ICP integrate AI?

AI plays a critical role in the ICP ecosystem by enhancing the capabilities of decentralized applications. ICP enables the integration of AI algorithms directly into smart contracts and DApps, allowing them to perform complex computations and decision-making processes autonomously. This can be particularly useful in DeFi, where AI can be used to optimize trading strategies, manage risk, and even automate trading and financial services.

3. Artificial Superintelligence Alliance (FET)

Market cap: $2.80 billion (as of August 2024).

What is the Artificial Superintelligence Alliance?

The Artificial Superintelligence (ASI) Alliance, formed by Fetch.ai, SingularityNET, and Ocean Protocol, is a strategic collaboration aimed at advancing decentralized Artificial General Intelligence (AGI) and ultimately achieving Artificial Superintelligence (ASI).

By leveraging Fetch.ai’s autonomous agents, SingularityNET’s open-source AGI initiatives, and Ocean Protocol’s secure data exchange framework, the ASI Alliance aims to accelerate AI research and innovation.

How does the Artificial Superintelligence Alliance integrate AI?

The platform's autonomous agents are powered by AI algorithms that enable them to perform complex tasks such as negotiating contracts, optimizing logistics, and managing energy consumption. These agents can interact with each other and the blockchain in real time, creating a dynamic and efficient marketplace for all sorts of data and services.

The ASI Alliance is committed to promoting decentralized AI by emphasizing open-source solutions and equitable distribution of AI innovations. This approach not only accelerates the pace of AI growth but also ensures that these technologies benefit a wider variety of users.

Learn more: What Is the Artificial Superintelligence (ASI) Alliance?

4. Render (RNDR)

Market cap: $2.04 billion (as of August 2024).

What is Render?

Render is a decentralized GPU rendering platform that aims to connect digital artists and studios with GPU owners who have spare computational power. The platform allows users to render high-quality graphics and animations using distributed GPU resources, making it more affordable and accessible for creators.

By utilizing RNDR tokens, the platform facilitates secure and automatic payments through Ethereum-based smart contracts, enabling a streamlined and transparent transaction process between creators and node operators. This decentralized approach not only reduces the costs associated with traditional centralized rendering services but also makes advanced rendering capabilities available to a wider audience, including small studios, independent artists, and other creators who may not have access to expensive, high-end GPU hardware.

How does Render integrate AI?

Render leverages AI to enhance its rendering processes and improve the overall efficiency of its network. AI algorithms are used to optimize the allocation of GPU resources, ensuring that rendering tasks are completed as quickly and cost-effectively as possible. 

In addition, AI is employed in the rendering process itself to improve the quality of graphics and animations, particularly in tasks like image upscaling, texture generation, and real-time rendering. This makes it easier for artists to achieve professional-level results without needing expensive hardware.

Learn more: What Is Render (RNDR)?

5. Bittensor (TAO)

Market cap: $2.03 billion (as of August 2024).

What is Bittensor?

Bittensor (TAO) is a decentralized, blockchain-based protocol that enables the creation of an open-source, AI-powered neural network. Unlike traditional AI models that are controlled by centralized entities, Bittensor aims to decentralize AI training and usage, allowing any participant to contribute computing power and data to the network. This creates a global, distributed AI network where contributors are rewarded in the TAO cryptocurrency for their participation.

How does Bittensor integrate AI?

Bittensor's entire protocol is built around AI. It allows participants, known as miners, to provide valuable data and computational power to train AI models on the network. In return, miners are rewarded with TAO tokens based on the quality and quantity of their contributions.

Bittensor also integrates AI into its consensus mechanism. The network uses AI to evaluate the contributions and ensure that rewards are fairly distributed based on the value they bring to the network. The idea is to encourage the use of useful data and computational resources, leading to more accurate and efficient AI models.

Closing Thoughts

The fusion of artificial intelligence and blockchain technology represents a new frontier in the tech world, offering potential for innovation and disruption. NEAR Protocol, Internet Computer, Artificial Superintelligence Alliance, Render, and Bittensor are some of the popular AI projects in the blockchain space, each with its unique approach and design.

Further Reading

What’s the Relationship Between Blockchain and Web3?

Blockchain Use Cases: Healthcare

Blockchain Use Cases: Supply Chain

Blockchain Use Cases: Prediction Markets

Disclaimer: This content is presented to you for general information and educational purposes only, without representation or warranty of any kind. It should not be construed as financial, legal or other professional advice, nor is it intended to recommend the purchase of any specific product or service. You should seek your own advice from appropriate professional advisors. Where the article is contributed by a third party contributor, please note that those views expressed belong to the third party contributor, and do not necessarily reflect those of Binance Academy. Please read our full disclaimer here for further details. Digital asset prices can be volatile. The value of your investment may go down or up and you may not get back the amount invested. You are solely responsible for your investment decisions and Binance Academy is not liable for any losses you may incur. This material should not be construed as financial, legal or other professional advice. For more information, see our Terms of Use and Risk Warning.

Key Takeaways

Carry trades are about taking advantage of the difference in interest rates between two currencies or financial instruments. 

The idea is to borrow in a currency with a low interest rate and invest in one with a higher rate. If exchange rates behave, you earn what's called the "carry" (i.e., profit from the rate difference).

While carry trades can be profitable, unexpected shifts in currency values or interest rates can quickly turn a good trade into a bad one. The 2008 financial crisis and the 2024 changes in Japan's monetary policy are examples of how these trades can go wrong.

Carry trades often require a solid understanding of global markets, central bank decisions, and how to manage leverage effectively. As such, they are more suitable for experienced investors or big institutions.

What Is a Carry Trade?

A carry trade is a strategy where you borrow money in a currency with low interest rates and invest it in a different currency or asset that offers higher returns. The idea is simple: you're looking to profit from the difference between these rates. 

While this strategy is mostly used in the world of forex and currency trading, it can also be applied to stocks, bonds, and even commodities.

How Carry Trades Work

Here’s how it usually goes: you take out a loan in a currency that has low or near-zero interest rates – think the Japanese yen (JPY), which has had low rates for years. Then, you convert that money into a currency with a higher interest rate, like the US dollar. Once you have the higher-yielding currency, you invest it in something like US government bonds or other assets that give you a good return.

For example, if you borrow yen at 0% and invest it in something that pays 5.5%, you're earning that 5.5%, minus any fees or costs. It’s like turning cheap money into more money (as long as the exchange rates play nice).

Why Investors Use Carry Trades

Carry trades are popular because they offer a way to earn a steady return from the interest rate difference, without needing the value of the investment to go up. This makes it a favorite among big players like hedge funds and institutional investors, who have the tools and knowledge to manage the risks.

Often, investors use leverage in carry trades, which means they borrow a lot more money than they actually have. This can make the returns much bigger – but it also means the losses can be just as large if things don’t go as planned.

Examples of Carry Trades

One of the most well-known examples of a carry trade is the classic yen-dollar strategy. For years, investors borrowed Japanese yen and used that money to invest in US assets that offered much higher returns. This was a sweet deal as long as the difference in interest rates stayed favorable and the yen didn’t suddenly spike in value against the dollar – which eventually happened in July 2024 (more on this soon).

Another popular example involves emerging markets. Here, investors borrow in a low-interest currency and then invest in higher-yielding currencies or bonds from emerging markets. The potential returns can be great, but these trades are highly sensitive to global market conditions and shifts in investor sentiment. If things go bad, they can quickly turn from profitable to problematic.

Risks of Carry Trades

As with any investment strategy, carry trades aren’t without risks. The biggest one is currency risk. If the currency you borrowed suddenly becomes more valuable compared to the one you invested in, your profits can disappear or even turn into losses when you convert back. 

For example, if you borrow JPY and buy USD, and the yen gets stronger against the dollar, you could lose money when you switch back to the yen. Interest rate changes are another risk. If the central bank of the currency you borrowed raises interest rates, your borrowing costs go up, which can eat into your profits. Or, if the bank of the currency you invested in cuts rates, your returns drop.

These risks became very real during the 2008 financial crisis, when many investors lost big on carry trades, especially those involving the yen. In 2024, changes in Japan’s monetary policy caused the yen to strengthen, leading to a wave of carry trade unwinding and market turbulence​.

The Impact of Market Conditions

Carry trades tend to do better when the market is calm and optimistic. In these stable or bullish conditions, currencies and interest rates don’t move around too much, and investors are more willing to take on risk. 

However, when the market gets shaky or there’s economic uncertainty, carry trades can become very risky, very fast. In highly leveraged and volatile markets, investors might panic and start unwinding their carry trades, which can cause big swings in currency prices and even lead to broader financial instability.

When the Bank of Japan unexpectedly raised interest rates in July 2024, the yen jumped in value, leading many investors to quickly unwind their yen carry trades. The result was a rush to sell higher-risk assets to repay yen loans, which didn’t just rattle currency markets but also sparked a global sell-off of riskier investments. The impact was further amplified by leveraged positions.

Closing Thoughts

Carry trades can be an interesting way to profit from differences in interest rates between currencies or assets. Still, it’s important to consider the risks, especially in highly leveraged and volatile markets.

To be successful with carry trades, you need a strong grasp of global markets, currency movements, and interest rate trends. Since these can turn on you if the market changes unexpectedly, carry trades are better suited for experienced investors or institutions with the resources to manage risks effectively.

Further Reading

What Is Forex Trading?

The 2008 Financial Crisis Explained

Interest Rates Explained

What Is Arbitrage Trading?

Disclaimer: This content is presented to you on an “as is” basis for general information and educational purposes only, without representation or warranty of any kind. It should not be construed as financial, legal or other professional advice, nor is it intended to recommend the purchase of any specific product or service. You should seek your own advice from appropriate professional advisors. Where the article is contributed by a third party contributor, please note that those views expressed belong to the third party contributor, and do not necessarily reflect those of Binance Academy. Please read our full disclaimer here for further details. Digital asset prices can be volatile. The value of your investment may go down or up and you may not get back the amount invested. You are solely responsible for your investment decisions and Binance Academy is not liable for any losses you may incur. This material should not be construed as financial, legal or other professional advice. For more information, see our Terms of Use and Risk Warning.

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📖 Binance Academy Knowledge
Bitcoin Spot ETF vs. Bitcoin Futures ETF: What's the Difference?Pyramid and Ponzi SchemesWhat Is Deflation?What Is Margin Trading?EIP-3074

Key Takeaways

Deflation describes a drop in prices, which can increase the purchasing power of your money. It may result in more affordable goods and services and allow for more savings.

While it’s often considered a good thing, persistent deflation can negatively affect the economy. If not managed well, deflation can increase unemployment and slow down economic growth.

What Is Deflation?

Deflation describes a decrease in the price of goods and services in an economy. In practice, deflation is usually perceived as a good thing as it can give you more bang for your buck. But, in some cases, it can also have negative effects on the economy. 

Episodes of problematic deflation are rare. Overall, our financial system is more susceptible to inflation than deflation. Still, if you eventually face persistent deflation in the country you live in, it’s helpful to know some of its negative effects.

Let’s take a closer look at common causes and potential effects of deflation.

Common Causes of Deflation

Lower aggregate demand

Aggregate demand represents the broad demand for goods and services. When people and businesses spend less money, the demand goes down, often resulting in lower prices.

Increase in supply

If businesses produce more than people want to buy, the excess supply can also lead to lower prices. For example, this may happen due to new technology that makes production cheaper and more efficient.

Strong currency

When a country's currency is strong, it can buy more foreign goods, leading to cheaper imports and lower prices for domestic goods. In addition, a strong currency can make a country's exports more expensive for other nations, reducing demand for exported goods and services.

Deflation vs. Inflation

While both deflation and inflation relate to changes in the general price of things, they have different causes, effects, and implications for the economy.

Definition

While deflation refers to a decrease in the general price of goods and services, inflation relates to a price increase instead. So, deflation increases the purchasing power of money, while inflation does the opposite.

Causes

As we’ve learned, deflation can be caused by a decrease in aggregate demand, an increase in supply, or new technologies. 

In contrast, inflation may occur due to an increase in aggregate demand, higher production costs, and expansionary monetary policy. In practice, it’s usually a combination of factors.

Effects

During periods of deflation, the gradual drop in prices and strengthening of the local currency encourages consumers to grow their savings and delay purchases. The lower demand may eventually lead to economic stagnation and rising unemployment rates. 

On the other hand, inflation reduces the value of money and creates uncertainty, encouraging people to spend more before prices rise further.

How to Combat Deflation

While inflation is usually perceived as more concerning, both inflation and deflation can cause problems. Japan is an example of a country that has experienced some periods of low but long-lasting deflation. In general, central banks aim for lower rates of annual inflation to keep the economy active (usually around 2%).

To tackle deflation, governments and central banks use fiscal and monetary policies.

Monetary policy

Central banks can lower interest rates to encourage borrowing and spending. Lower rates make it cheaper for businesses and consumers to take out loans, which can stimulate economic activity. Another option is to perform quantitative easing (QE), which increases the money supply and encourages spending.

Fiscal policy

Fiscal policy measures may involve increasing government spending to boost demand in the economy. In addition, tax cuts can be implemented to increase disposable income for consumers and businesses, encouraging them to spend and invest more.

Pros of Deflation

Cheaper goods: During deflation, the value of money increases, making goods more affordable and improving the standard of living.

Lower business expenses: Businesses can benefit from lower costs of materials needed for their production.

More savings: As the value of money increases, people may be more inclined to save rather than spend.

Cons of Deflation

Less spending: Deflation can lead consumers to delay their purchases, expecting prices to fall further. This decreases the demand for goods and services, potentially resulting in slower economic growth.

More debt: The value of debt tends to increase during deflation, making it harder for borrowers to repay their loans.

Rising unemployment: Businesses may respond to reduced consumer spending by cutting costs, often through mass layoffs. 

Closing Thoughts

Deflation refers to a decrease in the general price level. While it can make goods more affordable and encourage savings, it also results in reduced consumer spending, more debt, and rising unemployment.

Further Reading

What Is Stagflation?

What Are Economic Models?

What Is the PCE Deflator and How Does It Work?

What Is Quantitative Tightening (QT)?

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