What is a DeFi Wallet, and How Do You Pick the Right One?

A DeFi wallet allows you to have complete ownership over your assets.

silver round coin on black leather

Decentralized finance (DeFi) has been gaining in popularity over the last few years. It promises to disrupt traditional financial systems by offering new and innovative ways to participate in the financial markets using blockchain technology. From non-fungible tokens (NFTs) to cryptocurrencies, there are plenty of opportunities for you to participate.

One of the essential aspects of DeFi is a decentralized wallet, commonly known as a DeFi wallet. We’ll dive into the basics of DeFi wallets, how they work, and their importance in the DeFi ecosystem.

Key Takeaways

  • A DeFi wallet can serve as more than a crypto wallet. You can also store NFTs in your wallet, and use it to access different blockchain apps and protocols.
  • When it comes to DeFi wallets, there are several types of wallets to consider.
  • Factors to consider when choosing a DeFi wallet include its security, ease of use, fees, and more.

An Intro to Decentralized Finance (DeFi)

DeFi challenges traditional financial systems by eliminating financial intermediaries and offering more use cases for blockchain technology. Rather than relying on centralized financial institutions such as banks and brokerages, DeFi allows individuals to access financial services directly through peer-to-peer digital exchanges.

Compared to DeFi, centralized financial institutions tend to have high barriers to entry. For example, consumers with poor or no credit history tend to have trouble accessing loans or opening bank accounts. They also end up paying higher fees and having worse terms and conditions.

In contrast to centralized financial institutions that charge service fees and other miscellaneous fees, DeFi eliminates these fees, allowing individuals to hold their money in a secure digital wallet and transfer funds in minutes. Anyone with an internet connection can use DeFi, making it a more accessible and inclusive financial system.

At its core, DeFi is based on secure distributed ledgers. Transactions are recorded and held in copies of the distributed ledger, so no single entity has control over the information. This method provides a more secure and transparent way to handle financial transactions.

DeFi has rapidly gained popularity due to its ability to extend beyond basic payment transfers. Some of the most well-known use cases include stablecoins, open lending platforms, yield farming, staking, and decentralized exchanges.

Getting Started in DeFi

If you’re new to the world of DeFi, accessing DeFi products and services can seem intimidating. However, it all starts with a DeFi wallet, which serves as a gateway to the web3 ecosystem.

What is a Defi Wallet?

A DeFi wallet is a digital wallet where you can store your crypto assets and access different DeFi applications (dApps). Think of them as replacements for the log-in screens of web2 apps like Facebook or Twitter.

DeFi wallets eliminate the need for third-party intermediaries. They are interoperable, meaning you can access various DeFi protocols and blockchains through them. Because all transactions get recorded on a public blockchain, you can also track your funds in real-time.

There are 2 types of DeFi wallets: custodial and non-custodial wallets. Some DeFi wallets, particularly mobile wallets, may offer custodial services where the wallet provider holds the user’s private keys on their behalf. These custodial wallets typically have more user-friendly interfaces and may be more suitable for beginners.

However, custodial wallets come with the risk of the wallet provider potentially getting hacked or becoming insolvent. In the past, many big-name cryptocurrency exchanges have been hacked or gone bankrupt, including Mt. GoxQuadrigaCXEinstein Exchange, and BTC-e. After the fallout, many users were left unable to withdraw their funds.

Non-custodial wallets, on the other hand, give you complete control over your seed phrase or private keys and offer a higher level of security as long as you take appropriate measures to keep your keys safe. In cryptography, private and public keys secure communications and transactions. A private key is a secret code known only to the owner, while a public key is a code that is widely shared and used to encrypt messages.

When someone wants to send a secure message or conduct a secure transaction, they use the recipient’s public key to encrypt the message. The recipient can then use their private key to decrypt the message and read it. This process ensures that only the intended recipient can read the message.

In the context of cryptocurrency, a private key gets used to control access to the funds stored in a wallet. The private key is used to sign transactions and authorize the transfer of funds from the wallet. It is crucial to keep the private key secure, as anyone with access can transfer the funds out of the wallet.

A public key, on the other hand, is used to receive funds into a wallet. Users can share their public key, also known as a wallet address, to receive cryptocurrency from others. Unlike a private key, a public key can be shared with others without compromising the wallet’s security.

Top DeFi Wallets to Consider

When it comes to non-custodial cryptocurrency wallets, there are 2 types: hot wallets and cold wallets.

Hot wallets, also known as online wallets or software wallets, are connected to the internet and are accessible through various devices, such as your phone and laptop. They are generally considered to be less secure than cold wallets because they are susceptible to online hacking attempts and other security breaches. However, hot wallets are convenient for everyday use and allow you to access your cryptocurrencies quickly.

In contrast, cold wallets, or hardware wallets, are offline wallets that store your crypto assets offline. Cold wallets are considered to be more secure since only the wallet owner has access to the funds. However, they are less convenient for everyday use and beginners as you must manage your wallet yourself.

Popular Hot Wallets


MetaMask is a popular browser extension and mobile app wallet that allows you to seamlessly buy, store, send, and swap tokens. You can also interact with blockchain-based applications like Aave, Axie Infinity, OpenSea, and Compound.

It is known for its ease of use and multi-platform support. The wallet also has a strong focus on security, using best practices such as seed phrase backups and user-owned private keys to ensure that user funds are safe.


WalletConnect is a decentralized open-source protocol that enables you to connect mobile wallets to dApps on various blockchain networks. One of the primary benefits of using WalletConnect is its cross-chain compatibility, allowing users to access dApps on various blockchain networks, including Ethereum, Binance, Cosmos, Optimism, and more.

WalletConnect is also known for its robust security features, such as end-to-end encryption, session verification, and more, ensuring the safety of user funds. While WalletConnect is primarily a mobile wallet, it also supports desktop and web wallets.

Rainbow Wallet

Rainbow is a mobile and desktop extension wallet that supports various Ethereum-based assets and dApps. It is a user-friendly wallet that enables users to store, send, and receive cryptocurrencies, interact with dApps, and manage their digital assets on the go.

Rainbow has a simple and intuitive interface that makes it easy for beginners to use, and it supports multiple blockchains, including Ethereum, Binance Smart Chain, and Polygon. Rainbow also employs best practices to ensure the security of user funds, such as user-owned private keys, secure key storage, and hardware wallet integration.

Popular Cold Wallets

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Ledger Nano X

The Ledger Nano X is a Bluetooth-enabled hardware wallet that provides a secure way to buy, exchange, and manage your crypto and NFTs. It supports 5,000+ cryptocurrencies, including Bitcoin, Ethereum, and XRP, and it allows you to manage digital assets through a companion app on your computer or mobile device.

The wallet is known for its robust security features, such as two-factor authentication, PIN codes, and passphrase support. However, one of the downsides is its initial setup, which may require some technical knowledge and time to complete.


Trezor hardware wallets are another popular cold wallet option that offers a secure way to store and manage cryptocurrencies. Trezor supports 1,000+ cryptocurrencies, including Bitcoin, Ethereum, and Litecoin. You can access your digital assets through the Trezor Suite for desktops (Apple, Windows, Linux) and the browser app, with an Android app coming soon.

The wallet comes with solid security features, including advanced shamir backup (for the Trezor Model T), standard see backup, and FIDOC and U2F authentication standards. One of the key benefits is its open-source nature, which allows users to verify the wallet’s code and ensure that it is secure.

Are DeFi Wallets Safe?

DeFi wallets use encryption technology and store your coins on the blockchain, making them incredibly hard to hack or steal (though not impossible). They also typically offer backup options, giving you peace of mind that you can always access your coins.

However, no system is 100% foolproof, so it’s crucial to follow good security practices to keep your account safe. This includes using a strong password, enabling two-factor authentication, and selecting a DeFi wallet that encrypts the private data on your device.

How to Choose a DeFi Wallet

Choosing the right DeFi wallet for your needs comes down to several factors, including security, range of assets and products supported, and user-friendliness. Additionally, it’s important to select a wallet that provides clear guidance and support throughout the process.

Supported Assets

The assets a wallet supports are a crucial factor to consider when selecting a DeFi wallet. Some wallets support only a limited range of assets, while others support multiple blockchains and cryptocurrencies. If you are only interested in a specific crypto, such as Bitcoin, then a wallet that supports Bitcoin is enough.

But if you want to trade multiple crypto assets, you’ll need to find a wallet that supports different blockchains. For example, MetaMask does not natively support Solana, so you will need to use a wallet like Solflare or Phantom to interact with Solana dApps.

Additionally, some blockchain applications require their own wallet, so you may end up using several DeFi wallets for different purposes. For example, Axie Infinity, a popular play-to-earn crypto game, requires users to use their Ronin Wallet.

Beyond blockchains, wallets have additional features. For example, MetaMask lets you store your NFTs, but you can’t see them. You’ll have to use Coinbase wallet or Rainbow wallet instead to visualize the NFTs.


Security is another critical factor to consider. Due to DeFi’s decentralized nature, security concerns are paramount. Smart contracts and digital assets require a higher level of security, making it essential to choose a wallet that offers robust security features for your own safety.

Look for wallets with quality security features to ensure your funds are always safe. For example, Gnosis allows for multi-signature transactions where several people must confirm the transaction for it to go through.

It’s also crucial to look for a wallet provider with a clear policy on handling security breaches and a security team that monitors potential threats. Additionally, ensure that smart contract auditing and penetration testing get carried out regularly to identify and address any vulnerabilities in the code.

Ease of Use

Finding a wallet that is easy to use is also important. A wallet that is secure but difficult to navigate defeats the purpose of having a wallet in the first place. The user interface and overall user experience should be intuitive and straightforward, making it easy for users to find everything.

In the world of DeFi, where users may not have extensive knowledge of the industry, wallets that streamline the process and provide helpful documentation and tutorials are especially valuable. This can include information on how to use a multi-asset LP token or manage transactions on a decentralized exchange.

Integration with Exchanges

As you look for a DeFi wallet, consider the types of products and features you would like to access, such as trading, staking, and yield farming. If you want a seamless experience, look for a wallet that integrates with the decentralized exchanges (DEXs) you plan to use.

Some wallets, like MetaMask and SolFlare, have already integrated with DeFi protocols, making it easy for users to swap tokens and manage staking accounts. Others, like MyCrypto and MyEtherWallet, support hardware wallets and can be a good option for those who want to interact with DeFi protocols using crypto held in cold storage.


Ethereum Gas Fees on Etherscan

If you are cost-conscious, pay attention to the fees. The fees can vary widely depending on the wallet and can add up quickly, especially if you’re an active trader.

Some wallets charge transaction fees, while others charge fees for certain features, such as staking or yield farming. Make sure you understand the fee structure of a wallet before committing to it, as some wallets may be more expensive than others depending on your use case.

Moreover, you should also be aware of gas fees, which are fees paid to miners on the network to execute transactions. These fees can be significant and vary depending on network congestion and market demand. Some wallets allow users to set their own gas prices, which can help mitigate some of the cost of gas fees.

How to Use a DeFi Wallet

Here are the steps you can follow to start using a DeFi wallet:

  1. Choose a wallet provider: There are many DeFi wallet providers available, each with unique features and security measures. Research and choose one that meets your needs and has a good reputation. Currently, I use MetaMask and Coinbase Wallet to hold my crypto and NFTs.
  2. Create an account: Follow the instructions provided by the wallet provider to create an account. This typically involves setting up a username and password and creating a backup phrase or seed phrase that you can use to restore your wallet if needed.
  3. Fund your wallet: Once your account is set up, you’ll need to fund your wallet with cryptocurrency. This can be done by transferring crypto from an exchange or another wallet.
  4. Connect your wallet: To start using a DeFi platform, you’ll need to connect your wallet to it. Look for the “connect wallet” button on the platform’s website, and follow the instructions. You may need to grant permission for the platform to access your wallet.
  5. Start using DeFi products and services: Once your wallet is connected, you can start using a variety of products and services, such as decentralized exchanges, lending platforms, and more. Carefully read the instructions and understand any associated fees before using any DeFi product or service.
  6. Confirm transactions and pay gas fees: When using a DeFi product or service, you’ll typically need to confirm individual transactions within your wallet. You’ll also need to pay gas fees.

The Bottom Line

DeFi wallets are essential for anyone who wants to participate in the decentralized finance ecosystem. Choosing the right DeFi wallet requires careful consideration of various factors.

Remember, DeFi wallets are not just for storing cryptocurrency but also for interacting with various DeFi protocols such as decentralized exchanges, lending platforms, and yield farming applications. By choosing a reliable and user-friendly DeFi wallet, you can make the most out of your DeFi journey while keeping your assets safe and secure.

We are not financial advisors. The content on this website and our YouTube videos are for educational purposes only and merely cite our own personal opinions. In order to make the best financial decision that suits your own needs, you must conduct your own research and seek the advice of a licensed financial advisor if necessary. Know that all investments involve some form of risk and there is no guarantee that you will be successful in making, saving, or investing money; nor is there any guarantee that you won't experience any loss when investing. Always remember to make smart decisions and do your own research!

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