Decentralized finance is the future of finance and is definitely here to stay. The glamour of 200% returns and upwards is really just the beginning of what it has to offer.
There are places to take leveraged loans on yield bearing assets and rehypothecation is the order of the day. Yes I learnt that word here but it’s also known as folding of assets.
First things first, you need to be able to move money around without incurring dangerous fees and it is very necessary to know what you are getting into when entering a protocol to do transactions.
My major focus is on Avalanche, Fantom Opera and Harmony ONE. Honorable mention to Solana and Terra.
Setting up a custodial wallet
Crypto stored on exchanges aren’t really yours, they belong to the exchange. The same way a bank can seize your funds due to any reason is the same way an exchange can seize your funds as well. To avoid that we have personal wallets, with private keys that can only be accessed by you. The wallet provider i.e metamask in this case cannot access your funds, the downside is that if you lose your keys, you lose your funds for life. Yes, for life.
Hardware wallets like ledger also exist and it is the same protocol, lost keys equal lost funds. You are advised to always write your keys down in a safe place and never to reveal them on the internet to your internet friends.
To set up metamask go to
Metamask and follow the processes.
Ta-da, you are now in charge of your finances.
The default mainnet for metamask is the Ethereum Mainnet but there is so much more that you can do with Metamask than just Ethereum transactions and their cut throat fees (it is ridiculous and you know it).
Trading on DEXs
Decentralised exchanges or DEXs as the cool kids will call them are really just what they are, decentralized. You have to connect your wallet to do transactions with them, they do not hold your funds unlike CEXs (Centralized exchanges eg Binance & FTX).
This is where magic really happens because a lot of tokens trade on DEXs before they make it to CEXS.
To access various protocols you need to set up your network settings on metamask to allow you interface with the DEX of choice. This will seem like a lot of work but remember, you are still early to the party. This is the point of Defi, ownership and responsibility of your finances and transactions.
It also isn’t that difficult to set up the various mainnets on metamask.
Go to chainlist
Connect your wallet
Search for the network you wish to add i.e FTM, Avax or Harmony One
Add network
Once this has been done you can switch across networks and Defi everywhere.
Just to note, a lot of protocols will let you know to switch networks if you are on the wrong one to allow you to do transactions.
Personally I recommend a laptop to do these transactions but a mobile phone will work just as well.
Transactions on different protocols
Layer 1 protocols have DEXs that allow you swap from the native token to stablecoin and other tokens, create liquidity pools tokens, farm and stake.
The risks are usually stated and you should always do your research before creating a liquidity pool token, farming or staking.
The inherent risk from creating a LP token is impermanent loss ; let’s say you merged token A and Token B to create LP token C which is an equal mix of both tokens, the price of both tokens at that time might have been $2 for token A & $4 for token B so your LP token will look a bit like this at creation (2A +B = LP token C). Now the tokens you have locked in are subject to market forces and price variations, so they could dip or surge accordingly and this is where impermanent loss comes in because the price of token A in relation to token B changes and when you try to withdraw you might end up with ( 0.5A + B). This article further explains it so you know the risks inherent in providing liquidity to a pool.
For my next article we will discuss different decentralized exchanges, creating LP tokens and bridging across networks.
If this article has been helpful please don’t hesitate to share, subscribe & comment for Defi content simplified and while you’re at it, sign up to ByBit with my referral code VO5GYX, fund with a minimum of $10 to activate the account and explore the launchpad options where you can earn yield on stablecoins and so much more.
Reach out to me on twitter @SenatorT__ and let’s bring more people into the fold of Defi.