Text of the Lesson 13

Hi, course participants!

We’ve reached the most difficult and interesting topic — decentralized exchanges.

In this lesson, I’ll try to explain to you in the simplest and most accessible way possible:

* How decentralized exchanges work

* Which exchanges are the most popular

* We’ll get acquainted with the interface of the Uniswap exchange

* We’ll take a look at the possibilities of the PancakeSwap exchange

* We’ll create and connect a Metamask wallet to the exchange

What is the difference between a decentralized exchange and a centralized one?

On a centralized exchange, you entrust all your funds to the exchange, which is responsible for them and provides services in exchange.

On a decentralized exchange, you do not entrust anything to the exchange. You only interact with a smart contract, and all funds remain on the blockchain and in your wallet. You are the only one who can manage these funds.

The smart contract helps you find a buyer or seller for your crypto assets.

On a decentralized exchange, there is no need to go through verification, and it is practically impossible to block it, except for blocking an IP address in a specific country. 

You only connect your wallet when you want to perform certain operations, then disconnect it and safely store your assets in the blockchain or smart contract.

To help you better navigate and find news on this topic, I suggest learning another term, which is DeFi, decentralized finance, which is special financial services created on the blockchain. 

Blockchains can be different, and applications for them can be different, but in general, they are very similar in functionality and copy each other.

Currently, the most popular blockchain for Defi is Ethereum, but its popularity is declining due to its inefficiency and increasing fees when the system experiences high traffic. Currently, the transaction fee is around $20.

At the same time, services written on Binance Smart Chain or BNB Chain are becoming popular because the fee is only 20-30 cents, which is 100 times lower!

The blockchain network fee is very important in this case because it is what you pay when making transactions on decentralized exchanges.

Now I will tell you about the two most popular and technologically advanced decentralized exchanges.

The first popular DEX exchange was Uniswap, which appeared in 2018, but became very popular in 2020 during the pandemic, and it can be said that people’s fascination with DeFi tools began with it.

The exchange is still very popular today and occupies the first place in the ranking of decentralized exchanges.

In addition to offering smart contracts for cryptocurrency exchange, the exchange has also introduced the concept of liquidity pools, which are created using market maker smart contracts that automatically regulate asset prices.

A liquidity pool is a volume of cryptocurrency provided by users for other users to always have something to buy and sell, even if there is no counter order.

For providing their tokens to the liquidity pool, the user is paid a commission, which is very similar to a bank, meaning I make a deposit and receive interest, only here the money is always accessible to me and I can withdraw them from the pool at any time. Additionally, the profitability is credited once a day.

The second most popular exchange is PancakeSwap Finance, which is created on the Binance Smart Chain blockchain and supported by Binance. Due to low fees and a very large list of income-generating instruments, the exchange quickly gained popularity. However, it is not easy to understand any DEX, especially in terms of what different instruments offer.

This exchange also has liquidity pools and has automated market makers, as well as several other tools that I will show you in the next lesson. Among the tools are:

  • Exchange
  • Liquidity Pools
  • Farming
  • Staking
  • Lottery
  • Buying and Selling NFT

Today we will connect a wallet to this exchange.

To start, we will create the simplest and fairly secure wallet — Metamask.

It is installed as an extension, an icon on the browser, and the most familiar browser for us is Google Chrome, which I installed on my Mac.

This wallet supports all popular blockchains today and by default creates a wallet for ERC-20.

There is also a smartphone application, but we won’t need it now.

So:

1. Download and install the MetaMask app from the official website metamask.io — go to the download tab (direct link will be provided at the end of the lesson) — make sure to verify the website from which you are downloading the wallet, as it may also be a phishing site.

2. Click on Install. Next, the application will ask for several permissions — agree to them.

3. Click on Get Started and proceed to create a wallet.

4. To create a new wallet, click on Create a Wallet.

5. Come up with your password. In case of password loss, the wallet can be restored using the secret phrase.

6. Proceed to the wallet’s secret phrase. Write it down or save it.

7. After this, MetaMask will ask you to repeat the phrase to ensure that you have saved it. Select the words in the correct order.

8. Add the Binance Smart Chain network.

9. Go to the website **https://pancakeswap.finance/**.

10. Click on Connect Wallet.

11. Our wallet is now connected to the decentralized exchange PancakeSwap.

For homework, you will have a separate small instruction on how to add new tokens to this wallet. 

The wallet address for all tokens will be the same, as it uses the same blockchain. It is indicated on the top panel under the network name. 

You can create as many different wallets as you want here, but that is already for independent consideration and analysis.

We have added some new terms in this lesson. On the last slide, we added a direct link to download the Metamask wallet.

See you in lesson 14, where we will look at how you can earn on DEXs.

This was Alina.