Hi, course participants!
Today is our final lesson and it’s probably the most difficult one, there will be a little practice, but I will try to tell you more about how DeFi works.
It’s a trendy and not very understandable word, even for experienced crypto traders.
This is a new generation of cryptocurrency technologies and is only at the very beginning of its development path, and today we will cover some of these development paths:
* How to buy on a decentralized exchange
* How liquidity pools work and what is the risk of investing in them
* Staking a coin
* What does farming mean
* What is lending on the crypto market
* Where to find IDO projects
* What is DAO
* And why there was an NFT hype and who needs these NFTs?
First, let’s make our first purchase on the Pancake exchange, where we have connected the Metamask wallet.
I suggest buying BNB, as BNB is one of the strongest and most stable coins on the market, backed by the reputation of Binance and is also used to pay fees on the PancakeSwap.
To make the purchase, I suggest transferring a little USDT, like 50-100 dollars to your Metamask wallet.
To do this, use the main wallet number on your Metamask on the Binance Smart Chain network and transfer from Binance on the BSC network.
I would like to clarify that I am performing these actions to show you how to do it on any platform so that you have experience interacting with any exchanges and wallets,
but it is not necessary to do this if you are confident that you will not need it or now you do not have the opportunity.
By watching this video or saving the materials, you can use this tool at any time and see how it’s done.
So, we have USDT, and we will use it to buy the BNB coin.
Go to https://pancakeswap.finance/swap
If your wallet is not connected, connect it
Go to the Trade — Swap section
Choose the coins: USDT at the top, BNB at the bottom
Enter 0.1 in the BNB field
Click on Swap
Your wallet will open: confirm all actions in the wallet pop-ups
Now you have BNB and you know how to exchange crypto on DEXs
Let’s go a little further and discuss a more complicated tool which is called liquidity pool.
We have already discussed what it is, but here I would like to tell you more about it and show you on the website.
We find the liquidity pools on PancakeSwap’s website and see the profitability rating of different pools, so we can analyze which pool is more profitable to invest in.
These deposits are different from bank deposits; here the exchange pays you for depositing two coins at the same value in USD, for example, $500, thus maintaining balance and liquidity in that trading pair on the exchange.
Therefore, the profitability here is quite high because you are helping the projects twice.
After adding coins to the liquidity pool, the added pair becomes a separate token with the LP prefix.
For example, CAKE-BNB LP. This token is also called a wrapped token.
But the risk here is double, and I recommend learning about the concept of impermanent loss before investing in a pool.
To put it simply, it is a loss from holding a currency pair in liquidity.
Because the pair becomes a single financial instrument, the price change of a single token can greatly affect the price rate of the paired token.
The math here is complicated, so there is a special calculator, and I will show you the link on the slide.
Suppose we deposited 2 tokens worth $1,000 in total in the liquidity pool.
If one token was worth $20 and the other $300, and then the first token dropped to $10 and the other to $50, the value of your pair in the pool would be $288.68, while if you had just held onto these two coins and the prices had fallen that way, it would be $333.33.
The difference is not significant, but it is worth considering, and there are also cases where the value of the pair becomes worthless, but this happens with cheap coins with very low liquidity.
Usually, pools for such coins have very high profitability, so it is not worth being greedy and choosing popular coins or conducting analysis on aggregators and coin websites before sending your coins to the pool.
If you think you don’t understand the topic of impermanent losses, know that few people in this market understand what it is, even if they have been actively investing in DEFI for a long time.
If you have sent your coins to a liquidity pool, use this calculator and check every day what impermanent losses you have on the pair in the liquidity pool,
and as soon as the profits from participating in the pool become lower than the impermanent losses, withdraw your money from the pool and invest them in other tools.
What is staking?
This is a deposit of one coin into a smart contract.
Here, the coin project pays you for locking the liquidity of this coin.
The less of this coin is on the market, the higher its price, and you get paid for it.
There are different types of staking — for a fixed term with higher profitability and for a flexible profitability, but the tokens can be withdrawn at any time.
I prefer to receive flexible profitability.
Now I will stake one of the coins for you as an example:
Go to the Pools section on PancakeSwap — that’s how staking on Pancake is called.
We see that the most popular coin is Cake — the exchange token, the market has high trust in this coin, so I choose it.
Buy some CAKE currency for 25 USDT
Choose Stake Cake — Activate
The wallet opens — I confirm all actions in it
Choose Flexible so that you can always withdraw your assets and not lock them for a certain period
Now you will receive daily rewards in CAKE and you can withdraw them at any time
You can withdraw the Cake from the pool to your wallet at any time
Farming is the same as staking, meaning a deposit, but this deposit is not for an individual coin, but for a wrapped token, which is a pair that we put into liquidity.
In the farming section of the website, we can see different farming options for different pairs or wrapped LP tokens.
In other words, to add our assets to farming, we first need to add them to the liquidity pool, and then add them to farming.
It’s complicated, but the profitability is twofold, as you get paid for both the pool and for not spending coins from the pool.
We have prepared a table for you, which indicates the complexity, profitability, and riskiness of the instruments we have analyzed. We have also outlined the actions, opportunities, and risks, so take it and use it.
Five years ago, profitable farming looked like this, but today it’s different.
Another popular instrument is lending (not to mix up with websites), lending from the word borrowing.
This instrument is used by those who want to earn on new cryptos but do not want to use their deposits and only leave them as collateral.
In return for providing funds to borrowers, borrowers pay interest through the platform.
For those interested, take the most popular platform for crypto lending — Aave.
We have already talked about IDO, an eco-friendly investment in new tokens, a risky but popular way due to high profitability.
Today, I will briefly show you the 3 most popular platforms for IDO projects, which you can follow and get opportunities to participate in IDO on these platforms.
First DAO maker — decentralized projects that develop the finance industry are welcomed here.
https://polkastarter.com/ — they accept projects developed on the Polkadot blockchain
https://bscpad.com/ accordingly places projects on their Binance Smart Chain blockchain
We still have 2 more tools to review, it might be difficult to acquire all the new materials in one lesson, don’t forget to study the presentation and go through the lesson links.
Another unclear word is «DAO.»
This is a decentralized autonomous organization. Blockchain technology allows such an organization to automate democracy.
I haven’t encountered fully decentralized projects yet, but the future of this idea is when decisions are made not by one person, but by a simple majority of strangers. This is consensus.
But only time will tell how possible and effective it is. Perhaps this is the most underdeveloped technology in the DeFi market.
The most common example of this technology is DAO funds.
People invest together in various projects and vote on which project they want to contribute to.
An example of a DAO project is provided in the link.
And to conclude our lesson, and the course as a whole, we will study NFT.
NFT as a technology is a unique token or unique program code that is designed as a certificate certifying the uniqueness of something.
That is, in electronic form, some object, such as a painting, can be issued, the right to unique ownership of this digital painting will be an NFT.
In fact, what NFTs offer now is the wealth of people who used to decorate their houses with beautiful and unique paintings and show them off to their friends and guests.
But with the pandemic, life has moved online as much as possible, and wealthy people still want to stand out, to show off their wallet balances to everyone. It is probably not the best way to emphasize their wealth, but isn’t announcing the purchase of an expensive NFT a reason?
There is an interesting example when the provocatively famous artist Banksy burned his latest painting, but immediately sold it as an NFT. So his expensive painting remained unique, but only in digital form.
In fact, NFTs are about the future, about confirming property rights, for example, to an apartment or car, it is a protocol that will confirm the unique right to ownership of any objects, just for now, the world is testing this technology on funny pictures.
You can also earn money on NFTs by creating them yourself and selling them on special marketplaces.
The link to the most popular of such sites is below.
Take another portion of definitions.
I leave the most useful link — this is a link to an impermanent loss calculator.
This was Alina with you.
Good luck in working with cryptocurrencies and earning in the market of the future!