How to make it in DeFi (pt.1) - Starting out in DeFi
This short article is the start of a series I will be writing about how to make it in DeFi or Decentralised Finance. The purpose of these articles is to get you from knowing nothing about DeFi to having a pretty good grasp on the sector and what is possible.
I know what you’re thinking, why get out of Coinbase and Binance where everything is safe and well-known? If you’re happy with buying or selling and trading tokens, this may be enough. But crypto is evolving into something so much bigger now, so I want to try and expand your knowledge just a little.
Why not explore all the golden opportunities that are out there? But, actually why care about DeFi at all?
Let me present some of the opportunities in DeFi (maybe you don't understand everything now, but hopefully over the course of these articles you will):
Use any token or coin as collateral to borrow money.
Stake your tokens or tokens (single-side staking) to earn APY, eg. stablecoins to achieve between 20% and 120% APY.
Yield farm your tokens (two or several tokens in a Liquidity Pool (LP)-pair) to earn APY.
Lend your tokens or coins to earn money.
Buy NFT’s (which is way more than a jpeg), and you can stake your NFT to earn a passive income.
Send money to anyone in your preferred currency without using a CEX (centralized exchange) as a middleman.
Buy tokens at a lower price than the market price (liquidity protocols).
Use stablecoins to buy stocks and commodities.
Use self-repaying loans.
Buy real estate (digital and physical).
I could probably continue this list forever with all the possibilities, but for now, let's focus on how to start out in DeFi.
How to start?
You need an online wallet such as Metamask, xDEFI, Liquality, Phantom, Terra Station, etc.
As a practical example, let’s use the most well known, Metamask, for now.
Step 1: Go to http://Metamask.io and create a wallet.
Never share your seed phrase and password with anyone (sadly there are a lot of scammers online that will try many devious tactics to get you to provide this). And when I say no one, I mean it! Not even Metamask themselves needs to know this.
Read this article where I wrote about some simple tips that will help you to stay safe in the crypto space. Simple tips to keep your crypto safe.
Step 2: Your wallet is automatically set up for the Ethereum network. But on the top screen in Metamask you can see that you can change networks.
Let’s say you want to use the Fantom Opera Network instead because you are bullish on the FTM coin (the native coin of the Fantom network) and you want to send some FTM coins from an account you have on the Binance exchange to your Metamask wallet.
Step 3: Switch network from Ethereum mainnet to Fantom Opera network.
Copy your wallet address. If you don't have the Fantom network in your Metamask already, read this quick guide on how to add it: https://docs.fantom.foundation/tutorials/set-up-metamask…
Step 4: Go to your Binance account.
First, you will need to buy some FTM. Then go to wallet --> fiat/spot --> search for FTM. Choose to withdraw FTM.
Step 5: Paste your Fantom address. Choose the Fantom network.
Step 6: Enter your amount and press send.
If this is the first time you do this, choose the smallest amount possible. For some reason, a lot of people do this too quickly and end up losing their funds because they entered the wrong address or chose the wrong network.
The gas fees are very small on FTM, so it’s basically free to send coins through this network. If you use another exchange, make sure that the exchange is sending your Fantom through the Fantom network.
Step 7: Your coins should now be in your Metamask.
The transaction will happen in seconds, but it’s the CEX (Binance) that uses the time to complete the transfer. If your coins haven’t arrived yet, check the status of your transfer in Binance.
Let’s just pause for a second now.
If you want to be in DeFi with more than $1,000 you should absolutely get yourself a hardware wallet.
Because security is of paramount importance when you are in control of your own assets.
If someone knows your wallet password, they could immediately transfer all your funds to themselves. But if you use a hardware wallet you must connect this to your online wallet in order to transfer anything out of it.
You can read more about this here: https://ledger.com/academy/security/the-safest-way-to-use-metamask…
The two most known hardware wallets are Ledger and Trezor. Personally, I use Ledger, but in my opinion, they’re equally good.
You can read more about wallets here and a comparison between Ledger and Trezor: https://investopedia.com/trezor-vs-ledger-5193580… .
Step 8: You now have FTM in your Metamask wallet and you’re ready to explore DeFi.
Step 9: I’ve written another article about the Fantom network and all the DeFi opportunities which I definitely recommend you to read before you move to step 10. Link to the article:
Step 10: Let’s just try one of the opportunities that is currently quite popular: the FTM-TOMB LP.
Go to http://reaper.farm, connect your Metamask to the Fantom network, and find the FTM-TOMB-Pool.
If you read my Fantom article, you already know what TOMB is.
To enter this FTM-TOMB crypt you need an LP-token (liquidity-pair) which consists of 50% FTM and 50% TOMB.
You already have FTM, but you need TOMB.
Step 11: Go to http://spookyswap.finance, connect your wallet, and go to "Swap"
Step 12: Swap 50% of your Fantom to TOMB. You have to confirm with your wallet and pay about $0.50 in gas fee.
Step 13: You now have both FTM and TOMB in your Metamask.
If you can't see your TOMB yet, add the token contract from CoinGecko (screenshot).
Step 14: You need to pair your FTM and TMB together so it makes an LP-pair.
Go to: http://spookyswap.finance/add and choose 50% of FTM and 50% of TOMB You approve first, then you add the supply.
Confirm with Metamask and pay gas 2 times (maximum amount spent should be about $1).
Step 15: You have now made an LP pair.
Go back to http://reaper.farm again.
Find the FTM-TOMB crypt, press max, and choose "Approve LP". Confirm with Metamask. Then choose "Deposit". Confirm with Metamask again.
Congratulations, you are now in a yield farm!
If you think this was too advanced, NGMI. Just kidding😉.
Setting up FTM-TOMB are probably some of the more advanced things you could do, but I'm 100% sure you can do this right if you follow the instructions. Try with $10 the first time.
With regards to the risks in DeFi, this is something I will be writing a separate article about next time.
On a scale of 1 to 10 though FTM-TOMB: has a 6/10 risk. So for now, try a small amount with these instructions. I just wanted to give you a head start. If you understood this, you will definitely make it in DeFi.
What do you receive for being in this FTM-$TOMB yield farm?
The interest rate is 1374% per year.
Is that sustainable? No, absolutely not, the rate will go lower. But in the DeFi space you have to be prepared to stay on top of what is working and be pro-active in moving to new opportunities as they arise.
Why did I say the risk was a 6/10 (medium risk)? This is, of course, my personal opinion, but in the next article we will look at risks in DeFi and we'll explore the full range from 1-10 on the risk scale.
But please remember you should definitely never go all-in into something like this!
Hopefully this has given you a glimpse into the world of DeFi and yield farming on Fantom; perhaps you are now even inspired to either try this for yourself or explore this space further.