Wondering how Bitcoin is likely to evolve over the coming years? there seems to be a tectonic shift in the crypto community away from centralised platforms into decentralised platforms. This is How to Get Started DEFI 2022.

DEFI Guide 2022 – What is DEFI?

DEFI stands for decentralised finance, this is essentially the ability to participate in decentralised financial offerings. Think banking, however, instead of being a single entity the protocols are run and secured by multiple operators in the systems.

From Wikipedia, Decentralized Finance is a blockchain-based form of finance that does not rely on central financial intermediaries such as brokerages, exchanges, or banks to offer traditional financial instruments, and instead utilizes smart contracts on blockchains, the most common being Ethereum.

How to get Started DEFI?

If you’re looking to take the plunge into the world of decentralised finance there are a couple of steps to go over.

The easiest way to get started is to set up a self custodial wallet. This means that you are responsible for keeping your private keys, well, private. The biggest thing to remember is never to give out your private keys or mnemonic to anyone you do not trust.

There are a number of mobile apps and browser plugins that will help you get started with setting up DEFI. Our favourites are listed below, however, at this stage Rainbow is probably not the best option as it is Ethereum Chain only.

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Once you download the app or browser extension, just click ‘create a new wallet’ and remember to write down your private key and mnemonic on a piece of paper and ensure to back this up in a place that you will not forget. IF YOU FORGET YOUR PRIVATE KEY OR MNEMONIC YOU CANNOT EASILY RECOVER YOUR WALLET!!

Once signed up you will be provided with a public wallet address. This is your public key and is used to sign all transactions on the chain. It is also the address that you can direct others to send tokens, NFT’s etc to.

Prophets Public Address is: 0xbd1e0Fe02752F82DB1E07375e5fE5aa9e04300e8 (Feel free to donate any coins to this address)

How to Setup a DEFI Account Steps:

  1. Download Either MetaMask or Coinbase Wallet
  2. Create a new wallet and ensure to write down private key and mnenomic
  3. Congradulations you now how a self custody defi wallet and address
  4. Fund your account by sending tokens or coins from your traditional CEFI (Centralised finance wallet) to your public ID

We recommend connecting your wallet with Zapper.fi to keep a watch over all your digital assets.

DEFI Guide 2022 – Chains

Decentralised finance can be run on a variety of blockchains and there are currently a number of chains out there that can be used from Layer 1 chains to L2 chains there is typically something for everyone.

Typically we would recommend sticking to only a few chains to keep things simple. Whilst the Ethereum chain is the most popular and has the highest traded volumes it’s probably not very appropriate for beginners at the moment due to the very high gas fee’s.

These Ethereum gas fees can sit anywhere from $10 up to $100 from what we have seen recently. Hence we would recommend staying away from this chain for beginners.

Ethereum Chain Gas Fee's
Ethereum Chain Gas Fees. Source: CoinMetrics

Instead, there is a range of competing chains that offer extremely low gas fee’s (transaction fee’s) such as the Binance Smart Chain, Avalance Network and other Ethereum based Layer 2 solutions such as Fantom and Matic Network.

How to Connect Wallet to Alternative Chain

If you have decided on a chain, we will use Polygon for this example, the next thing is to set this up in MetaMask or Coinbase Wallet.

In MetaMask this is as simple as adding an additional network in the settings or in Coinbase Wallet, heading to the setting and changing the network to Polygon.

Example of How to Setup Polygon in MetaMask Wallet (Browser Extension)
Example of How to Setup Polygon in MetaMask Wallet (Browser Extension)

Once setup you can now send tokens from your CEFI wallet to your Polygon Self Custody Wallet. You can always change the network as required and even bridge between networks with the Polygon Network.

If you already have assets under another network on your self custody wallet, you can bridge between networks using tools such as SpookySwap Bridge.

DEFI Guide 2022 – Different Ways to Earn Yield

There are a number of ways in which to earn yield in the DEFI land. This can be done through a multitude of different platforms with most differing slightly in their approach.

DEFI Staking:

Staking of crypto assets is essentially helping the consensus mechanism of proof of stake coins. The proof of stake mechanism helps to secure the blockchain and validate transactions on the chain.

By participating in staking, you ‘pledge’ your coins to help secure the network. In return, you would gain staking rewards for their efforts validating and creating new blocks to the chain.

DEFI Pooling:

Pooling is similar to staking whereby you commit your assets to help provide liquidity to the blockchain. Pooling typically requires holders to commit their assets to the pool for longer durations than staking.

By committing your tokens to a pool you essentially can become the market maker. A basic Liquidity Pool creates a market for a particular pair of assets on a decentralized exchange (e.g: MIM/ETH).

Users can earn yield through sharing in the transaction fee’s which are distributed in proportionate amounts based on the amount pooled. Some platforms also add some additional incentive to users by awarding extra tokens to the pool group.

DEFI Lending and Borrowing:

Borrowing and lending very similar to traditional financial markets can be completed on the DEFI platforms. This is potentially one of the most exciting things about DEFI as it removes several layers of intermediaries from the equation and instead replaced them with a “Smart Contract”.

Difference between Traditional Lender and DEFI Lending
Difference between Traditional Lender and DEFI Lending

Essentially users can contribute their assets towards lending on the platform and be paid a yield, this is similar to how banks make their money. Borrowers can then join the platform and borrow tokens. Borrowing has an interest rate attached and has a number of security features built in to protect the lender from loss.

An Example of the SushiSwap Lending Platform
An Example of the SushiSwap Lending Platform

DEFI Guide 2022 – Best Platforms

Now that you have your self custody wallet it’s time to put it into use. There are a number of platforms and products in which you can participate with DEFI, from staking to lending.

A few platforms to take a look into are included below:

SushiSwap: A multichain platform that allows swapping, borrowing, staking, lending and pooling. Link

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Wonderland Money: A fork of Olympus DAO created on the Avalanche Network, it allows staking at a high yield. Link

SpookySwap: Similiar to SushiSwap Link

Zapper.FI: Provides a platform in which to track all your digital wallets through an innovative web platform. It also provides useful tools for swapping, staking, pooling and saving.

How to Get Started DEFI – Prophets Take

If you are wondering which coins to maybe start investing in take a look at our articles on Ethereum and Cardano Coins. This should provide the basic knowledge for you to conduct some further due diligence on these coins.

We believe acceptance of digital cryptocurrencies and blockchain infrastructure will play an important part in the future. There are some exciting projects currently being built on the blockchain and participating in DEFI allows consumers to directly participate in the projects potentially before being listed by Centralised platforms such as Coinbase or alternatives.

If your looking for a picks and shovels approach to the crypto-economy maybe have a peek at Coinbase Stock.

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