Headfirst into the Life of Defi

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One person’s journey into the world of decentralized finance.

(Any views expressed in the below are the personal views of the author and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions.)

Maybe you got your start in the crypto space by setting up an account on Coinbase or Crypto.com (CDC). You bought a few coins that your neighbor recommended, or you bought into a crypto you heard about in passing, but can’t remember exactly where. Or did you buy a well known coin because you trade single stocks through an online trading account that you’ve had forever, and you recognized a technical analysis pattern that you just couldn’t resist? You’re not lighting the world on fire with your returns or maybe you’re at a loss, but all in all it’s been a lot of fun, and you really haven’t thrown any serious money at it.

Recently, you have come across stories about people that bought Dogecoin and Shiba Inu in 2020, or Ethereum when it was under $1. At these early prices your calculator tells an incredible story from a not too distant past with only a few hundred dollars invested.

One day at work you overhear someone talking about a crypto that they just bought and are really bragging it up. Something about a new idea this project is bringing into the space and how it will be a game changer, -and nobody else is doing it this way, -and now is the time to buy in. You go home later and check Coinbase and CDC but neither platform has it available for trading. Now what? You google the crypto’s full name in hopes of finding a website full of information about this ‘game changer’ but instead a website called Coinmarketcap shows up. With a click and some scrolling you find details (meaningless to you) of your potential crypto purchase… heck yeah, that chart is looking pretty good though! Okay, now what? And so it begins.

While on Coinmarketcap you click around and notice a myriad of coins and tokens you’ve never heard of, and a few of the names given to these tokens are shocking and make you laugh! Several of them are showing triple and quadruple digit gains in the last 24 hours which blows your mind (don’t even need a calculator to rough out the extent of the upside). You jot a few ticker names down and check again into Coinbase and CDC… nothing. ‘Where the heck can I buy into these darn things?’ keeps repeating in your head. Somewhere along the line you decide to do a quick Google search for how to buy one of these mysterious coins and up pops a couple YouTube videos in your search results. You make an evening of watching videos and hearing phrases and terms you’ve never heard of before. You repel far from your initial search criteria letting seemingly important key words guide you through this YouTube adventure. One lady says a good starting point is to look for a token’s whitepaper and another fellow emphasizes the importance of understanding the relationships between marketcap, total supply, circulating supply, and more. It’s information overload but luckily you’re not a person that’s scared of a little challenge and honestly, you’re eager to know more.

Over the next few days you session YouTube and other forums assimilating differents points of view. Along the way, you cipher out throngs of new concepts, and how different elements of the information interplay. One of the videos casually suggests the obvious place (to them) to find your token’s official website and contract address which finally leads you to read your first whitepaper. This particular document was a balance of impressively meandering technical jargon, ladened with futuristic architectural art and voguing faceless figures (Flesch-Kincaid would have much to say). Things calm down with a modest write up on the developers with no pictures, only first names, -some clearly not real. Detailed coverage is given on tokenomics which only days ago is a newly learned term for you. There’s a paragraph about the prospects of an audit in the works, but it sounds to be down the road. Nonetheless, it’s early history in the making because you can just tell!

By this point you have seen mention of a couple different swaps that are the ‘go-to’ decentralized exchanges in the space, depending on which blockchain a particular token currently exists. The crypto you’re looking to purchase is on the Ethereum chain (you learned how to identify chains too) so you know that you’re going to need ETH in a wallet that you can connect to one of these ‘preferred’ swaps. The people in the YouTube videos talked about “high” gas fees on the Ethereum chain and how it can sometimes be a painful experience to use a defi swap for the first time. In spite of this, you refuse to relent. . . instead thinking this is all part of it, and reason further that it’s the cost of getting in early before it goes big.

Finally, you’ve settled on a defi wallet to download as well as a slick two-factor authentication application; all set now. You buy some ETH on Coinbase and send a little test transaction (just like you learned) to your new wallet. You check every number and letter in your destination defi wallet address because you’ve heard of some people screwing this part up. Off it goes and you wait. . not long and a refresh shows the ETH made it into your wallet and now it’s time for the rest of your ETH sitting on Coinbase to follow.

Once this part is done you know that you need to navigate to this ‘preferred’ swap ensuring that you use the browser in your wallet. You do a legitimacy check to make sure the website is the official address of the swap before you proceed (avoiding the exploit carnage and missteps of others). After the swap loads you hit a button to connect your wallet and soon remember that you need to create a custom token because alas, the token you’re there to buy is so new that it’s not yet on a preloaded list within the swap! No worries, you’re ready to do this based on your YouTube ‘training’ in the days beforehand. All goes smoothly up to this point. The swap interface is very familiar because you’ve seen all the functions explained in your YouTube ‘training’ leading up to this day. The situation becomes visceral as you approve the token for trading.

Knowing that you are nearing the end of your first defi experience, you select your newly created custom token from the token list. You notice price impact, slippage, and estimated gas, but nothing in obvious need of fiddling with the default settings. You carefully inspect other estimated trade information paying attention to how many tokens you are buying and doing rough math to leave enough for gas. From your ‘training’ it all seems right and you submit the transaction for the swap to do its thing. . . After a few uneasy moments the transaction is declared on screen as “successful” and you quickly close out the browser and scoot back to your wallet. Man, your palms are sweaty! Not long and a refresh later your newly purchased tokens appear.

It’s not immediate or impulsive but days later you realized you just entered defi.

So where do you go now? You’ve amassed a substantial amount of information in a short period of time culminating into a successful entry into the decentralized finance crypto space. This is the ‘training’ that I alluded to above, and should you continue, many facets of defi crypto are still to be revealed. But like anything, you have to want it and escalating effort on your part will be needed. Over time your appetite will become more refined; instincts will develop and you’ll be able to recognize aspects of a project or platform that winnow themselves in or out. Mistakes are likely and it will cost you money no doubt. Hopefully as part of your training you learned how to minimize the impact of these mistakes along the way.

In time you may find yourself gravitating towards a sector or type of crypto that necessitates a whole different approach to figure out what’s up from down. I will offer a vital hint here and say that the earlier you find and join a respectable crypto community on a social platform the better off you’ll be! Don’t go at it alone as these people are invaluable and essential to shortening any learning curve. It’s worth repeating: Find a respectable crypto community to be a part of! Yes, really.

Soon you become a venerable crypto knowledge depot completely unknown to everyone in real life. You smile inside and laugh to yourself when you hear crypto being discussed around the water cooler. It brings you back to the days prior to your first entry into defi. For now you acquiesce to their ignorance for just a minute, but then offer some hints that softly nudge them to independently seek more info, keeping your crypto knowledge arsenal unrevealed. They ask a few clarifying questions and disband a short time later.

Feeling glad you gave out some solid beginner defi information, you realize that you’ve sort of come full circle. You find yourself warmly wondering if you just became the defi impetus for one of them? And so it begins.