If you haven’t experimented with these things yet, here’s a good place to get started with crypto. Also, this is not investment advice, you may lose all your money by trying these things out.
“Decentralized Finance (DeFi) is the merger of traditional bank services with decentralized technologies such as blockchain. DeFi can also go under the name Open Finance due to its inclusive format. Importantly, the DeFi community seeks to create alternatives to every financial service currently available. These services include items such as savings and checking accounts, loans, asset trading, insurance, and much more.”According to Securities.io
Here’s also a more comprehensive guide to DeFi by Coinbase, if you want to learn more before reading.
It’s been over 30 days now since I started experimenting with decentralized finance tools on Ethereum. It’s been a wild ride and I tried to do a lot of things across the entire risk spectrum.
58 transactions and 0.82 ETH gas fees later, I can tell the story of how I won, lost, then won again, then barely edging out a little net win. Follow my story day by day.
I used Zapper.fi to explore all my DeFi experiments in one place.
This is when I decided to take the plunge. The market had just gone up in late July, and Twitter was full of chatter about yields to be made in decentralized finance tools (DeFi) like Compound (COMP), Curve, Aave and others. Up until then, I had done little research on any of it and had stayed away from MakerDAO and DAI.
After reading a lot on Twitter, I got onto InstaDapp, since it looked like the easiest way to run some experiments, thanks to their combined transaction model. Great UX, btw.
So that day I gathered all of my available ETH, and deposited it into an InstaDapp contract. I also deposited some BAT that I had earning peanuts in COMP, as collateral for safety. I’ll get to this later.
I borrowed DAI against some of the ETH, then I deposited that into Compound via InstaDapp.
I did some more research on ETH leveraging through InstaDapp and decided to wind my DAI position up by 15%, so I borrowed DAI, bought ETH and added it as collateral in my MakerDAO account. This will come to bite back later.
On Compound, I decided to try and 4x my mining earnings, so I leveraged my existing collateral (remember the extra BAT?) and borrowed USDC to get DAI and used DAI as collateral to earn COMP.
There’s a little dip in the market and my MakerDAO position turns from Safe to Risky. I have to get more ETH and add it to my collateral, because I’m already leveraged. No biggie, just some more gas burned. Let’s call it insurance.
I also bought some COMP off the market, that I would use later to farm. That’s when things get interesting.
Over the weekend, as Crypto.com releases its migration from MCO to CRO, I decide to use some of my BTC to get more collateral and upgrade my crypto card. I was already getting used to InstaDapp, so I get my BTC from my safe, move it to Coinlist, where I wrap it to wBTC, so I can add it to the ETH ecosystem.
With the wrapped BTC, I go on InstaDapp and get enough of a USDC loan to get CRO and update my card. The USDC loan at this point is @ 5% APR, but my COMP mining from it pays for that and more.
Cool. Free money, sans gas costs, which I pay.
I continue going down the Twitter DeFi rabbit hole and I discover Yam.Finance, a new monetary experiment with automatic rebasing currency, while farming liquidity tokens off Uniswap.exchange.
This farming works because liquidity providers get paid a fraction of the transaction costs, and on a very liquid market, you can make significant returns by just keeping coins in there as a market maker.
Back to Yam. I deposit COMP and start farming Yams. While I was getting ramped up with Yam, an error was found in the Yam smart contract, rendering it useless.
I exit the Yam farming contract, reap Yam rewards and attempt to delegate my yams to save the protocol. Gas prices soar, so my transaction is delayed and I miss the delegation snapshot. Expensive move. Also during this time, Yam rebases chaotically, driving huge price swings. I hold on.
Drama ensues in the Yam community and the team decides to migrate tokens to a new contract that doesn’t rebase.
After following the Yam groups, I decide to continue with them and move my Yams to Yam v2. More gas burned, but at this point it’s a sunk cost. I want to see where this goes, for the monetary experiment, if anything.
Guess what, the market dips again, so my InstaDapp risk rating drops very close to Risky again for the MakerDAO position. I add another bit of ETH as reserve in that smart contract, in case the price drops some more.
I randomly get some COMP off one of their promotions to learn about the protocol, and I get more insights into their governance structure and process. This will come handy later, too.
Someone decides to fork Uniswap, leverage the Yam UI (which was beautiful, btw) and the COMP governance model, and creates SushiSwap, which takes crypto Twitter by storm. Seeing traction and contract audits, I join the bandwagon.
Sushiswap essentially asks you to provide liquidity on Uniswap for a token set, like COMP-ETH, or SUSHI-ETH, and then take those liquidity tokens and deposit them. That deposit then earns you a 4 digit % yield in SUSHI. Their goal is to launch a community-led Uniswap, with profit sharing through the SUSHI token. Cool.
I set my target of 48 hours to harvest and cash out some rewards, having learned from the Yam debacle.
I also get some more ETH, since I’m burning through gas like crazy with all these smart contract executions.
Ah, the end of summer.
Also time to harvest those SUSHI. I provide more COMP-ETH liquidity on Uniswap, because I didn’t deposit everything on purpose on August 28. The Sushi contracts automatically harvest rewards when you deposit, kind of like Compound does it too.
I get my SUSHI, which I convert to ETH. I feel great about myself for the rest of the day.
Remember, at this point, I’m still farming SUSHI at 4 digit % returns, so I give it another 3 days this time before my next harvest.
At this point, there’s over $1B worth of crypto locked into SUSHI farms. What could go wrong?
All is well, bull market under way. As planned, I harvest more SUSHI and I add liquidity to Uniswap’s SUSHI-ETH pair. I then bring my LP tokens and start farming SUSHI with SUSHI.
At this point, there’s $1.5B in assets locked in SUSHI farming contracts. People are taking notice and everyone is excited for the swap launch, with community governance. Even Binance endorses it.
Also, the market is starting to slide again.
The market drops sharply after stocks take a nosedive at the end of the week, so my InstaDapp risk tool flashes red again for the MakerDAO position.
At the same time, the dev running Sushiswap pulls an exit scam move, by selling all his SUSHI, effectively crashing the price by 50%. I get my COMP-ETH out of there and remove liquidity, harvesting some SUSHI in the process.
Total assets held in Sushi contracts drops back to under $1B, by about 60%, too. I’m keeping my farming SUSHI-ETH pair, and some SUSHI free-float, in case I can take some more profits
I need the ETH for the MakerDAO position, so I add more ETH, which, combined with the previous reserve ETH, move me down to Safe again. Liquidation limit moves down at $244 / ETH.
Right now, when I finished writing this article, I’m up, if you consider the YAM and SUSHI I still hold, at current prices. But this changes every minute.
From a gas point of view, this was an expensive ride, but I learned a lot. And I barely scratched the surface. I will definitely try more things soon and report back.
Tools I found useful along the way
I already linked Zapper.fi at the top – great way to visualize assets and transactions.
I found this good article on ways to save on ETH gas price by timing your transactions. I also learned that if you transact with less decimals, you burn less gas.
Uniswap Exchange – fast-growing decentralized exchange for ERC20 tokens, and market making for normies.
Compound Finance – the OG place where I started playing with yield farming. Backed by A16Z, it’s one of the safest things you can do in crypto.
InstaDapp – my entry point into the leveraged DeFi world, they created recipes to maximize yield, wind up assets and profit from longs, liquidation risk notwithstanding.
wBTC network – a group of entities that enable people to wrap their bitcoin onto ERC20 tokens. Useful to get your bitcoin into DeFi.
MakerDAO – a place where you can deposit ETH and get DAI loans at 0% APR, which you can farm with. An interesting stablecoin that’s hugely popular.
DeFi Prime – content aggregator about the industry. Good to discover projects and experiments.
DeFi Pulse – check out the amount of money locked in DeFi contracts. Good to check project health.
DeFi Explore – a place where you can see your DAI exposure and profit/loss on the Maker CDP.
DeBank – a Zapper.fi alternative to viewing portfolios, making transactions. Has a cool Swap view of decentralized exchanges, with rates and gas fees.
Elrond – a promising chain to compete with ETH DeFi.
Zerion – visualize market stats. See how much is in each liquidity pool.
Zippo – another cool way to visualize projects, like SUSHI, YAM – price, yield, liquidity.
Projects I haven’t explored yet
Aave – didn’t really have attractive yields for me. Maybe I don’t know enough about it. It also only recently become available on InstaDapp.
Dia Data – open price feeds for DeFi
Idle.Finance – decentralized hedge fund for ERC20 & ETH, with risk scores.
Yearn Finance – a token that is more expensive than BTC now, and with 2 digit % yields on ETH, DAI.