Category: Blockchain

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.

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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.

August 2-3

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.

August 4

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.

August 7

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.

August 10

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.

August 11

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.

August 12

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.

August 19

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.

August 21

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.

August 26

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.

August 28

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.

August 31

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?

September 3

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.

September 5

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.

Metamask – a Web3 wallet that I’ve been using since 2018. Even Bloomberg wrote about them recently. It’s my central command for ETH and ERC20 transactions.

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.

Synthetix – too risky for my taste, I don’t understand enough about derivatives. SNX tools is also a good way to visualize that ecosystem.

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.

Photo by Bermix Studio on Unsplash

Today, a Caviar courier managed to not delivery my order. This is not the first time a courier fails to deliver my food, although it showed as confirmed in the app. I live on a little hilltop building, with an alley way entrance between two small lion statues. I’m aware it’s hard to find and I always add instructions on how to get to my apartment. It usually works, but sometimes I get to starve for another 30+ minutes until we figure out other alternatives to the meal we’d been waiting for.

In this day and age, with contactless deliveries, which are great, it’s hard for couriers to know that they have delivered to the right person. So we need a solution to enable them to verify the order destination without me being there.

Sounds like a job for zero-knowledge proofs, if you’re a crypto-geek, like me. Or it’s just a simple async identity verification problem.

There’s a problem with addresses. Your GPS might say you’re at one address, but you’re actually at another building. Some buildings have the numbers well-hidden, others don’t have any numbers altogether, so couriers have to guess.

Being in love with technology, and being an advisor for Tailpath, I propose this simple solution:

• As a customer, I want to give the courier enough information for them to be able to verify my identity, without being face to face with them, but not have to print / show identifiers each time. I also don’t want to reveal my personal information at the door.
• As a courier, I want an easy way to verify if I’m dropping off the order in the right location. But I don’t always know if that’s the right address. I can’t ask the customer due to COVID or because they are not home, so I need to rely on signage
• As an app builder (i.e. Caviar, Uber Eats), I would like to have a reliable way for couriers and customers to make the transaction without physically meeting.
• Customers could have their address on a QR code on their door, for couriers to scan with their Tailpath app, or a white-label version of it within Caviar or Uber Eats or similar. You’d only need to put the code up once, and reuse over and over again
• If the address matches with the address given in the app, the delivery is confirmed and the courier knows they dropped off the order correctly, and the customer is notified. The courier can also take a photo of the delivery at the correct door, for proof.
• If the address doesn’t match, the courier can call the customer for further instructions.

This way, the courier proves they delivered in the right place, and the customer has no way of arguing that there was a mis-delivery if the courier scanned the code at their door and left a photo proof of the delivery.

I hope these apps get better, so less people have to go through the hassle of not having their food delivered correctly.

Photo by ivan Torres on Unsplash

When I was working actively in the blockchain space, one of the biggest debates for the “non-believers” was around immutability and why it matters, especially in the notorious double-spend problem. If you don’t recognize the problem, it’s hard to see a solution or an advantage.

Chargebacks: If chargebacks are not a problem, “immutability is not an advantage of blockchain, it is simply a feature of blockchain. But it is not solving anything, so why put it up as an advantage?”

Government tax numbers: “For instance, I can say that I have a product which makes sure that the government does not arbitrarily change your tax number. Okay. But is there a big problem of governments changing people’s tax numbers? Not in the slightest! So why mention it as an advantage? It is solving a non-existing problem.”

These challenges seem to be very different. But they are not. Both the chargeback problem and the government tax problem described above are about identity. Let me explain how. Chargebacks are about who took my money for the wrong reasons and how I get it back, within a network. The government tax number is about how the government identifies its tax payers so you can be sure that it recognizes you have paid your dues. Both trust the central “ oracle”, the governor of the network or the country administrators/tax collectors. Both are vulnerable to Sybil attacks and can only work with other networks/countries if there is trust and transparency across networks.

Let’s take a step back and talk about identity. There are three forms of identity as of today:

1. Non-digital identity – think of your birth certificate, your driver’s license, your old passport and other paper/plastic/metal documents
2. Digital identity – your SSO service, your user management platform, Facebook account, your biometric data on a new passport, your email address, credit cards
3. Decentralized identity – similar to the digital identity category, but issued and/or stored outside a centralized database, on individual devices/mediums that the owner controls

While the first two are easier to grasp, the third one is still nascent, with a few use cases emerging now in access management, cryptocurrency wallets, for example. You’d be tempted to say that immutability is only key for the decentralized identity category. And you would be wrong. Our world goes through great lengths to make sure that your non-digital and digital identity is unique and immutable, so that you can’t be one person today and another person the next day. This immutability and the identity consistency that it creates is the foundation of our society. You can create long term relationships only if the other person is who they say they are over time and that statement does not fundamentally change.

This immutability attribute is what makes identity possible, not just decentralized identity, all identity. The difference is that you’re not relying on a 3^rd party to keep records of who is who, like in the centralized examples. With decentralized identity, you are relying on immutable records of a person’s (or a bot’s, if you like) collection of credentials and their minimum viable verification proof (MVVP). There’s a lot of materials to read on the topic, especially from the W3C, a standardization body that makes the internet interoperable.

Since I brought up interoperability, immutability is a direct enabler of that as it becomes exponentially easier to operate across networks if you don’t have always verify all the actors all over again from scratch. The costs and time to verify drop significantly.

If you’re a blockchain non-believer, or nay-sayer, try thinking about a time you had to redo something all over again, like prove who you are, because there was no easy way to cross networks reliably. It might not be an obvious problem today, but in the future it will speed up and increase the security of travel, payments, building access, virtually any kind of transaction that occurs between two or more parties that need to be identified.

Photo by Hitesh Choudhary on Unsplash

“A local currency is used within a defined area and promotes demand for local goods and services. A multiplier effect occurs as the service or goods provider in turn spends the funds locally, with each reuse strengthening the system, promoting local value, self-sufficiency and community interdependence, while providing independence from financial systems far from local control and benefit.
(…) The use of local currencies increases in times of recession or depression as we saw internationally after the banking crisis of 2008. Local currencies exist around the world in many different forms, with the common denominator being the intent to strengthen the local system, building in resilience, minimising waste and enhancing rather than diluting local productivity.” (The Guardian, 2015)

I’m anchoring the circular economy to its currency meaning and show how both the Euro and cryptocurrencies share the same adoption, growth and stability cycles. Few remember that the Euro was established in 1999 as a virtual currency first and only in 2002 did it become a printed / minted physical currency. Beginning on 1 January 1999, all bonds and other forms of government debt by eurozone nations were denominated in euros and all participating economies pegged their local currencies to the Euro, becoming subdivisions.

Kind of like an ICO, right? The ICO organizer sets a price and fixes all other crypto rates to the new currency, then distributes the new currency to be used in the local economy they are, supposedly, creating. I say supposedly because not all ICOs aim to create economies and those who don’t and aren’t a security are most likely scams / shitcoins.

“The euro grew in importance steadily, with its share of foreign exchange reserves rising from nearly 18% in 1999 to 25% in 2003 – while the dollar share fell by an equivalent margin.” (source)

The biggest turning point for the Euro was when a part of the circulating supply was locked as foreign exchange reserves and that share increased, replacing some of the dollar share of reserves, sending the dollar value down and the euro value up.

But back to the circular economy component — if you just have the above decisions and adoption, including forex reserves, then your economy still risks having to use external resources more than internal ones and devalue the local currency by oversupply.

Let me create an example here – fiat with fiat.

People in your local economy consume a lot of wheat, and that wheat is imported from US. They pay for it in Euros, but those Euros get converted in USD so that the wheat producer can pay salaries, bills and other expenses in the US, where USD is legal tender. Once the wheat producer has sold the Euros they received and got dollars in return, the total supply of Euros has increased, while demand has stayed the same. This drives the price of EUR-USD down, which means you can buy more Euros with the same dollar amount.

How can you stop this? You produce wheat in the Eurozone and consume it there. Let’s see what happens if you do that. Your people buy wheat from the wheat producer inside the Eurozone with EUR, the wheat producer pays for their cost of doing business with EUR, so there is really no change in supply or demand for EUR versus other currencies. A potential consequence for this might be even a reduction of supply or increased demand of EUR, as there is less EUR available for foreign exchange, therefore driving the EUR-USD and other pairs up – meaning for every dollar, you can buy less and less EUR. And that’s a good thing for the Eurozone, it increases the value of their currency and economy.

If you go a step further and produce goods and services beyond what your people can consume and based on external demand, then the supply reduction / demand increase of your currency is accelerated. Let’s use the wheat example again. If the wheat producers of the Eurozone satisfy all the wheat demand locally and have surplus they export to other countries, let’s say Russia, so we can use the ruble, then there are goods flowing out of the zone. The wheat is paid for in Ruble and the local wheat producers exchanges those rubles for Euros, as they need local currency to pay salaries, bills and other expenses. The ruble drops, the Euro increases, so next time the same ton of wheat will be worth more rubles for the same euro amount. The supply of Euros decreases and the supply of ruble increases, making it more expensive to buy wheat from Eurozone countries.

I ended the story on that note to show that a circular economy without inflation is dangerous, as competing goods and services from other countries with inflation can become a better choice, even if yours are superior in quality, if the Euro becomes too expensive year after year. But then we enter the advanced realm of monetary policy, competing systems and that’s beyond the scope of what I’m addressing today.

Back to cryptocurrency, though, and the point I want to make. If you replace Euro with Monero, for example, you get the following story:

People in your local economy consume a lot of wheat, and that wheat is imported from US. They pay for it in Monero, but those Monero get converted in USD so that the wheat producer can pay salaries, bills and other expenses in the US, where USD is legal tender. Once the wheat producer has sold the Monero they received and got dollars in return, the total supply of Monero has increased, while demand has stayed the same. This drives the price of XMR-USD down, which means you can buy more Moneros with the same dollar amount.

How can you stop this? You produce wheat in the Monero community and consume it there. Let’s see what happens if you do that. Your people buy wheat from the wheat producer inside the community with Monero, the wheat producer pays for their cost of doing business with Monero, so there is really no change in supply or demand for Monero versus other currencies. A potential consequence for this might be even a reduction of supply or increased demand of Monero, as there is less Monero available for foreign exchange, therefore driving the XMR-USD and other pairs up – meaning for every dollar, you can buy less and less Monero. And that’s a good thing for the Monero community, it increases the value of their currency and economy.

If you go a step further and produce goods and services beyond what your people can consume and based on external demand, then the supply reduction / demand increase of your currency is accelerated. Let’s use the wheat example again. If the wheat producers of the Monero community satisfy all the wheat demand locally and have surplus they export to other countries, let’s say Russia, so we can use the ruble, then there are goods flowing out of the zone. The wheat is paid for in Ruble and the local wheat producers exchanges those Rubles for Monero, as they need local currency to pay salaries, bills and other expenses. The ruble drops, the Monero increases, so next time the same ton of wheat will be worth more rubles for the same Monero amount. The supply of Monero decreases and the supply of ruble increases, making it more expensive to buy wheat from Monero community members.

Let’s go a step further and remove all fiat from the story. Here’s how it sounds now:

People in your local economy consume a lot of wheat, and that wheat is imported from the Bitcoin community. They pay for it in Monero, but those Monero get converted in Bitcoin so that the wheat producer can pay salaries, bills and other expenses in the Bitcoin community, where BTC is considered tender. Once the wheat producer has sold the Monero they received and got Bitcoin in return, the total supply of Monero has increased, while demand has stayed the same. This drives the price of XMR-BTC down, which means you can buy more Monero with the same Bitcoin amount.

How can you stop this? You produce wheat in the Monero community and consume it there. Let’s see what happens if you do that. Your people buy wheat from the wheat producer inside the community with Monero, the wheat producer pays for their cost of doing business with Moner, so there is really no change in supply or demand for Monero versus other currencies. A potential consequence for this might be even a reduction of supply or increased demand of Monero, as there is less Monero available for foreign exchange, therefore driving the XMR-BTC and other pairs up – meaning for every Bitcoin, you can buy less and less Monero. And that’s a good thing for the Monero community, it increases the value of their currency and economy.

If you go a step further and produce goods and services beyond what your people can consume and based on external demand, then the supply reduction / demand increase of your currency is accelerated. Let’s use the wheat example again. If the wheat producers of the Monero community satisfy all the wheat demand locally and have surplus they export to other countries, let’s say the ZCash community, so we can use the Zcash, then there are goods flowing out of the zone. The wheat is paid for in Zcash and the local wheat producers exchanges those ZEC for Monero, as they need local currency to pay salaries, bills and other expenses. The ZEC drops, the Monero increases, so next time the same ton of wheat will be worth more ZEC for the same Monero amount. The supply of Monero decreases and the supply of ZEC increases, making it more expensive to buy wheat from Monero community members.

Cryptocurrencies are no different from classic currencies, unless we invent new ways of using them in our economies. In capitalism, the system I just described above applies and will separate the winning cryptos from the losing ones long term. The ones who are able to circularly produce and spend and attract external resources in will win, while the other ones, producing less, will owe more and more and their currency will be worth less and less, until it eventually disappears and they adopt the next ruling currency.