Building an EDGE in DeFi
If you are reading this article, I am sure you have also heard about DeFi (Decentralised Finance). Let me explain the concept here assuming we are all beginners…
What is DeFi?
DeFi in the simplest terms can be put across as Finance in the Decentalised world. Currently the majority of finances we have experienced, whether they be Credit Cards, Loans, Bank Accounts and Deposits…are all centralised in nature and exist in the real world.
Too many protocols remain in place when interacting with Centralised finance. If you want a loan, you will have to present a history of your finances, your credit score is all over the place and the best part is, banks actually loan out YOUR money at a higher interest rate, while throwing peanuts at you in terms of interest returns. No jokes!
DeFi changes all of that and so much more. Instead of now sitting with the bank, DeFi allows a user to go completely P2P (Peer-2-Peer) with their transactions through a Decentralised app on the blockchain. In other words, everything I have written above about centralised banks, just process DeFi doing all of that without the hassle and the credit scores. That’s DeFi explained in simplest terms.
YFI, AAVE, FTM, SNX are all examples of DeFi tokens and they have their own protocols for users to interact with on their respective platforms.
Now since DeFi opened a door of new opportunities to people, it also created a huge set of issues that many newcomers face while starting off…in this article I will try helping you develop an EDGE in DeFi
Expensive for your own good
Though DeFi allows you to lock your own funds on a protocol and then either swap them for another token, earn 200% APY through Yield Farming or take a loan against your choice of collateral…it’s not really that simple to navigate.
DeFi protocols have almost around $30 Billion locked in various ecosystems, but there have been many smart contract hacks, loss of user funds and that 200% APY just does not work out in the end.
This is because everyone does not have the Major Insider News. Yes! When a DeFi project is initiated and before it sees light of day of your funds, there are numerous parties that already want a share of their pie, namely:
- Development teams
These are the guys who either have the big bucks or the big sources to get in early. Project teams NEED them onboard for their wallets or for their marketing efforts, in turn these guys get a truckload of token before even hitting a Centralised Exchange.
So before dipping your fingers into the next 100x DeFi beauty, have your due diligence in place and know what could go wrong, and who could rug you. If the project is solid and the developer team truly wants to create something great, the project will do wonders in time, but that’s not the case for all.
In the above example you can clearly see two distinct examples-
Solana (SOL) had 48% allocation to Insiders & Internet Computer (ICP) had 39% allocation to Insiders.
SOL had an upward trajectory growth of 54,813% from bottom to ATH, inspite of insider allocation.
ICP had a dump of -99% from listing to ATL, and the road to recovery is a long and treacherous one.
The 1000% APY project
Many new projects will market themselves through Influencers and Twitter about their coin giving a whopping 1000% APY ( Annual Percentage Yield) and 90% plebs lose their mind here, thinking they have landed the best hedge in the world.
The shocker comes when the main token dumps. So instead of your capital doing a 10x in a year, the dump on the main coin takes your initial investment down by -80%
These tokens are just another Ponzi scheme with some vague description about the utility. Truth be told, there is no utility either and that’s a clear red flag 🚩
Be absolutely sure about the project and if you see too many influencers shilling the same coin on their tweets and videos, make sure to run 🏃♂️ as fast you can.
The HODL mentality
The whole system is plagued with the diamond hand 💎 🙌 mentality and it’s simply the worst advice doing the rounds out there. Don’t listen to people or take trading advices from anyone, chart your own course of action and stick to it.
How I like breaking up my investment (not financial advice)
Initial Capital- $1,000 in coin X
- Coin X gains 50%, I will pull out my initial capital + 30% of profit and let the rest run.
- Coin X does a 2x, I will pull out my initial capital and not take any profits. I will let the profits run on the coin.
- Coin X does a 2x, I will pull out initial capital and 50% profit and allocate this 50% profit into BTC, ETH or a strong Layer-1 project.
Trading on DeFi or DEX will always have you set your slippage percentage. So if you are swapping Coin X for Coin B with $1000 as the capital with a 10% slippage, you get only $900 of Coin B. Wow, that’s an instant loss of $100. How?
This is called slippage, where the percentage you set is your tolerance and you are ready to face a drawdown of that percentage during the swap. This happens on DEXs because of Low liquidity, low volume or very high demand.
Another way DeFi turns out to be a relatively expensive affair when interacted with regularly. Don’t forget if the protocol is on the Ethereum blockchain and gas fees will eat up into your gains in no time.
Alt Season when?
Everyone talks about Alt-season and how it will yield 10x-100x gains across the board. But what is an alt-season?
Alt season is when altcoins outperform Bitcoin and give massive gains during their run up. It’s a simple represents of capital flowing out from Bitcoin and into altcoins. New investors and aggressive investors realise that it’s easier To take out a 5x from a relatively new coin than get a 1x out from Bitcoin. Alt season if for portfolio multiplication.
Though DeFi will always evolve and yield the best result overall, you have to be one step ahead always and win in this market.
Never have a very aggressive portfolio or a very diversified portfolio. Your research and study will yield you the maximum results in the long run with crazy gains.
A huge thank you to CoinDCX for giving me this opportunity to write such a detailed report and be a part of the #CoinDCXpathbreaker program, enabling me to share such knowledge with everyone in the crypto space.