While 2021 represented a great leap for decentralized finance (DeFi) as total value locked across DEXs ballooned, many projects continue to be highly innovative and this is expected see more of the world’s population get to enjoy and benefit from DeFi products and services.
As a result, the space is expected to increase opportunities particularly for people who have not previously had access.
Below is a step-by-step guide on how to get started with DeFi from the basics.
Step 1 – Set Up Your Wallet
Firstly, you will require a cryptocurrency wallet installed on your browser, one that ideally supports Ethereum and can also connect to various DeFi protocols.
MetaMask is the most commonly used wallet, although there are a wide selection of wallets available that will allow you to connect and interact with DeFi.
Here is the guide for how to set up a Metamask wallet for DeFi.
Step 2 – Purchase Relevant Coins
You will now need to buy the relevant coin for the DeFi protocol that you plan to use. When it comes to DeFi, Ethereum is leading because of the value it provides through its smart contracts, which means that most DeFi protocols live on Ethereum. Thus, you will likely need to buy ETH in order to use them.
You can acquire Ethereum on a cryptocurrency exchange like Binance or Coinbase. You can additionally buy crypto using fiat in a peer to peer exchange like Paxful or Binance P2P.
Step 3 – Explore DeFi
Some of the products in DeFi that you can immediately look into:
- Lend Out Crypto – You could become a ‘yield farmer’ which involves earning governance tokens that are awarded for lending out your cryptocurrencies
- Put Your Funds in a Decentralised Exchange, such as UniSwap – With DeFi exchanges, you can earn fees by becoming a market maker. Find out more about DeFi Exchange later in the article
- Invest in DeFi Projects like Aave or Yearn Finance, but please note that these assets are prone to volatility
What are Decentralized Exchanges (DEXs)?
Decentralized exchanges (DEX) are crypto exchanges that utilize liquidity pools to provide a market and are essentially the gateway for exploring DeFi.
These exchanges allow anyone with an Ethereum wallet to exchange tokens without the involvement of any central party. Others blockchains also have their own DEXs allowing assets holders of that blockchain to swap tokens the same way.
Users of these platforms can swap, or exchange, any two Ethereum-built assets seamlessly using an underlying liquidity pool which ensures the DEX remains permissionless and trustless.
The exchanges include:
- UniSwap – Ethereum-based
- PanCakeSwap – Built on Binance Smart Chain (BSC)
- SushiSwap – Ethereum-based
- Quickswap – Polygon-based
Users typically move crypto from platform to platform taking advantage of discrepancies in prices listed to earn profits in what is called artbitrage.
You must always remember that DeFi risky with some token creators looking to take advantage of unsuspecting traders. This will be the case in 2022 with many different projects claiming they can lead to outsized returns so that users can buy their tokens.
However, there will be legitimate tokens out there that are part of projects that will be returning real value. Its up to you to watch for them.
Here is an article we did to guide you in selecting the right projects.
Remember if you are starting in DeFi in 2022, you are still early.
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