How to get started in DeFi

By now you might have heard of some new terms in the crypto world such as DeFi and yield farming. You want to get involved but have no idea where to start.

If you missed the boat on Hodling crypto such as Bitcoin and Ethereum fear not because now you can still get juicy returns without getting involved with investing in volatile assets.

Why are you looking at DeFi? My guess is it’s probably because you are unhappy having your spare cash sitting around in a bank account for 0.01% APY.

You can do all the research in the world and read up on all the protocols and technology but in the end it comes to nothing if you don’t actually invest. Save yourself the time and decide upfront how much money you are comfortable starting off with.

Before you can do anything in DeFi or crypto in general you need an on ramp to get your fiat currency converted into crypto. To to this you need to sign up for an account to some kind of centralised exchange such as Coinbase or Binance. There is no real easy way to get around this. You can’t jump into DeFi without first getting into CeFi.

Initiate a bank transfer into the newly created account.

Now that you have some crypto decide if you want to stick to a CeFi or DeFi platform. With CeFi you don’t have to manage your own crypto wallet and worry too much about losing passwords and private keys.

Examples of CeFi are BlockFi, Lending on FTX/Bitfinex/Poloniex/Binance, Nexo, Celsius, Hodlnaut etc. Returns might be around 8% on stables at these places.

If you decide to just go with that then you are done no need to go further. Congratulations you are now earning 8% on USD compared to 0.01% that your bank might be paying you.

Maybe you are more tech savvy and want to go for the higher yields in the hundreds of new protocols that are popping up. Then it’s time you get a crypto wallet.

The most common wallet to interact with DeFi protocols would be Metamask. Download the wallet and follow all the instructions to safe keep your private keys/seed phrase.

There are various chains such as Ethereum, Bitcoin, Binance Smart Chain, Solana, Avalanche, Polygon, Arbitrum, Fantom, Celo etc around. Each has their own pros and cons that I wont really get into here. Gas fees exist for each one. If you are investing small amounts then Ethereum won’t make sense for you as transaction costs can be in the hundreds.

Not all protocols are equal that’s why the yields vary greatly between each of them. Something that is yielding 1 million % APY will have some red flags you should be aware of before putting in your crypto. The protocols that have been around from the beginning such as Compound and AAVE might have lower yields but should carry less risks.

A few things you could look out for before getting into a protocol could be:

If you have applied good risk management practices you should be able to avoid being rug pulled.

Good Luck and enjoy the magic of compounding

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