Chapter 6:

Onboarding to DeFi

Away You Go

Chapter 5

A Bird’s Eye View

ZacharyZachary
08 August 2022
Aug 2022

Well, there you have it. If you’ve made it this far, you’ve established a strong foundation to further expand your knowledge and understanding of DeFi. While the people joining the crypto industry now aren’t as early as the people who joined 5 or 10 years ago, they’re still substantially early.

Today’s Agenda

You’re Still Early

Traditional finance as we understand it has only existed since the birth of the Federal Reserve and more accurately since the onset of the Bretton Woods agreement – and even more accurately since the onset of quantitative easing practices resulting from the Great Financial Crisis and the Covid 19 response. Roughly 60% of all $ was put into circulation within the past few years. That changes things.

When compared to other fields, traditional finance is not that traditional – its fundamental structure has only been in place for about 80 years, which is considered modern when compared to the humanities. When compared to scientific fields like medicine and chemistry, finance is grossly behind where it needs to be.

As referenced in Chapter 2, traditional finance today is about as evolved as 16th-century chemistry was. It’s full of alchemy.

The cutting edge of traditional finance is also not very cutting edge. FinTech technologies like mobile-only banking apps or buy-now-pay-later schemes such as Klarna are not revolutionary, they’re simply byproducts of what’s possible with a mobile phone. When compared to the constant innovation taking place at the cutting edges of DeFi and blockchain technology, traditional finance’s innovation over the past few decades is absolutely insignificant.

10 Steps to begin your Crypto Journey

Ok enough of the theory. The remainder of this chapter includes the guides and articles you need to successfully onboard yourself to Solana’s DeFi ecosystem. Each step includes a mobile and desktop version of the guide involved so you have no excuses!

Step 1 – Generate a new wallet using Solflare

You can do this with a mobile phone or your desktop. Just download Solflare’s mobile app for iOS or Android first if you’re using your phone or the browser extension if you’re using your desktop.

Step 2 – Connect your Ledger or Keystone device if you have one.

Step 3 -Natively Stake SOL within your Solflare wallet

Step 4 – Swap tokens within your wallet

Step 6 – Stake SLRS tokens

Step 6 – Become a liquidity provider on Orca

Step 7 – Trade on-chain perpetual futures contracts using Mango Markets

Step 9 – Trade on-chain options using Zeta Markets

Step 10 – Invest in a fund on Solrise

Extra Credit: Step 11 – Create a fund on Solrise

Miscellaneous Guides that might be helpful

Risk

Risk works as a stairway on the way up and an elevator on the way down. When sh*t hits the fan, all correlations go to one. These two concepts explain your average investor’s mindset when it comes to risk. The low risk, low return, and high risk, high return framework has become the de facto understanding of risk for investors over time and DeFi is no different.

Risks in DeFi come in many shapes and sizes, some new and some old. These risks range from smart contract risk (bad code) to user error (forgetting one’s mnemonic) and everything in between. DeFi, along with the rest of crypto, is highly correlated with risk-on tech assets. Along with the standard volatility of risk-on tech assets, DeFi users need to understand that DeFi itself is very volatile.

There are small-scale scams and large-scale hacks taking place very often and regulators don’t know how to deal with it all and often don’t have the capacity to go after what they need to go after. If you want to understand examples of these hacks, go through Rekt’s graveyard. They’re actively going after people and have started sanctioning protocols like Tornado Cash to prevent bad actors from siphoning money into untraceable wallets. To go after a protocol in this manner would require smart contracts to be sanctioned, which is explained further below by Harry.eth, a security researcher from Metamask.

There is even a state-sponsored hacking group called Lazarus that operates in North Korea which has attempted to infiltrate crypto companies and has succeeded in stealing hundreds of millions, if not billions over the past few years by exploiting blockchain applications and bridge vulnerabilities. It’s theorized that these funds are being used to fund North Korea’s nuclear program.

This isn’t the wild wild west but it’s definitely not for the faint of heart.

Storing crypto in a wallet is safe but using that wallet to interact with applications may put your crypto at risk.

Do not put any significant amount of assets in a wallet that will be at risk of being compromised.

Use a hardware device like Ledger or Keystone to store your private keys offline and ensure an extra layer of protection. If you understand this and are ready to explore DeFi and beyond, read this article.

High Beta Assets

When an asset moves in a similar direction as another, it’s said to be correlated and when one asset consistently moves in the same direction as another but with larger moves, it’s said to have a high beta.

When the Nasdaq 100, an index of the top 100 US tech companies is up 3%, you’ll probably see Bitcoin up 10% and vice versa. This is to say that cryptocurrencies are high beta digital assets that are highly correlated to risk-on tech assets. These extremes make it easy for people to make AND lose money.

Best practices in crypto are to never recommend buying to family members or friends who wouldn’t know what they’re doing. You don’t want to be that guy/girl when prices decide to go the wrong way.

When it comes to your own portfolio, that’s up to you.

Away You Go

You now have a strong enough understanding of the context, technologies, potential, and risks involved in DeFi to research and engage with it on your own. Just remember to do your own due diligence before investing any large amount into a cryptocurrency or before you use a DeFi, NFT, or DAO protocol.

If you found value in the various rabbit holes we went down in this course, you’re in luck. Crypto is full of rabbit holes that have been theorized for decades – ever since the cypherpunk movement in the early 1990s. Just start researching things like Bretton Woods, Rights to Encryption, Dollar Debasement, etc.

It’s of course good to hear and understand criticisms as well. In fact, go ahead and follow no-coiners and other crypto critics. There are podcasts and individuals who make a living pointing out everything that’s wrong with crypto and these people will open your mind to how non-crypto people view blockchain technology (tl;dr they usually hate it). In the ways that some people are religious zealots for Bitcoin, there are also religious zealots for anti-crypto belief systems.

Please refer to F. Scott Fitzgerald’s quote in Chapter 5 to understand what both examples of zealots lack.


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