DeFi — Lessons From Some OGs
Their experiences can help point you in the right direction
DeFi, or decentralized finance, is a blockchain-based form of finance that does not require centralized financial intermediaries such as exchanges, brokers, or banks. Instead, transactions are conducted using smart contracts, sometimes peer-to-peer but increasingly through liquidity pools and automated market matching. Bancor was the original decentralized exchange, but Uniswap popularized the market with its low fee structure using the Ethereum blockchain. Although, it should be noted that subsequent congestion on the Ethereum blockchain has caused higher gas fees quite separate from Uniswap’s 0.3 flat fee structure, regardless of transaction size.
Summer of DeFi
The so-called summer of DeFi actually began in late 2019 as the market began its crawl out of the Crypto Winter. Like most events in crypto, once the summer kicked off, it grew very fast. In February 2020, the total value locked (TVL) in decentralized finance applications had exceeded $1 billion for the first time, and by late October, had reached $12 billion.
Things you learnt about DeFi along the way (and might not do again)
We polled people active in the crypto space and people interested in DeFi to find out what lessons they had learnt along the way and what advice they might give to new players. These are some of their replies. Happy reading!
General Crypto Advice
Thy-Diep (Yip) Ta, Co-Founder, UNIT
DeFi is an entire ecosystem without borders. Once you have understood what roles these different actors (stakeholder groups) in this ecosystem play, met the leaders, understood their motivations … it becomes so easy to pick the niche in which you want to rock your game. Until then, it is very challenging to see the forest for the trees. How to gain some understanding?
I wish I had looked at the ecosystem from a bird’s perspective when I entered it. It would have saved a lot of time. And I wish I had participated in structured onboarding programs such as DLT Talents or Unit Masters in which there’s someone there to guide you through your learning process. Networking and learning from practitioners is invaluable when acting in fast-paced environments. I’m so happy there are networking platforms such as The Bigger Pie, and I highly recommend that you find a home in your own network of choice so you can learn fast. We need every voice, heart, hand to make this new economy a fair, accessible, inclusive ecosystem for all, not only for a few.
Nir Rozin, CEO, Dot Finance
Crypto has many don’ts. Don’t do this, and don’t do that. If someone is new to this space and looking to invest money, my first piece of advice is to wait — don’t rush in.
For example, recently, a colleague asked me to give him some help on an investment — not on whether or not the investment was a good idea but on the mechanics. So I helped him open his wallet and stuff like that, but he hit another problem with his transaction, so he wrote in a Telegram group that he needed help. Some kind soul offered to help him and, in the process, persuaded him to part with his private keys. Needless to say, he emptied that man’s wallet — several thousand dollars in total. And the worse thing is that the thief denied he had done it.
So I would say to people entering this space for the first time to be suspicious. There are scams and people very keen to run off with your money. However, if you are keen, there are things you can do to amortize your risk.
Most important of all is to check out the team behind any project; do they have experience, do they have successful track records and are they real. Just because someone says it’s a great project on Twitter does not mean anything. There are a lot of people just looking to pump and dump, so read everything you can on the project. Basically, do your research as you would with any investment, whether in fiat or crypto.
Ani Alexander, CMO, Plasma Finance
The thing most people aren’t prepared for in DeFi is just how expensive it can get to use in periods of high network congestion. Every step you make, whether it’s approving a contract, or moving assets, or swapping — has a price in gas, and it’s not news now that a single transaction could cost you hundreds of dollars. You can minimize these fees, however, by identifying certain periods or days when the network isn’t so active.
For Bitcoin, weekends are the cheapest times to transact, for example. For Ethereum, 9 pm and 11 pm UTC have consistently been the period for lowest network activity as this is when most of Europe and Asia are off-hours.
Justin Roberti, Writer/Producer/Influencer
Know the project. There is no replacement for doing your due diligence in an investment or any sort of partnership.
Challenge your assumptions. Not all DeFi is Eth, and even if it’s what is working best for you today, there are a lot of aggressive companies innovating in the space.
This is no time to feel bearish. The mainstreaming of blockchain is here, there will be adjustments, but the vision and use cases increase in audience appeal every day. NFTs are a good example. Sales may have dipped in June vs. May, but now that the world at large knows about NFTs, the use cases will keep growing, and people will keep innovating in the space.
Robin Gonzalez Kristensen, Communications Manager, Aryze
Avoid hypes and do your own research on the tokenomics and fundamentals of the project that you are interested in. There are many influencers on SoMe that pimp tokens. Ask yourself if there really is a solid use-case behind the project and, more importantly, if the issue can be solved by blockchain.
The Potential of DeFi
Amjad Pirotti, Co-Founder, Mylottocoin.com
Defi liberates us from the slavery that still hangs over global finance.
It redefines and humanizes traditional banking.
Defi visualizes how empowering blockchain can be.
If Only I Had Known
Ben Leff, COO, Sheesha Finance.
The level of depth and disruption that DeFi is having on traditional markets is something I wish I paid more attention to as the space grew.
I would love to know more about where to research proper DeFi projects as this takes hours/days/weeks, and that is why I believe so strongly in Sheesha Finance, as we offer a basket of tokens distributed to our stakers.
Anonymous teams are something to become wary of. More and more companies and teams are becoming transparent and honest about their projects and operations.
I would like to have known about more YouTubers/information providers to follow and learn from.
I would have put my money where my mouth is and participated in more DeFi projects directly.
I wish I understood the power NFTs could play in the DeFi environment and how they will continue to shape the DeFi world.
I would love to have known the true global impact DeFi has on unbanked countries/citizens around the world and how the space is growing to assist these geographic areas.
I wish I attended more lectures/conferences to get significantly more engaged in the space.
I would like to understand more about regulations and how they function in a global environment.
I want to do more history on projects (both good and bad) as examples of what do to and what not to do regarding investing in DeFi.
Peter Kristensen, Director, JP fund Services
I wish I’d paid a bit more attention to programming.
Nisa Amoils, Managing Partner, A100x Ventures
Things I wish I knew about DeFi. That self-hosted wallets and swaps were going to be on the forefront of US regulators’ focus.
Linda Goetze, Co-Founder, DFM Data
Wrapped Bitcoin is not necessarily better/safer than naked Bitcoin, but for some reason, ETH DeFi protocols play more nicely with it!
What To Look For In a Project
Gauthier Lamothe, CCO, Mutual Knowledge Systems
Just like in traditional finance, nobody predicts the future. Trying to know which asset is going to skyrocket and which one is going to collapse is mostly a matter of belief… Using maths or complex tools to have the fake feeling that you can predict the future is basically like reading in the entrails of a dead animal: looks elaborate, based on years of knowledge, but is devoid of any prediction capability…
If you want to invest in a crypto, do it on these metrics: how solid is the project technically? Who’s the team behind it? And, above all, is that project going to solve a very concrete and real problem for mankind? Good investors are those who can see the potential in a project, not those who try to slightly anticipate curves.
There Is Still Confusion in the Space
Mru Patel, Chairman, MyTokenized.Capital
I wish I knew how the liquidity pool really works. It is intriguing and not easily understood by most traditional investment experts and even most in the DeFi world.
Raki Brown, Founder, Omnia DeFi
VCs, banks, regulators, and pretty much everyone outside your circle don’t get DeFi. So forget about them and focus on those who care, ordinary people whose lives it can improve, and cryptonians.
That uncharted territory really means uncharted; you don’t have much in terms of prior examples to go by.
That bankers don’t understand DeFi.
That regulators don’t understand DeFi.
That your mother definitely doesn’t understand DeFi.
Sometimes It’s Still Just About the Price
Mazhar Dogar, UK Property Developer, Crypto Investor
I wish I’d known that ETH would go to $2500.
And beyond Mazhar, far beyond.
Interviews conducted and quotes compiled by Jillian Godsil
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