@Deepdiver
Some information on using DeFi for several months.
Brief
It would be worth reading all of this thread, but as a brief - with DeFi you deposit funds to a smart contract on a blockchain, which is then used for activities relating to trading, and in exchange you get a variable yield based on the utilisation of your assets.
The way your deposited assets can be used:
1) as liquidity from which exchanges are made from, with two or more pooled assets. These areusually deposited at a 1:1 ratio at the time of deposit, but as the price fluctuates it will induce people to arbitrage, and it is possible to loose money over holding the assets. Your yield comes from reciving a share of fees from exchanges conducted from your pooled assets and in some cases a reward token from the platform. To outline:
a) you deposit $10,000 worth of BNB and $10,000 worth of BAT to PancakeSwap (PCS) into a pool of which you own 1%
b) people who want to buy and sell BNB for BAT and vice versa deposit one of the tokens into the pool and take the other out (which changes the level of tokens in the pool); these purchasers pay a fee (usually 0.3%), which is distributed to those who deposited into the pool
c) if you own 1% of the pool and the pool collects on average $1,000 in trading fees then you get $10. Though these fees will vary with tradign activity
d) you may also get a reward token for pooling, from the platform, e.g. CAKE
2) as assets that can be borrowed by others (single-asset).
3) as distributions of (new) tokens - you deposit X and get X or Y
Risk
The risk of using centralised exchanges is in the security of their systems + the trustworthiness of their owners, staff. The latter is somewhat taken out of the equation with DeFi as the actual holdings of DeFi platforms are public. The risk lies with their smart contracts, which are public, and if compromised could lead to a loss of funds.
However, there has been surprisingly few issues with DeFi, as there has with cFi. There have been scare stories about another DeFi protcol being backed, siphoned from etc. but these were all small projects that I'd not heard of. Simple rule of thumb is - don't use small projects. Using ones that have been listed on major exchanges like Binance and FTX would suggest they are a higher-level operation. You are not going to be able to audit these projects unless you make it a full-time job. Such markers are useful.
The biggest issues I am aware of are:
1) AutoFarm.Network lost about 3% of user funds from their farmed Venus vaults. This was caused by a change in the Venus code that AutoFarm did not cater for and it resulted in assets being sucked where they should not have gone. Not a hack. But it does not seem like AutoFarm are planning on doing anything about this.
2) Bunny was trading at about $450, but was pancaked down to about $10 in a "flash-loan attack", which is when someone borrows a very-short term loan and uses it to crash a coin price. Bunny has not recovered from this. It had about $10B under management, now less than $1B. Not a hack.
As you are unlikely to be able to audit the projects there are auditing firms that check the code of the platform for vulnerabilties. One that is highly rated for security is ACryptos (
https://docs.acryptos.com/security-and-risks) though it is not that popular. Another is Beefy.Finance (which is multichain).
There may be multiple points of failure with DeFi. If you deposit into the single-asset CAKE vault on PCS, your point of failure are Binance Smart Chain (BSC) and PCS. There are other platforms known as yield farms (Beefy, Bunny, SolFarm) that auto-compound on these layer-1 DeFi platforms like PCS, Sushi and Uniswap. If you use those that is an extra point of failure. In the case of using a yield farm you deposit to the farm, who then pool your assets with the other deposits onto a layer 1 platform. If you are using wrapped (WBTC) or custodial (BBTC) assets then that is another point of failure. As an example of all,
You deposit BBTC (Binance-pegged BTC) to ACryptos single asset vault <- Binance is holding the actual BTC and give you a token representing it. That is two points of failure.
Acryptos then takes that BBTC and deposits it onto Venus (a BSC lending platform). A point of failure.
Venus operates on BSC. A point of failure.
Returns
Returns can be very high. Some of this is on the back of real trading (lending, swaps), but a lot is from rewards in platform tokens. Most of these tokens are essentially ponzi schemes. But most new innovations look like ponzi schemes to start with. These tokens will get hit heavily when the market tanks, as they did in May. But I am sure there are some that will find utility and value.
As an example you may deposit into the CAKE vault on
Bunny. It offers 70% APR (not APY) on CAKE and 36% APR in BUNNY reward tokens.
In DeFi APR = annual, not compounded return and APY = annual, compounded return.
As an example, here is an overview of yield-farming CAKE-BUSD on Acyptos.
The swap daily is approx. how much of your deposit you will earn from trading fees from the CAKE-BUSD pool on PCS. The APY is how much you will get a year (projection). The vault refers to rewards in CAKE, which is recycled back into the CAKE-BUSD pool. The farm refers to rewards in Acryptos' ACS token, the yield of which is variably controlled by them, hence the range.
So the swap is real. It can be equated to the fees a centralised exchange (CEX) would make facilitating trades on their platform. Instead you get it with DeFi and a small amount goes to the decentralised exchange (DEX), e.g. PCS, Uniswap. The vault is inflated, mania yield. It will probably still find a way to exist when DeFi comes to reality, but the fees will be more like 1% on the vault and farm. There are some farms, like Beefy, which don't offer a reward token, though they do liquidate reward tokens into the pooled assets.
What to Use
I prefer to use single asset vault, due to the risk of impermanent loss. For example, if you are pooling or farming ETH-SOL and ETH tanks and SOL FOMOs, even though this is a high-yield vault, it will be better to have just kept the tokens, due to impermanent loss.
The layer-1 platforms like PCS, Uniswap and Sushi tend not to give any yield and typically don't offer single-asset vaults or compounding. I don't use any of them.
I was using Uniswap, pooling ETH and ENJ. Both ETH and ENJ went up a lot, but ENJ many times more. As a result the ETH in the pool skyrocketed, while the ENJ plummeted. I would have been better off keeping the tokens, despite earning four-figures fees from the torrent of trading on the pair. As things have not dumped out, more so with ENJ, back to a similar ration to when I deposited, I exited the pool and now have more ETH and ENJ (numerical). This presents options for more long-sighted and riskier trading strategies.
So my primary pools are:
ETH, BETH, ETH-BETH (BETH = Binance staked Ether) [30%]
BBTC [20%]
RAY-SRM (closely correlated in price) [100%]
CAKE [170%]
I also have a number of BNB pairs when the yields are very high. The percent in brackets was the APY back in the peak in May. Now BBTC is about 11%.
The platforms I trust the most are Raydium, Beefy and Acryptos. But I also use Bunny and Alpaca. I do't use ETH due to the fees. The only platform I have used that has done other than expected is AutoFarm. I mainly use BSC because it has a lot of tokens and is relatively cheap. Entering and exiting a pool, vault will usually cost about $1.50.
For farming on Solana, you can use -
https://solfarm.io/vaults
How to Use
You can use most chains via MetaMask, though it's not well documented how to do it in most/all cases. Other than ETH which works out of the box. I also don't trust browser based wallet. Though you can secure the coins by using a Ledger via MetaMask, the Ledger is clunky.
The must-have tool for the DeFi user is a
SafePal wallet. This is an air-gapped hardware wallet. You initiate transaction in their app (works on Clayx/Graphene). The app create a QR(s) to be scanned with the hardware wallet. With the information from the QR(s), the hardware wallet signs the transaction and creates QR(s) which you scan with your phone. The wallet has its own system for creating keys, which can be recovered by a 12/14 character seed. However, you can also load in wallets via a number of methods, including importing private keys. This is the most secure method, as you can't find out your private key just using the SafePal. You can use imported wallets just like you would with the ones SafePal creates.
One of the biggest bonuses with SafePal is it has a built in swap facility, which is particularly useful for moving your assets from one chain to another. For example you can swap 1INCH on ETH to 1INCH on BSC for a very small fee. Better yet, and with a wider selection of coins, the SafePal has built in full access to Binance, allowing you to quickly trade anything on the exchange for 0.1% or less and with no KYC or signup.
Trading on Binance -
INV:
https://ytb.trom.tf/watch?v=-qV5IlJlCbs
I can't find a video of it being used with DeFi, but here is one of a TX, which is more or less the same -
INV:
https://ytb.trom.tf/watch?v=5YYOR4VEC58
Swap BNB to native LTC, on-chain, direct from your hardware wallet for $0.18.
Deposit from you hardware wallet to your anon Binance account direct from your wallet.
Trade direct on Binance. Once you hit buy/sell, you will scan QRs and the trade will be made.
Import your private keys.
Binance markets.
In the past I used to spend hours fiddling about with authentication codes, logins, email verification, master passwords, waiting hours for the exchange to give the green light on TXs. With SafePal you can get everything done quickly.
Supported chains -
And this is real support. Not Ledger's you'll have to install 3rd party apps to use every other chain and find out the wallet does not interact with many platforms.
