decentralized finance education

Guide To Decentralized Finance

About This Guide

Are you new to Decentralized Finance (DeFi) and don’t know where to start? Or maybe you want to up your game and take your DeFi skills to the next level? No matter where you are in your DeFi journey, this guide is for you. 

This guide is split into 3 levels:

Each level contains the knowledge and skills required before advancing to the next level. This way, you are presented with a structured guide that is easy to follow. Each skill and every single piece of knowledge is built on top of already acquired information. 

We provide links to our own material (videos and articles) whenever we can, but we also make use of other resources that we find useful. All of the external resources are thoroughly reviewed and highly recommended by us. 

Decentralized Finance is one of the fastest developing new industries. That is why this guide is being constantly reviewed and updated when necessary. If you have any suggestions related to this guide please send them to [email protected] 

Welcome to the future of finance.  

DeFi Novice

This is our first level which is perfect for beginners. If you have heard about decentralized finance before, but all of the concepts and terminology seem a bit overwhelming – this is where you start.

  1. What is Decentralized Finance?
    Let’s start from understanding what decentralized finance is all about.
    Knowledge: ? video ? article
    Skills: Check out DeFi Pulse. TVL (Total Value Locked) represents the amount of value locked in different DeFi protocols. You can check different categories of protocols such as lending, dexes (decentralized exchanges), derivatives, payments and assets.
  2. DeFi Wallets
    Okay, we just learned what DeFi is. Time to get a cryptocurrency wallet that makes interacting with DeFi protocols easy.
    Knowledge: ? video ? article
    Skills: Install one of our recommended wallets and get ready for interacting with different DeFi protocols. Here is a useful Metamask guide.
    Now, as you have your wallet ready, it’s time to send some ETH to it. If you don’t have any ETH just yet and you want to buy it we’d recommend using one of the established cryptocurrency exchanges such as Coinbase or Kraken.
  3. Smart Contracts
    In the first step, we learnt that decentralized finance is based on smart contracts that run on open blockchains such as Ethereum. Time to learn more about this concept.
    Knowledge: ? video ? article
    Skills: Let’s check out how a simple Solidity smart contract looks like here. If you’re a developer you may want to dive deeper into this topic as pretty much all DeFi protocols are built using smart contracts. If you’re not a developer, it’s enough to just scroll through the linked tutorial and see that smart contracts are basically just pieces of code that can be used to build permissionless DeFi protocols.
  4. Uniswap
    Uniswap is currently the most popular decentralized exchange by a wide margin. It’s also one of the easiest protocols in DeFi allowing the users to exchange their tokens in a completely decentralized and permissionless way. In this step, we’re just learning the basics of Uniswap. You can find a deeper dive into liquidity pools and automated market makers on the DeFi Apprentice level.
    Knowledge: ? video ? article
    Skills: Let’s try to use Uniswap. Go to the Uniswap website first. You’ll have to connect your Metamask wallet. After that, you can choose the tokens that you want to trade. If you decide to swap some tokens, you’ll have to approve 2 transactions. The first one to approve spending of particular tokens. And the second one to approve the actual swap.
  5. Lending and Borrowing
    Lending and borrowing is one of the most important element of any financial system. DeFi lending allows users to become lenders or borrowers in a completely decentralized and permissionless way while maintaining full custody over their coins. 
    Knowledge: ? video ? article
    Skills: Let’s go to the Compound website and make ourselves familiar with the user interface. We have “Supply Markets” on the left side – these are tokens that you can lend out and “Borrow Markets” on the right side – these are tokens that you can borrow. If you decide to lend out your tokens you have to approve them as collateral first. If you decide to borrow other tokens the interface will guide to find a safe amount that can be borrowed based on your supplied collateral.

Great! This is all the knowledge and all the skills required on DeFi Novice level. 

Time to advance to the next level.

DeFi Apprentice

At this level, you feel comfortable with all the concepts included at the DeFi Novice level and you’re ready to take a deeper dive into the future of finance.

  1. Liquidity Pools
    We already learnt a little bit about Uniswap at the previous level. Now, it’s time to better understand how Uniswap works under the hood.
    Knowledge: ? video ? article
    Skills: Time to learn how you can add liquidity to a Uniswap liquidity pool. If you decide to do it make sure you go through the next step that describes what impermanent loss is. Without this knowledge, you may end up exposing yourself to impermanent loss without even knowing it.
    Go to the Pool section on the Uniswap website. Click on “Add liquidity”. You’ll have to choose 2 tokens that you want to provide. Approve both of them. And finally, approve the transaction that adds liquidity. You have to have a correct ratio of tokens in the first place – 50/50.
  2. Impermanent Loss
    Impermanent loss is one of the most important concepts to understand before deciding to provide liquidity in a liquidity pool.
    Knowledge: ? video ? article
    Skills: To understand impermanent loss better you can go through the example from our video and try to get to the same amount of ETH and DAI by using formulas from this article by Pintail.
  3. Yield Farming
    Yield Farming is one of the most discussed topics when it comes to DeFi. Learn more about this topic to understand where the high returns are coming from.
    Knowledge: ? video ? article
    Skills: Check out some of the yield farming opportunities available. You can find them, for example, on Coingecko’s website. Be careful with less popular yield farming opportunities. The chances of losing money are high. Try to stick to the main projects such as Uniswap or Compound if you’re just starting.
  4. Yearn Finance
    If you have decided to make some money on lending your coins in DeFi, you can quickly realise that rates keep changing all the time. If you want to make your life easier and switch between different lending protocols automatically, you can check out Yearn Finance.
    Knowledge: ? video ? article
    Skills: Provide liquidity in stable coins to the Curve’s Y Pool. The Curve protocol partnered with Yearn Finance and made it possible to supply liquidity in stable coins to the Y Pool. On top of getting a return on your yTokens such as yDAI, you’ll also get trading fees for providing liquidity for swapping between yTokens. Caution: providing liquidity to the Y Pool is usually quite costly – transaction-wise. Try doing it when the Ethereum network congestion is low.
  5. Yearn Vaults
    You are already familiar with the Yearn Protocol and yield farming. Time to combine these two together. Yearn Vaults offer an easy way to participate in yield farming without spending too much on gas fees.
    Knowledge: ? video ? article
    Skills: Check out Yearn Vaults here. If you decide to put your money into a Vault, make sure you’re ok with the risk involved (smart contract risk, strategy risk etc.).

Amazing! Liquidity pools, AMMs, yield farming – this level was quite a challenge, right? Some of the concepts included at this level can be quite hard and it’s always worth going through them a few times before advancing to the next level.

DeFi Master

Concepts included in DeFi Novice and DeFi Apprentice seem to be easy for you. Time to bring your skills to the next level.

  1. Flash Loans
    Flash loans are worth understanding even if you’re not planning on using them. This is because flash loans are notorious for being used in DeFi hacks with the bZx attack being one of the most famous ones.
    Knowledge: ? video ? article
    Skills: Check out our flash loan tutorials. If you are a developer, check out our coding tutorial. If you don’t want to code, check out our Furucombo tutorial.
  2. Sushi Vampire Attack
    Vampire Attack presents an interesting way of trying to steal users of another DeFi protocol. It’s an advanced topic that is worth understanding.
    Knowledge: ? video ? article
    Skills: Check out the original SushiSwap here. Try to answer the following question: how can a protocol protect itself from a vampire attack?
  3. Ampleforth
    Time for something completely new. Learn more about Ampleforth, elastic money supply and rebases. Ampleforth’s model was also widely used in multiple other DeFi projects, so it’s worth to understand it.
    Knowledge: ? video ? article
    Skills: Check out Ampleforth’s dashboard to see rebases and price targets in action.
  4. NFTs in Defi
    Another advanced topic. Learn more about how Non-fungible Tokens can be used in DeFi.
    Knowledge: ? video ? article
    Skills: Check out some of the popular NFT marketplaces such as Rarible or OpenSea.
  5. Layer 2 Scaling
    Learn how DeFi can scale up using Layer 2 scaling solutions.
    Knowledge: ? video ? article
    Skills: Try using a decentralized exchange on Layer 2 such as Honeyswap on xDai.

Awesome! If you managed to complete all the levels – congrats! You are now a DeFi Master. There is not a lot of time to celebrate though. Decentralized finance moves fast and there are always new things to learn. 

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