Before start posting a calls (#DeFi protocols), I want to share short tutorial how to protect your capital, how to find an new opportunities (protocols) and few basic strategies for beginners.
How to protect your capital
As we all know, crypto space could be a very dangerous place. I want to share few things in this paragraph, I'm sure most of you probably knows about this things. -Always use a burner wallet, not your main wallet. I will be focused on proven protocols, but there is always a risk for exploit or some kind of hack, which could drain your wallet. This is a must in crypto space. Try to use different wallet for proven Defi protocols, and another wallet, if you want to be more degen (explore new protocols with high yield).
- Always check how much liquidity is in the protocol. I'm using defillama for this type of research. How the liquidity could impact your yield? If there is a little liquidity (below 200k for example) and this protocols is offering for 15% APR, if the protocol attract new members (people who are investing in this protocol), the APR will tank hard.
- Impermanent loss. This is very important, when you are providing liquidity (uniswap, #Pancakeswap or other DEX). When we are providing liquidity, we have to use 50% of token A and 50% of token B. For example: If I want to provide liquidity in ETH/USDT pair in #Uniswap for 1k, I have to buy 500$ worth of ETH and 500$ worth of USDT. Impermanent loss comes when the ETH price changed (in both ways- upside or downside). In the end, you can get less ETH and more USDT (if the make upside move, you will have less ETH and more USDT in the end and vice versa). In Uniswap v3, we can choose the range where we are providing liquidity in a pool. This is a great opportunity, where we can minimise a impermanent loss.
Of course, when we are providing LP in stablecoins pair (for example USDT/USDC) the risk of impermanent loss is very small. If we provide liquidity in a pool with pair, which doesn’t include stablecoin (for example: ETH/UNI), the risk of impermanent loss is bigger.
Different ways to use DeFi
As I mentioned above, we can use liquidity providing strategy, where we are providing liquidity in different DEXs (Uniswap is biggest). So, LP is the first way to use Defi to generate an yield . The yield is paid from generated fees on specific pair (for example ETH/USDT).
-We can use different borrowing/lending protocols, where we are providing (lending) different tokens/stable-coins and earn yield. The yield is paid from borrowers.
- Farming. This is a another way to increase our yield in Defi. When we are providing liquidity, we are getting LP tokens, which you can "exchange" and get back your initial investment + generated yield. There is a way to increase the initial APR with farming. Simply, you are staking your LP tokens and get more yield on it. I'm using Beefy finance (they are yield aggregator platform) to generate more yield on my Defi investment. This is a major ways to use Defi, and yes, there are more opportunities, but they are more riskier. I will write another article about them.
How to choose a Defi protocol?
Its depend on your risk tolerance. Protocols, which provide safer way to generate yield are offering less APR. The safest protocols in my opinion are: Uniswap, Pancakeswap (dont forget to LP only big coins as ETH, BNB and other), Quickswap (Polygon DEX), Aave, GMX, Curve, Lido, MakerDAO, Convex, Stargate (Layer Zero are behind them and the chance of layer zero airdrop is big here). This is the most safest protocol out there. If you want to choose more degen defi protocol, you can use defillama.com, where you can filter different protocols (blockchains, TVL (total value locked), types (lending, yield aggregators, DEX and etc) and more). If you are really degen, you can use tokenless protocol. This type of protocols have not launch their token, which means they can airdrop it as incentives for current users defillama.com/airdrops . Im not recommending to use protocols with small TVL, because they are too risky in my opinion.
