The nascent world of modern decentralized finance (DeFi) has grown rapidly since the advent of Bitcoin in 2009. Read on for helpful tips on how to navigate this exciting new realm.
What you need to get started with DeFi
Whether you simply want to dabble around DeFi protocols or plan to code and deploy a customized smart contract (or even full-blown dApp) of your own, you’ll need two key items:
- The MetaMask browser extension, which you can download from its website
- Ether (ETH), which you can obtain from popular crypto exchanges, such as Coinbase, or some test ETH for the test network of your choice, which you can obtain from a test faucet. For instance, if you are using the Goerli Testnet, type Goerli test faucet in the Google search bar.
10 DeFi terms to know
Modern DeFi is full of new and esoteric terms that make it difficult for newcomers to join the conversation. Here is some key terminology to get you started:
- Blockchain: A public blockchain is a permissionless recordkeeping system that organizes transaction records into blocks that are cryptographically linked. Bitcoin and Ethereum are examples of public blockchains.
- Cryptocurrency (or, simply, crypto): A fungible token whose ownership and transaction records are secured on a public blockchain. Fungible tokens are like dollar bills (you don’t care which specific bills you receive as long as you receive the correct quantity). In contrast, an NFT is a non-fungible token.
- DAO: A decentralized autonomous organization. The Bitcoin and Ethereum networks are examples of DAOs.
- dApp: A decentralized application that uses a public blockchain for data storage and combines a front-end user interface with back-end smart contracts for app logic.
- DeFi/CeFi: DeFi, of course, refers to decentralized finance, whereas CeFi refers to centralized finance.
- DEX/CEX: A DEX is a decentralized exchange, whereas a CEX is a centralized exchange. Uniswap is an example of a DEX, and Coinbase in an example of a CEX.
- Flash loan: An uncollateralized, short-term loan that must be repaid within the same block it’s issued.
- Smart contract: A set of code and data stored on a public blockchain.
- TVL: Stands for total value locked, which provides a measure of the extent of DeFi activity on a given network or specific application.
- Web3: Refers to a vision for a decentralized web built on blockchain technology and token-based economics.
10 popular DeFi applications
To get an idea of the burgeoning DeFi landscape, check out these widely used protocols:
- Maker (MKR): A collateralized lending protocol that allows users to lock collateral in a Maker Vault to borrow funds in the form of DAI, an algorithmic stablecoin.
- Lido (LIDO):A liquid staking protocol that provides tokens for staked claims that users can, in turn, re-stake for additional yields.
- Aave (AAVE):A lending protocol that was the first to implement uncollateralized flash loans.
- Uniswap (UNI): An automated market maker that allows users to swap tokens for a fee or to lock up tokens to provide liquidity.
- Curve (CRV): An automated market maker that specializes in stablecoins. (https://curve.fi/)
- Convex Finance (CVX): A staking protocol focused on CRV and Curve LP tokens.
- JustLend (JST): A collateralized lending protocol that allows users to lend tokens and borrow against their staked collateral.
- Pancake Swap (CAKE): Another automated market maker that allows users to swap tokens for a fee or to lock up tokens to provide liquidity.
- Compound (COMP): Another collateralized lending protocol that allows users to lend tokens and borrow against their staked collateral.
- Instadapp (INST): Provides an integrated interface for users to track their positions across different dApps, such as MakerDAO, Compound, Aave, and Uniswap.
Deploying a smart contract, in a nutshell
Follow these steps to deploy a smart contract on Ethereum (or any other Ethereum virtual machine (EVM)-compatible network):
- Log in to your MetaMask wallet by clicking the fox icon in your browser’s toolbar, and make sure you’ve selected the correct account and network (use only Ethereum Mainnet, or the mainnet of any other EVM-compatible network, when you’re ready to spend actual tokens to deploy your contract).
- Go to https://remix.ethereum.org.
- Create and name a new file for your Solidity code.
- Open this new file, and copy/paste the sample code provided at https://www.seoyoungkim.com/DeFiFD/MyFirstContract.sol.
- Navigate to the Solidity Compiler browser pane, and compile your code.
- Navigate to the Deploy & Run Transactions browser pane, and select Injected Web3 from the Environment drop-down menu.
- Make sure you’re now connected to the appropriate network and account, and deploy your compiled contract.
