About the Mini-Course
This is a learn-by-doing mini-course in decentralised finance (DeFi). The idea is to let you explore how decentralised finance works and how to make (or lose!) money in decentralised finance. Each part of the course will include:
- A short introduction to the theme.
- DIY sections - marked with a (*).
- A short quiz to test your learning.
Course duration: 5 X 1 hour sessions (including DIY activities & quizes).
What is DeFi? Decentralized finance (commonly referred to as DeFi) is an experimental form of finance that does not rely on central financial intermediaries such as brokerages, exchanges, or banks, and instead utilizes smart contracts on blockchains, the most common being Ethereum.
Who is the course for? If you already have some Bitcoin, this course is probably about at the right level. You don't need to know code, but this course is somewhat technical and hits an intermediate level. The course includes optional DIY steps where you can try out DeFi platforms for yourself. One word of warning - transaction fees are high at present on Ethereum and you can easily spend $100+ to get started.
- Part 1, Wallet Setup for DeFi.
- Part 2, Uniswap, a Decentralized Currency Exchange.
- Part 3, Lending Platforms.
- Part 4, Harvest.Finance, a Decentralized Hedge Fund.
- Part 5: Stablecoins & Celo.
The recommended donation for this mini-course is 20,000 satoshis (0.0002 Bitcoin). If you find the course helpful - but don't have the money to spend right now - I'd appreciate if you could instead share the course with two friends or by posting on social media. For those of you who have paid already, many thanks!
Disclaimer: Crypto is still in its infancy and very high risk. I recommend setting the expectation that you will lose all of the money you invest as you're learning and treat it as an education. Throughout the mini-course, I will indicate the cryptos I hold myself, so at least - if you do copy me - I'll lose money if you do! This course is not investing advice, it is intended to teach you how DeFi works! You are reading these materials and taking any guided steps at your own risk. Crypto is technical and funds are easily lost if you are not careful with passwords as well as sending and receiving money to/from the right wallet addresses - not to mind bugs in nascent software platforms or bad actors. Learn with small amounts to minimise your risk.
Update June 2021: Disclaimer and Workaround for High Gas Costs.
When I wrote this course in 2020 the price of doing transactions on the Ethereum blockchain was high but still reasonable. As of June 2021, this is no longer the case. Even doing the basic transactions in this course will likely add up to hundreds of dollars. To avoid this issue while learning, you can alternately use a different blockchain to Ethereum. Two alternates I have tried are Binance and Celo. Here is how I suggest modifying this part of the course to use those chains:
- I bought Celo governance token (CELO, sometimes called CGLD) on Coinbase by opening a coinbase account.
- I then transferred these tokens to a celo extension wallet - obtained from the chrome (or brave) store. Metamask extension wallet is another option.
Binance Smart Chain:
- I bought Binance governance token (BNB) on Binance.com (Binance.us for US users).
- I transferred them to a Binance Smart Chain wallet (available on the chrome store).
Part 1, Wallet and MetaMask Setup
DeFi is built on Ethereum. What is Ethereum? What is Ether?
As of February 2021, most decentralised finance (DeFi) is done on Ethereum, which you can think of as a software platform. You may think that Ethereum is a cryptocurrency, so saying "on Ethereum" may be somewhat confusing to you. In fact, you can think of Ethereum as a software platform (kind of like windows for cryptocurrencies), and Ether is the native cryptocurrency of the Ethereum platform.
In order to do operations on the Ethereum platform - for example, move crypto from one wallet to another - you need to pay for those operations in what is called "gas". The currency that you pay gas in is called Ether, which is why Ether is considered the "native" crypto currency of Ethereum.
The units of gas needed depend on the transaction complexity. For example, a simple transaction might use 21,000 gas, while a complex transaction might use over 1,000,000 gas.
Finally, because one Ether is worth quite a lot, it is common to use the unit of gigawei or gwei, which is one billionth of one Ether. The price per gas at the time of writing (Jan 2021) is about 40 gwei. It depends on the price of Ether and also on how busy the Ethereum network is. Users of the network (you!) set the price per gas you are willing to pay, and miners are incentivised to choose transactions that pay more per gas. So,
- If the price of Ether (in USD) goes up - then the gwei is more valuable to miners, so price per gas goes down.
- If the network is being used heavily, then price per gas gets bid up.
You can check instantaneous gas prices here: https://etherscan.io/gasTracker.
It's all a bit confusing, but this calculation helps out for a sample transaction cost:
= 100,000 gas * 40 gwei per gas * 1e-9 gwei per Ether * 1 Ether per $1,200
=$4.8 in cost for the transaction
So, to do operations in Decentralized Finance, you need to have some Ether (or gwei), let's buy some now!
*Set up MetaMask and Buy Some Ether.
To buy some Ether, you need to have somewhere to keep it aka, a wallet. What is most handy is to use a wallet that can interact with a browser. In blunt terms, you will run DeFi software in a browser tab, and need to be able for the browser to push and pull money from your wallet. One easy to use wallet that can do that is MetaMask.io , which is what I use.
*Head over to MetaMask and set up a wallet (either on your phone or browser). Make sure to keep your password and your wallet seed phrase in a password manager and/or written down safely.
*Buy $100 worth of Ethereum. Metamask will allow you to do that using Wyre. I recommend using a debit card. If you use a credit card, your bank may charge you a $20-$25 fee for a cash advance. I recommend a very minimum of $100 to get through this mini-course because you'll need to cover gas costs to try out the DeFi platforms. Note: I hold a similar level of Ether to pay for gas costs. I don't hold Ether as a long term asset. [If you experience issues using Metamask to buy crypto from a UK or Irish bank account, an alternative option is to create an account on Coinbase, purchase Ether, and then transfer that Ether into your Metamask wallet.].
*If you still need to pay for the mini-course, you can do that using Metamask to send crypto to the wallet address presented when you press the Buy button above.
*Lastly, in your browser (I use the Brave browser, but Chrome will also work), go to Extensions (brave://extensions/ or chrome://extensions) and then find & install the Metamask extension. This is what will allow you a browser tab to interact with your wallet.
Cryptos that are Built on the Ethereum Platform.
Ether is the native crypto of the Ethereum software platform. However, it is possible to build other cryptos using Ethereum. In fact, there are many such cryptos, including the following cryptos that we'll take a look at in this mini-course:
- Uniswap, a governance token for the Uniswap decentralized crypto exchange platform, i.e. you can swap one crypto for another (more on that in Part 2).
- Aave or Compound, governance (and reward) platforms allowing you to loan or borrow cryptocurrencies to others (more on that in Part 3).
- FARM, a governance (and profit share) token for a crypto hedge fund (more on that in Part 4).
Back to Metamask for a brief moment... Metamask is a wallet that allows you to hold Ethereum based cryptos (e.g. Ether, Compound, Farm, Uniswap). Bitcoin is not built on Ethereum so you cannot buy or hold Bitcoin using metamask.
Further Technical Notes - for the Quiz Bonus Section!
wBTC - There is actually a way to use Bitcoin on the Ethereum platform, and that's called wrapped Bitcoin. The idea behind wBTC is to have an Ethereum based token that is backed by one Bitcoin for every wBTC token that is in existence. This allows you to transact in Bitcoin using Ethereum software. [Technically, wBTC is an ERC-20 based token - which you can think of as a software subset of the Ethereum platform.]
Buying non-Ethereum based tokens - If you do want to buy non-Ethereum cryptos like Bitcoin, you can use a service like Coinbase (my referral link earning you $10 if you sign up and invest $100 in crypto). You could even use Coinbase to buy Ether and then transfer it to your Metamask wallet. You may get a better exchange rate using Coinbase than Metamask (using Wyre) but you'll then have to pay for gas to get your crypto from Coinbase to a Metamask wallet. For a $100 purchase, it's probably easier to buy in MetaMask - unless you trust Coinbase more.
You're now ready to engage in Decentralised Finance!
You now have a suitable browser (Brave or Chrome), you have a wallet that can engage with browser apps (Metamask) and you have $100 worth of Ether, which we will use to buy other Ethereum based cryptos, and also to pay for gas (sigh....) as we move crypto around.
Take the quiz below! If you pass, you're ready to move to Part 2:
Once you've clicked Submit on the quiz, scroll up to see your answers!