How to get started in DeFi - a useful article for beginners
Photo by Jievani from Pexels

How to get started in DeFi - a useful article for beginners

By Gabor | Gabor's Crypto Thoughts | 14 Sep 2021


I've been regularly running into posts on Facebook, where people share what coins they buy on big centralised exchanges (like Coinbase and Binance), but they are unfamiliar with all the opportunities they have in the decentralised ecosystems. 

This is a simple, step-by-step article to show what you need to do if you want to get involved in DeFi. 

First, a little clarification on the different networks. There are plenty of those with their own entire ecosystems. 

The largest one and most well known is the Ethereum mainnet. It's most popular exchange is Uniswap, but there are many, many other useful platforms on Ethereum - that I won't go into right now.

Another Important note that you can't buy just any coin like you used to in a central exchange - you can swap tokens. That means you can't directly buy let's say your USD for BTC. USD is a FIAT currency and Bitcoin is a coin (not a token). There are other ways to do it (e.g. there are different kinds of tokenised Bitcoins that are pretty much 1:1 pegged) - but I won't get to that in this article.

Binance Smart Chain is another very popular network (PancakeSwap is its flagship exchange, but again there are hundreds of other applications). There is Polygon (also known as Matic network) with Quickswap, DFyn, Polydex and so on. And there is Solana, Cardano, EOS, the list goes on - plenty of great smart contract platforms. In this manual, I will cover Ethereum, Binance Smart Chain and Polygon. 

One of the big differences between the centralised and the decentralised world is that in the centralised exchanges, the company manages the wallets and they provide the users with a username and a password. If you forget the password, you can reset it. If the exchange is getting hacked, you will most likely get your money back. In decentralised world, you don't have this luxury - you're responsible for everything. You need to manage your own wallet. Which leads me to point number 1. 

1. You need a wallet

There are plenty of those, to keep it easy, I will recommend Metamask, which is what I use :-). Download it from https://metamask.io/download.html and make sure you see it in your browser as an extension. There are plenty of other wallets though, so it's a personal preference (It's developed by Consensys). 

I assume you don't have an existing address, so you can create a new one. Metamask will give you a 12 word pass phrase. Make sure you remember and keep this very safe. Don't ever give it to anyone. Metamask will generate you an address starting with 0x (which is your public address). That's where you will withdraw funds from the central exchanges. 


2) Set up a custom RPC

In default you will have Ethereum mainnet and some ETH testnets, all others have to be set up manually. Feel free to google Custom RPC set up in Metamask for Binance Smart Chain and for Polygon - at the time of the writing this articles these are the Custom RPCs you need to set up.

Binance Smart Chain:

Network name: BSC Mainnet

New RPC URL: https://bsc-dataseed.binance.org

Chain ID: 56

Currency symbol: BNB

Block Explorer URL: https://bscscan.com/

Polygon:

Network name: Matic Mainnet

New RPC URL: https://polygon-rpc.com/ 

Chain ID: 137

Currency symbol: MATIC

Block Explorer URL: https://polygonscan.com/

Note: to transact on Binance Smart Chain, the transaction fees are in BNB, so you need to have some BNB in your wallet. On Polygon you need Matic and on Ethereum you need ETH. 

3) Withdraw funds from central exchange

The next step depends on where do you have your central account. E.g. if you are on Binance and want to move your funds to Binance Smart chain, you need to go to your Binance account and if you have BNB, withdraw some of it. When you withdraw, in the network you can choose ETH or BSC. Choose BSC. The address is the 0x.... address that you have now in Metamask.

Some central exchanges are better than others. Some allow to withdraw to Ethereum mainnet only, others give you the option to pick which network you want. 

Metamask also have a Buy function if you're on Ethereum mainnet, which could be an option for you (I never tried that one before).

Bear in mind, withdrawing funds from Central exchange might be a taxable event in your country!

Once you either bought or withdrew from a central exchange, it should show up in your Metamask wallet within a few minutes.


4) Find the right exchange for you

There are plenty of good decentralised exchanges, here are a few that I use:

On Ethereum mainnet: Uniswap https://app.uniswap.org/#/swap 

On BSC mainnet: PancakeSwap https://pancakeswap.finance/

On Polygon: Quickswap https://quickswap.exchange/#/swap or DFyn https://exchange.dfyn.network/#/swap 

Don't trust, verify! Make sure you have the right URL. While I might seem to be a nice guy, I also might be a scammer, trying to get money out of you. Be as paranoid as possible - there are lots of fake sites, people impersonations, etc. are in this Wild west world. 

Whichever network and DEX you're using, it it will require to connect your wallet, you can choose Metamask and allow to be connected.

You're ready to swap coins, stake or farm - bear in mind you still have to approve every transaction. Even for a simple swap you usually have to approve the tokens first, then the transaction (e.g. swap) too.

Make sure you get familiar with the exchange, they have some awesome features. Pancake has CAKE autocompounding, DFyn has pretty attractive farms, etc.

FAQ:

Q: Which network should I use?

A: Well, ETH is the easiest to use, however - the gas fees are quite high. If you're not a whale you might earn less than what you spend.

BSC is reasonable and if you have a Binance account, very easy to get funds over. Might be a good choice as a start.

Polygon is my favourite and the cheapest, however, getting funds there might  a bit cumbersome and if you're a beginner, using a bridge might be quite challenging at first. It is what I use the most, so might just write an article about that if there is interest. Some exchanges allow direct withdrawal to Matic network, if your exchange allows that, I'd go with that.

Q: My money didn't arrive to my wallet, what can I do?

A: you can always check on the relevant block explorer, e.g. go to https://etherscan.io/ and check your Metamask address (for ETH Mainnet transaction. for BSC and Polygon, use the other URLs as listed above). Alternatively you can raise a ticket at the central exchange if that's the place you withdrew funds from. 

 

How do you rate this article?


13

0

Gabor
Gabor

I started with crypto like lot of the other people. Heard it's great, didn't do anything until the big pump late 2017, then bought all kinds of alts that lost 90+% of their value in a few months. But then I realised how much potential there is truly...


Gabor's Crypto Thoughts
Gabor's Crypto Thoughts

My random thoughts about different projects

Send a $0.01 microtip in crypto to the author, and earn yourself as you read!

20% to author / 80% to me.
We pay the tips from our rewards pool.