In the Wild-West crypto badlands of Decentralized Finance, every investor is well and truly on their own. The term DYOR is thrown around a lot, but many who refuse to heed the boozy town elder's warning generally meet a quick death in the savage and brutal desert, hunted by mercenary capital and merciless whale-dumpers.
Take these golden tips from me, a wise (and slightly crazy) prospector, who's seen more than a few mines collapse from right on top of him. Three different kind of rug-pulls: a bugged launch, a questionable yield farm, and the infamous Iron Finance stablecoin.
- I was in a token that was dumped 90% after a failed v2 launch of a notable project, due to whales selling on the news, plus a botched website that was full of bugs, making the platform unusable.
- I was in a farm that was newly launched, and despite being very profitable for the first few hours, immediately made its reward token worthless by cutting emissions in the first 24h, driving farmers and holders away.
- I was in $TITAN which infamously grew from $1.45 to $64 in a matter of weeks before imploding and becoming completely worthless due to a bank run.
Even if you want to avoid any of this happening to you, there's no guarantee you won't encounter them in your lifetime. But whether you are a new or semi-experienced DeFi user, you would definitely stand to benefit from the following tips.
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Disclaimer: DeFi Desk is an entertainment platform, and not a source of financial advice. You must remember that you are wholly responsible for any and all investment decisions that you make, whether they lead to life-changing profit or loss. You are the sole driver of your caravan, which may include your family (if you are providing for one), so do consult a professional and make sufficient research before investing in any products mentioned.
1. Don't trade on your phone
Prevent impulse decisions and ensure you aren't making monetary decisions while tired/sleepy/distracted.
2. Put a timed fuse on your decision to buy/sell.
Don't make "aping-in" a habit. The more time you can take to consider a decision, the more value it brings to your portfolio.
A healthy mind is an alert mind, and an alert mind makes profitable decisions.
4. Take regular breaks and set boundaries.
It can be any rule that you set for yourself. E.g. Dinner time is a no-crypto zone. Or Weekends are family time. Make sure that you set a boundary between your real life and your crypto life, and obey it.
5. Don't "revenge trade".
if you exited a token, don't immediately buy back even if it looks like it's rising again. Consider why you exited in the first place. Don't ever revenge trade on a token that lost you a considerable sum of money. And if you're out, stay out.
6. Exits are just as important as entries.
Once you reach a revenue/profit target, work out an exit plan, either one-off or staggered. But stick to the schedule. Set a threshold for "stop-loss", or the maximum amount that you'll allow your investment to dip before committing to an emergency exit. Do this to protect your invested funds from falling to 0.
7. Distribute Rewards regularly.
This is more relevant to Yield Farming. Ensure that you always have a plan to cash out part of your daily rewards so that you build up a hedge against the farm facing a rug, or the reward token's price falling to 0. e.g. Reinvest 55% but sell the other 45% into more conservative strategy or cash it out.
It doesn't hurt to repeat this one. Never trust a project just because "your friend" or some strangers on the internet seem to really like it. Be really thorough in comparing projects and examining their tokenomics/similarities/legacy. Make sure you map it out, in microscopic detail. Don't invest your money just based off an assumption. Know your risks especially technical ones such as network congestion or bridge failure which can't be helped.
Never invest everything in just one product/pool/platform. Don't keep your ducks in the same pond. Always see your investments as an individual slices of a giant risk pie--which makes up your portfolio. Also diversify your income type between lending/yield farm/LP fees etc. This will take time as you will need more experience to know where else to put your money. But buying indexed tokens (DPI, DEFI5, FFF etc.) is a good place to start.
10. Keep Detailed Records.
If you have time to trade, you have time to write. These records will always save your A$$ later and can even inform you of an imminent rug if you spot some inconsistencies. Always do your own calculations and verify the numbers. Keep arduous records and compare them against the advertised APY.
That' it for now! I hope these will help you survive the bandit-infested wildlands of Decentralized Finance a bit better. Always watch your back, crypto-cowboys. See you again soon.