Importance of DeFi Self-Custody Services
If you’re new to the world of cryptocurrencies, you may have heard the term “self-custody” being thrown around a lot. But what is it exactly, and why is it so important?
Self-custody refers to holding and managing your digital assets securely without relying on a third-party custodian. This means that you control your private keys and seed phrases, which are essential for accessing and transacting with your crypto.
Cryptocurrency has been a game-changer when it comes to the concept of custody. It allows users to have complete control over their assets without involving any third parties, banks, or centralized exchanges.
In traditional finance, banks and centralized exchanges often hold custody of our assets. This may seem like a safe and convenient option, but it comes with significant risk. There have been instances where people were unable to withdraw their own money due to the financial distress of the banks. Self-custody in traditional finance is limited to cash or illiquid real estate, which is not always a secure option.
However, with cryptocurrencies, we have the option of self-custody through non-custodial wallets. These wallets allow users to have complete ownership and control over their assets, without any third-party involvement. Some popular non-custodial wallets include MetaMask, Phantom, MEW, Trust Wallet, and Ledger.
So you ask, Why is it important that I have sole custody of my assets? What if I don’t want the hassle of storing a private key or setting up a wallet. “I like my centralized services for its convenience”.
Well… Let’s take a look at some of those unfortunate people that may have had the same thought process.
Let’s take a look at some major crypto centralized services that have collapsed within the past 12 months. With over $126.2 billion in users funds lost …
This first of the domino pieces to fall in this sequence of events starts with the de-peg of the UST stable coin and the collapse of the Luna network in May, 2022.
A lot of companies were over leveraged on Luna and we began see tweets assuring users that “All fund are safe”
One of the first tweets comes from the Founder of Celsius, Alex Mashinsky.
CELSIUS COLLAPSE
Celsius, a major centralized crypto platform, collapsed last year, leading to its bankruptcy in July. The collapse resulted in the freezing of at least $4.2 billion for 600,000 American customers, as per court documents. Interestingly, this collapse also foreshadowed the subsequent collapse of FTX four months later.
In May, rumors started circulating about liquidity issues at Celsius, fueling concerns that the platform was heading towards serious trouble. Some even claimed that the company had already been “completely wiped out”.
To address these rumors and reassure Celsius customers, the CEO Alex Mashinsky responded with a tweet on May 11. He stated that despite the extreme market volatility, Celsius had not experienced any significant losses and emphasized that “all funds are safe”.
However, despite the initial reassurances, Celsius ultimately faced insurmountable challenges, leading to its collapse and subsequent bankruptcy. This event had significant repercussions for the crypto community, with substantial financial losses suffered by many customers.
The next major centralized crypto influenced company to fail was:
Three Arrows Capital Falls
Three Arrows Capital (3AC), a Singapore-based cryptocurrency hedge fund, faced a significant collapse and filed for bankruptcy in July.
The fall of Terra seemed to have played a part in the fund’s decline. The year witnessed contagion as a notable factor in the crypto space, where negative events had ripple effects on other players.
Founded in 2012 by Kyle Davies and Su Zhu, Three Arrows Capital borrowed billions of dollars to finance its trading activities.
However, the fund experienced substantial losses, surpassing $3 billion over 2021 and 2022. In June 2022, a court in the British Virgin Islands ordered the liquidation of Three Arrows Capital. The bankruptcy filings in July 2022 revealed creditor claims totaling $3.5 billion, making it one of the largest hedge fund trading losses in history.
Voyager Collapse
Voyager Digital, a bankrupt crypto lender, filed for bankruptcy in July, following the crash of major crypto tokens TerraUSD and Luna. The shockwaves from these events had significant repercussions throughout the digital asset industry.
In March, Voyager Digital received court approval to sell its assets and transfer its customers to Binance.US in a deal worth $1.3 billion. U.S. Bankruptcy Judge Michael Wiles approved Voyager’s restructuring plan, which revolved around the acquisition by Binance.US. As part of the deal, Binance agreed to pay $20 million in cash to Voyager and take on the crypto assets deposited by Voyager customers. The customers’ crypto assets, valued at $1.3 billion in February, accounted for the majority of the deal’s valuation.
However, there was an update on April 26, 2023, indicating that Binance had pulled out of the $1 billion Voyager asset deal. Binance cited a “hostile” environment in the United States as the reason for withdrawing from the agreement. This development cast further uncertainty on the situation and its impact on Voyager’s customers.
In a court filing, Voyager disclosed that it had more than 100,000 creditors and up to $10 billion in assets.
FTX & Alameda Research collapses
FTX and its affiliated company, Alameda Research, experienced a collapse due to a series of interconnected factors. FTX issued its own cryptocurrency token, FTT, which Alameda became the largest buyer, seller, and holder of, inflating its price and contributing to the company’s asset base. This allegedly allowed Alameda to mislead investors and creditors about its financial position.
The close financial relationship between Alameda and FTX, including trades made by both entities, was not well understood by many FTX investors who invested around $2 billion in 2021 and early 2022. This relationship between the two entities would not typically be permitted in traditional financial institutions according to US regulators.
The decline in cryptocurrency market value in late 2021 and early 2022 led to a series of company collapses, including the adverse impact on Alameda and FTX due to their exposure to these firms and the declining value of FTT. As a result, numerous creditors withdrew funds from Alameda, compounding its challenges.
Facing the collapse of Alameda, Bankman-Fried allegedly transferred up to $10 billion in funds deposited on FTX to Alameda. Binance, a major cryptocurrency exchange, sold its holdings of FTT due to concerns about FTX’s financial stability, causing a significant drop in FTT’s price. FTX faced insolvency with an asset shortfall of approximately $8 billion. Binance explored the possibility of acquiring FTX but declined after reviewing its financial records. FTX halted withdrawals on November 8, and shortly after, Bankman-Fried announced the winding down of Alameda’s operations and the subsequent bankruptcy filing.
The revelations of Alameda and FTX operations led to criminal fraud investigations by the US government. In December, Caroline Ellison, an executive at FTX, struck a deal to cooperate with the authorities. Bankman-Fried was arrested in the Bahamas, extradited to the United States, and released on bail. Both face potential lengthy prison sentences for their alleged involvement in the collapse.
FTX says it has identified a deficit of $8.9 billion in customer funds that it can’t account for.
There were also some very alarming reports of FTX trying to access users’ funds directly from their bank accounts…
Another prime example why you can not trust any centralized service…
Block-Fi Collapse
BlockFi, another CeFi platform claiming to make insane profits by leveraging DeFi. Blockfi is a platform I personally would ask my friends who were heavy users… Why not just use DeFi?
Anyways, they filed for bankruptcy on November 28, 2022. The contagion effect from the collapse of FTX, a cryptocurrency exchange, spread across the industry, leading to BlockFi’s bankruptcy.
According to BlockFi’s filing, the company has over 100,000 creditors and owes a significant debt ranging from $1 billion to $10 billion. The filing marked another unfortunate event in the crypto space, further impacting the industry and its stakeholders.
The collapse of BlockFi serves as a stark reminder of the importance of self-custody when it comes to your assets in the crypto space. With BlockFi filing for bankruptcy, thousands of creditors find themselves at risk of losing their funds. This unfortunate event highlights the potential risks associated with relying on third-party platforms to hold and manage your cryptocurrencies.
The collapse of these exchanges and CeFi services then began to lead to the collapse of some major banks here in the US.
The first to fall was…
SVB Bank Collapse
Silicon Valley Bank (SVB) experienced a significant collapse on March 10, 2023, following a bank run. This event marked the second-largest bank failure in US history since the 2007–2008 financial crisis and was one of three bank failures that occurred in March 2023.
The collapse of SVB had far-reaching implications, particularly for Circle, as it had $3.3 billion of cash reserves backing USDC, a stablecoin backed by the US dollar, held at the now-defunct bank.
The collapse of SVB had an immediate impact on stablecoins, such as USDC, DAI, and USDD, causing them to depeg from their intended value.
However, after US banking authorities announced full coverage for uninsured depositors at SVB, stablecoin prices began to rise, gradually returning to their normal values. This incident highlights the importance of regulatory measures and investor protection in stabilizing the financial system during times of crisis.
First Republic
First Republic Bank experienced a significant loss of more than $100 billion in deposits following the collapse of Silicon Valley Bank (SVB). The collapse of SVB, which occurred, led to widespread repercussions in the banking sector, affecting other financial institutions like First Republic Bank.
The loss of such a substantial amount of deposits underscores the far-reaching impact of SVB’s collapse on the overall stability of the banking system. This event serves as a reminder of the interconnectedness and vulnerability of financial institutions, as the repercussions of one bank’s failure can extend to other entities in the industry.
The incident highlights the importance of maintaining strong risk management practices. And, relying on self custody services and ensuring the safeguard, trust and confidence of depositors and investors.
Now remember this is just within the last 12 months… I could keep going with even more gut-wrenching stories in the past such as the Collapse of Mt. Gox, which to this date is still the largest amount of Bitcoin ever stolen from a centralized service, 850,000 BTC now worth around $22 billon. That happened in 2014 and investors are just receiving thier portions of the assets back.
Source: CoinTelegraph Mt. Gox repayment registrations close: Here’s what’s next.
If you’ve been involved in the crypto space for a while, you likely recall the infamous scams like OneCoin and Bitconnect, the latter being the one I frequently warned friends and family about from the start. Together stealing over $6 billion of customer funds.
The individuals (some being friends and family) that have succumbed to these tragic events were relying too heavily on the conveniences of centralized services. Most thought, as long as I have my ID card I’m ok and will always have access to my funds…
Well let me be completely honest here…
The lack of information to the general public on the importance of self-custody is a big reason why I am writing this report. That combined with the retail investors’ lack of research, and one we are all guilty of a bit of laziness ;), is the reason why billions of dollars in users’ funds may never be retrieved.
This is why in the crypto space we preach Not Your Keys, Not Your Crypto. I am proud to say in the nearly 7 years I have been in this space I have never had my wallets hacked or private keys stolen…
It’s crucial to understand the importance of securing your Private Keys.
Don’t become another statistic. For many young investors, crypto assets are the only investments they have. And we finally have a way to protect our assets from centralized parties. But, you have to DYOR and then you can take control and true ownership of your finances.
The DeFi space allows you to be your own bank and create your own hedge fund! Take full advantage of that!
Now let’s review the key benefits of self-custody services in the crypto space:
- Ownership: When you use centralized exchanges like Coinbase or Kraken, they retain custody of your assets, which puts your assets at risk if the exchange goes bankrupt. But if you use a non-custodial wallet like MetaMask, you have complete ownership and control over your assets.
- Control of Your Assets: With self-custody, you are entirely responsible for your assets, and no third party can place restrictions or limits on your transactions. You are free to buy or sell any number of digital assets without any permission or documentation.
- Unlimited Transactions: Unlike centralized exchanges, non-custodial wallets have no restrictions on the amount and number of transactions you can make. You can freely transfer your tokens without any limits.
- Security: When you use a third party for custody, there’s always a risk of mishandling or hacking. But with self-custody, you are assured of the security of your assets, as only the owner of the private key has access to the wallet and its funds. Cold wallets, which are not connected to the web, are the most secure way to store your digital assets.
- Access to Decentralized Applications: Non-custodial wallets are essential for access to decentralized applications, which allow you to stake tokens for extra yield, exchange tokens on decentralized exchanges, trade NFTs, and play web3 games.
There are two types of non-custodial wallets:
- Hot wallets — Hot wallets, which are typically browser extensions or mobile applications, are easy to use but are susceptible to hacks.
- Cold wallets — attached to hardware like a USB stick, are the most secure way to store your assets.
Non-custodial wallets are the way to go if you want to ensure the security of your assets and access to decentralized applications. Moving your assets from centralized exchanges to non-custodial wallets might seem daunting at first, but the benefits are well worth the initial discomfort.
While there are certainly risks associated with self-custody, there are also many measures you can take to keep your assets safe. Here are some tips to help you secure your self-custody wallet:
- Choose a reputable wallet provider: When selecting a self-custody wallet, do your research to ensure that the provider is trustworthy and has a good reputation.
- Use a hardware wallet: One of the safest ways to store your crypto assets is by using a hardware wallet, which is a physical device that stores your private keys offline.
- Keep your seed phrase secure: Your seed phrase is essentially the key to your crypto wallet, so it’s important to keep it safe and secure.
- Enable two-factor authentication: Adding an extra layer of security to your self-custody wallet can go a long way in preventing unauthorized access.
- Be wary of scams: There are many scams out there targeting crypto holders, so it’s important to stay vigilant.
Privacy is another important consideration when it comes to self-custody. Since you are responsible for the security of your own assets, it’s important to take steps to protect your privacy as well.
“IN A WORLD WHERE BANKS RUN, EXCHANGES GO BANKRUPT, AND MALICIOUS HACKS HAPPEN OFTEN, IT IS PARAMOUNT TO ENSURE THAT YOUR ASSETS ARE SAFE AND IN YOUR POSSESSION” -Bankless Publishing
If you would like step-by-step instructions on how to set up a MetaMask Wed3 wallet click here, or Ledger Nano X Wallet click here. (you must first purchase the Nano X hardware before you can use that Cold wallet. Only purchase the wallet from the official website https://shop.ledger.com/pages/ledger-nano-x)
Decentralized Exchanges
Another very integral part of the digital asset ecosystem are cryptocurrency exchanges, providing a platform for users to buy, sell, swap, and trade various cryptocurrencies.
There are two types of exchanges that exist in the crypto space — centralized exchanges (CEXs) and decentralized exchanges (DEXs).
Shortly after the collapse of these major Centralized services we started getting all-time high volume on decentralized exchanges (DEXs) like Uniswap, which recently passed a major milestone of over $1.5 trillion dollars in volume and is rapidly approaching $2 trillion.
Both types of exchanges have their own unique features and benefits, but in this article, we’ll explore why using decentralized crypto exchanges is so important.
Firstly, let’s understand the difference between CEXs and DEXs.
- Centralized exchanges are owned and operated by a central authority, similar to traditional stock exchanges. They hold the user’s funds, and all trades are executed through their servers.
- Decentralized exchanges operate on a peer-to-peer network, allowing users to trade directly with each other without a middleman. Trades are executed through smart contracts that automate the trading process.
Now, let’s look at the top 5 reasons why using DEXs is important:
Security
Centralized exchanges are susceptible to hacks, as we have seen with the numerous high-profile exchange hacks in recent years. This is because all user funds are held in one central location, making it a prime target for hackers. On the other hand, DEXs use smart contracts and decentralized infrastructure to secure user funds. In DEXs, users retain full control over their private keys, which are used to access their funds. This significantly reduces the risk of funds being lost or stolen.
Decentralization
Decentralization is a core value of the cryptocurrency industry. It ensures that no single entity has complete control over the network, making it more secure and resilient to attacks. Decentralized exchanges operate on a peer-to-peer network, meaning that there is no central authority controlling the platform. This gives users more control over their funds and enables greater transparency in the trading process.
Anonymity
Centralized exchanges often require users to submit personal information, such as their name, address, and government-issued identification. This requirement can make users feel uncomfortable, especially those who value their privacy. In contrast, DEXs often allow users to trade anonymously, using only their public keys to execute trades. This adds an extra layer of privacy and anonymity, which is important to many in the cryptocurrency community.
Liquidity
One of the main criticisms of DEXs is their lack of liquidity. This is because trades are executed on a peer-to-peer network, making it difficult to match buyers and sellers. However, there are solutions being developed to address this issue, such as automated market makers (AMMs) that use algorithms to price assets and ensure liquidity. Despite this, it’s important to note that DEXs still offer a significant amount of liquidity, and this will only continue to improve over time.
Trust
Centralized exchanges require users to trust the exchange to hold their funds and execute trades on their behalf. However, history has shown that this trust can be misplaced. Centralized exchanges have been known to freeze user accounts, withhold funds, and even shut down without warning. With DEXs, users retain full control over their funds, removing the need to trust a third party to hold their assets.
The importance of using decentralized crypto exchanges cannot be overstated. They offer greater security, decentralization, anonymity, and trust, which are all core values of the cryptocurrency industry.
While centralized exchanges still play an important role in the ecosystem, the benefits of using DEXs are clear. As the industry continues to grow and mature, we can expect to see an increasing number of users gravitating towards decentralized exchanges, further cementing their importance in the crypto space.
Liquidity Providers
It allows users to have complete ownership and control over their assets, which is not possible with centralized exchanges.
With decentralized exchanges you can become the liquidity provider. And instead of these billions of dollars in fees going to just a very few Banks and Hedge Funds, now you have the opportunity to earn insane rewards on trading fees.
Just by simply depositing your assets on an Automated Market Maker like Uniswap or Balancer. (Step-by-Step instructions on how to provide liquidity on uniswap at the bottom of this article.)
Becoming a liquidity provider on a DEX is important for several reasons:
- Earning Passive Income: By becoming a LP, you can earn passive income through transaction fees. When users trade on a DEX, they pay a small fee that is distributed among the LPs.
- Facilitating Efficient Trading: Liquidity providers play a crucial role in ensuring that the DEX has sufficient liquidity for smooth trading.
- Transparency and Security: DEXs are built on blockchain technology, which offers transparency and security.
- Supporting Token Projects: By providing liquidity to a specific token pair on a DEX, you contribute to the liquidity and market depth of that particular token. This can be especially beneficial for emerging token projects, as increased liquidity attracts more traders and investors, enhancing the overall ecosystem and potential value of the token.
- Access to Yield Farming and DeFi Opportunities: Many DEXs, including Uniswap, offer additional opportunities for liquidity providers, such as yield farming and participation in decentralized finance protocols. These opportunities can allow you to earn additional rewards or participate in lending, borrowing, or other DeFi activities.
It’s important to note that participating as a liquidity provider also comes with certain risks. Market volatility, impermanent loss, and smart contract vulnerabilities are some factors to consider. It’s crucial to do thorough research, understand the risks involved, and carefully manage your liquidity provision strategy.
To learn more about these risk check out this article here https://www.ledger.com/academy/glossary/impermanent-loss
So now that we have explored how blockchain technology allows you to have complete ownership of your assets, trade on a decentralized exchange, and the benefits of becoming a liquidity provider…
Decentralized Data Storage
Let’s see how blockchain technology can be used to protect your personalized data.
In the world of Web3, data storage is a critical component of decentralized applications. Unlike traditional applications where data is typically stored in a centralized server, Web3 applications rely on distributed networks to store data. This ensures that data is not only more secure but also more accessible and resilient to censorship.
One of the key players in the world of Web3 data storage is Filecoin, a decentralized storage network that uses a unique proof-of-replication consensus mechanism to ensure that data is stored reliably and securely across a distributed network of nodes.
By incentivizing users to store and share data, Filecoin has created a powerful platform for building decentralized applications that rely on secure and accessible data storage.
The recent Facebook settlement underscores the importance of secure and reliable data storage. You may have received one of these notices recently.
Facebook was found to have failed to adequately protect user data, resulting in a massive data breach that exposed millions of users’ personal information.
With Web3, data is stored in a decentralized network that is much more difficult to breach, ensuring that user data is much more secure and less vulnerable to hacking and data breaches.
By using decentralized storage networks like Filecoin, developers can build powerful and secure applications that provide users with greater control over their data and greater protection against data breaches and other security threats.
Decentralized Healthcare
Blockchain technology has the potential to assist in the adoption of numerous companies and industries, contributing to enhanced security, productivity, and decentralization in various sectors.
And last but not least, the one industry I personally believe looks to benefit the most from this revolution, is the Healthcare industry. Decentralized self-custody services can benefit the healthcare industry in a big way. Here are a few examples:
- Increased patient privacy and control: Decentralized self-custody services allow patients to control their own healthcare data, rather than having it stored and managed by third-party service providers. This gives patients greater control over their personal information and allows them to manage access to their data in a more secure and private way.
- Improved data interoperability: Decentralized self-custody services can help to address the problem of data interoperability in the healthcare industry. By using standardized data formats and protocols, decentralized systems can allow different healthcare providers and systems to share data in a more seamless and efficient way.
- Reduced administrative costs: Decentralized self-custody services can help to reduce administrative costs associated with managing healthcare data. By eliminating the need for intermediaries and central authorities, decentralized systems can streamline the process of managing and sharing healthcare data, which can result in significant cost savings.
- Increased security: Decentralized self-custody services use cryptographic protocols to ensure the security and integrity of healthcare data. This can help to prevent data breaches and other security threats, which are a major concern in the healthcare industry.
- Improved healthcare outcomes: Decentralized self-custody services can help to improve healthcare outcomes by enabling patients and healthcare providers to share data more effectively. This can lead to more accurate diagnoses, better treatment plans, and ultimately, better health outcomes for patients.
( ! Warning Shameless Plug ! )
And currently the largest Web3 fin-tech company that is tackling this issue head-on is Solve.Care. Who are now miles ahead of the competition with the recent launch of Care.Chain on March 30.
They have also created a self-custody wallet that will allow you to interact with doctors in a peer-to-peer way and also make purchases of health products from their marketplace. If you would like to explore their ecosystem, start off by creating a Care.Wallet here.
I know we cover a lot in this article but let’s recap on what we talked about.
Self-custody is a critical concept in the world of cryptocurrencies, offering individuals complete control and ownership over their digital assets.
The recent collapses of major centralized platforms and banks serve as a stark reminder of the risks associated with relying on third-party custodians.
These collapses resulted in significant financial losses for many customers.
By opting for self-custody through non-custodial wallets, such as MetaMask, Phantom, MEW, Trust Wallet, and Ledger, users can mitigate these risks and safeguard their assets.
Self-custody provides several benefits, including ownership, control over assets, unlimited transactions, enhanced security, and access to decentralized applications.
While there are risks involved in self-custody, there are also measures one can take to enhance security.
Choosing reputable wallet providers, using hardware wallets, securing seed phrases, enabling two-factor authentication, and staying vigilant against scams are essential practices for protecting self-custody wallets.
By embracing self-custody and practicing good security measures, individuals can navigate the crypto landscape with confidence and peace of mind. So, take control of your finances and become truly Bankless.
Below I will provide STEP-BY-STEP INSTRUCTIONS on how to set-up a DeFi wallet. Also I will show you how to take part in this DeFi revolution by providing liquidity on DEXs like Uniswap.
HOW TO CREATE A WEB3 WALLET
Step-by-step instructions to create a MetaMask wallet:
- Open your web browser and go to the MetaMask website: https://metamask.io/
- Click on the “Get Started” button.
- Click on the “Install MetaMask for Chrome” or “Install MetaMask for Firefox” button, depending on the browser you are using.
- You will be redirected to the Chrome or Firefox extension store. Click on the “Add to Chrome” or “Add to Firefox” button and follow the installation instructions.
- Once the extension is installed, click on the MetaMask icon in the top-right corner of your browser window.
- Click on the “Create a Wallet” button.
- Choose a strong password and click on the “Create” button.
- You will be shown a secret backup phrase consisting of 12 words. Write down this phrase on a piece of paper and keep it in a safe place. This phrase is the only way to recover your MetaMask wallet in case you lose access to it.
- Click on the “Next” button and confirm your backup phrase by selecting the words in the correct order.
- Your MetaMask wallet is now created and you can use it to manage your cryptocurrencies and interact with decentralized applications.
- To receive cryptocurrency, click on the “Receive” button in the MetaMask wallet and copy your wallet address. Send this address to the person who wants to send you cryptocurrency.
- To send cryptocurrency, click on the “Send” button in the MetaMask wallet, enter the recipient’s wallet address and the amount you want to send, and click on the “Next” button. Confirm the transaction details and click on the “Submit” button.
Congratulations! You have successfully created a MetaMask wallet and can now use it to manage your cryptocurrency holdings. Breaking News: MetaMask is the first web3 wallet to enable users to buy ETH using PayPal.
Source:https://metamask.io/news/latest/metamask-and-paypal-all-you-need-to-know-about-buying-eth/
HOW TO USE DEX
Step-by-step instructions on how to swap crypto on Uniswap’s DEX:
- Choose a wallet: Uniswap is a decentralized exchange, which means that you will need a crypto wallet to interact with it. You can use any wallet that supports Ethereum or ERC-20 tokens, such as MetaMask, Trust Wallet, or Coinbase Wallet.
- Add funds to your wallet: Once you have chosen your wallet, you will need to add funds to it. You can do this by purchasing Ethereum ($ETH) or any other ERC-20 token from a centralized exchange like Coinbase or Binance, and then transferring it to your wallet.
- Connect your wallet to Uniswap: Open the Uniswap website (app.uniswap.org) and connect your wallet by clicking on the “Connect Wallet” button on the top right corner of the screen. Select the wallet you want to use and follow the prompts to connect it to Uniswap.
- Select the cryptocurrency you want to buy: Once your wallet is connected, you can buy any ERC-20 tokens, including ones like Ethereum ($ETH), Chainlink ($LINK), Uniswap ($UNI) and Solve.Care ($SOLVE). Click the “Select Token” button to locate your Token. To find the token you want to purchase, first be sure it is an ECR-20 token then copy and paste its contract address into the search bar. (A tokens contract address can usually be located on https://coinmarketcap.com/ or https://www.coingecko.com/ under that tokens profile.)
- Enter the amount you want to buy: Enter the amount of the cryptocurrency you want to buy in the “Input” field. Uniswap will automatically calculate the amount of ETH you need to spend to buy that amount of cryptocurrency, based on the current market rate.
- Review the transaction details: Check the details of your transaction, including the amount of cryptocurrency you are buying, the amount of ETH you are spending, and the current exchange rate. Make sure everything is correct before proceeding.
- Confirm the transaction: Click on the “Swap” button to confirm the transaction. Your wallet will prompt you to confirm the transaction and pay the required gas fee (transaction fee) to the Ethereum network. Once you confirm the transaction, your wallet will automatically send the ETH to Uniswap, and Uniswap will send the cryptocurrency to your wallet.
- Wait for the transaction to complete: Transactions on the Ethereum network can take some time to complete, depending on the network congestion and the gas fee you paid. You can check the status of your transaction by clicking on the transaction hash link in your wallet or on the Uniswap website.
That’s it! You have successfully bought cryptocurrency on Uniswap’s decentralized exchange. Remember to always double-check your transaction details before confirming them, and be mindful of the gas fees you pay to avoid overpaying.
Step by Step instructions on how to provide liquidity on Uniswap:
Step 1: Set up a Wallet
- Ensure you have a cryptocurrency wallet that supports Ethereum and ERC-20 tokens. Examples include MetaMask, Trust Wallet, or Coinbase Wallet.
- Install the wallet extension or app on your device and create a new wallet if you don’t have one already.
- Follow the wallet’s instructions to back up your seed phrase and secure your wallet.
Step 2: Acquire ETH and ERC-20 Tokens (For Polygon networks steps are the same just be sure your Web3 wallet is connected to the Polygon network on Uniswap)
- Purchase Ethereum (ETH) and the ERC-20 token you wish to provide liquidity for. You can obtain these tokens from cryptocurrency exchanges like Coinbase, Binance, or decentralized exchanges like Uniswap itself.
- Transfer the ETH and ERC-20 tokens to your wallet’s address.
Step 3: Access Uniswap
- Visit the Uniswap website (app.uniswap.org) using a compatible web browser.
- Connect your wallet to the Uniswap interface by clicking the “Connect Wallet” button on the top right corner.
- Choose the wallet you set up in Step 1 and authorize the connection.
Step 4: Navigate to the Pool Page
- Once connected, click on the “Pool” tab on the Uniswap interface.
- Click the “Add Liquidity” button.
Step 5: Select the Token Pair
- On the “Add Liquidity” page, click on the “Select a token” button.
- Choose one of the tokens you want to provide liquidity for from the list or paste its contract address.
- Repeat the process for the second token.
Step 6: Specify the Amounts
- Enter the desired amounts of both tokens you want to contribute to the liquidity pool.
- The interface will automatically calculate the corresponding amounts based on the current exchange rate and liquidity pool reserves.
- Make sure you have an equal value of both tokens for the initial contribution.
Step 7: Approve the Transaction
- Review the transaction details, including the estimated fees.
- Click on the “Approve” button to grant Uniswap permission to spend your tokens for liquidity provision.
- Confirm the transaction using your wallet, following the prompts provided.
Step 8: Provide Liquidity
- After approving the transaction, click on the “Supply” button.
- Review the liquidity provision details, including the calculated share of the liquidity pool you will receive.
- Confirm the transaction using your wallet, following the prompts provided.
Step 9: Confirm and Complete
- Once the transaction is confirmed, you will see a summary of the liquidity provision on the Uniswap interface.
- The tokens you contributed will be locked in the liquidity pool, and you will receive liquidity provider tokens representing your share of the pool.
- You can view and manage your liquidity provision on the “Pool” page.
Some liquidity pools may reside only on the Uniswap V2 dApp which you can locate those pairs here: Just pick which two coins in your wallet you would like to use to provide liquidity. At first I would only experiment with ETH pairs as they usually provide the least risk and most rewards. https://app.uniswap.org/#/add/v2/ETH/0x446C9033E7516D820cc9a2ce2d0B7328b579406F
Congratulations! You have successfully provided liquidity on Uniswap. Remember to monitor your position, as changes in the pool’s balance and trading activity can affect your investment.
And you may notice right now Eth Gas fees are high as if we were in a bull market. That is because of the recent MEME coin fiasco.
If you would like to earn some of those swap fees now would be the time as Uniswap has processed more than $1.5 million in fees in the past 24 hrs. And 24hr volume for the past few days have been higher than Coinbase’s volume. (at time of writing 5/11/2023)
(Key Reminder: When first providing liquidity understand the risk involved such as impermanent loss. Test out more stable pairs before jumping into a volatile coin.)
Just look at APY returns on some of the Pools. Validators and liquidity providers are making a killing.
Gas and fees rewards on both Bitcoin and Ethereum are at local highs. If you would like to see a great visual of how the blockchain meme pool works… Check out https://txstreet.com/v/eth-btc
Finally, my personal favorite DeFi protocol to use is https://aave.com/. I have been getting paid to borrow money for almost two years now.. And because I have a Net Positive APY on all my collaterals and loans I haven’t made a payment on a loan in over 16 months!!
Now that’s financial freedom. DeFi is the only place in the world you can take million dollar loans with no credit check, permission, or identification. All you need is collateral. Follow my Medium Page here and I will tell you my secrets in my next article.
Disclaimer:
The information provided in this article is for educational and informational purposes only. It is not intended as financial or investment advice. The opinions expressed in this article are solely those of the author and do not necessarily reflect the views of any mentioned platforms or tokens.
Please be aware that investing in cryptocurrencies and participating in decentralized finance (DeFi) activities involves inherent risks. The crypto market is highly volatile, and prices can fluctuate significantly. Past performance is not indicative of future results.
The author of this article is personally invested in the tokens and platforms mentioned. This personal investment may influence the author’s views and opinions expressed in the article. It is important to conduct your own research and due diligence before making any investment decisions.
The author and the platform hosting this article will not be held responsible for any financial losses, damages, or legal implications arising from the use of the information provided in this article. Readers are solely responsible for their own investment decisions and should seek professional advice if needed.
Cryptocurrency investments and participation in DeFi activities carry a degree of risk, including the potential loss of the entire investment. It is important to consider your risk tolerance and financial situation before engaging in any investment activities.
Always remember that the crypto market is evolving and regulations can change. Stay informed about the latest developments, exercise caution, and make decisions based on your own judgment.
