3 DeFi Beginner Playbooks

For people who’ve bought their first ETH/BTC from Coinbase or anyone who wants to utilize their assets

Published in

Dexible

7 min readJan 30, 2021

From Cointelegraph, which consistently produces amazing art. (Source: “The Importance of Supporting a Robust Developer Ecosystem”, 2019.11.12, then edited by me)

Disclaimer: this is technical advice for noobies. DeFi and Yield Farming entail high beta assets, assets that are strongly correlated to ETH. The upside potential during bull runs is much larger, but downside during bear markets potentially larger.

Congratulations!

You’ve just completed the first step: open this article. You’re trying to do a little bit of research. Good.

So I assume you care about one or more of the following things:

Earning more from your investment.
Playing safe in crypto.
Contributing to an early but thriving decentralized ecosystem.
Screwing the suits.

Probably number 4. And with that, let’s dive in.

To recap:

2011–2017 proved crypto was viable and self-custodial wallets like Metamask worked. Since 2018, attention turned product development. Three big innovations came out of this: 1) decentralized exchanges, 2) stablecoins, 3) financial primitives (aka “yield farming”). In early 2021, product development on the Ethereum protocol has had the most success.

In 2020, there was a huge wave of investment in what has come to be known as the “DeFi summer”. From November to early January 2021, the price of mainstream crypto (like BTC and ETH) shot up, causing a massive bull market.

After the correction on January 10th, Bitcoin sagged, but “DeFi”—a collection of “decentralized financial” applications on the forefront of financial primitives soared. Unlike mainstream cryptoassets that are volatile stores of value and stablecoins that are stable stores of value, DeFi includes assets that have: “bank functions” like interest, borrowing, lending; “TradFi functions” like swapping, margin trading, options, index funds, mutual funds; even new “DeFi functions” like yield farming, rug pull insurance, social trading, rebasing, and flash loans.

There’s a lot of work that’s been done, Source: Zerion on Twitter

So if none of it makes any sense to you, you’re in the right place.

To start:

What you’re doing now if you just bought Bitcoin or Ethereum on Coinbase is what Robinhood traders do when they’ve bought Amazon stock—they sit on it. They wait for the prices to increase.

But what if there was a way to put that capital to use? For example, like how banks loan out cash and generate interest.

More ways to play kiddo. The base asset is just the entry ticket.

And what if, in the process, you didn’t have to have a Robinhood determine access to your capital?

You can do this now.

This hasn’t been easy, until now:

The problem has been that there’s a lot of noise.

Every crypto company and individual speculator competes for your attention to turn you into a customer or investor—this has made communication untrustworthy and noisy.
Mainstream crypto charlatans tell people to “buy bitcoin” as if it’s going to make them a millionaire.
DeFi is so experimental, people have struggled to produce getting started guides in a concise fashion.
Video tutorials are generally too technical (ex: a product demo), too experimental (ex: a trade that’s unrealistic for beginners), too ideological (ex: a discussion of the merits of decentralization), or too speculative (ex: price predictions).

To be fair—it’s taken a significant amount of time to get to where we are now. Enthusiasts are always excited to talk about the latest shiny thing. Today, none of that.

Let’s keep this simple and use things that work because you don’t really give a care.

Playbooks

The question is how. I’m going to provide some step by steps into “Playbooks”—a blend between a WikiHow and an Investopedia article.

Utilizing your Assets

The goal: you want to “utilize” your assets. Doing so means you earn both from when the base asset increases and from fees of your capital getting used in markets. Base assets include mainstream cryptoassets (like Ethereum or “synthetic Bitcoin” aka renBTC or WBTC), DeFi assets (like $YFI or $LINK), stablecoins (like $DAI).

Liquidity Pools

You put your capital into “liquidity pools”. People who provide assets, provide liquidity and are called liquidity providers. When you deposit money in a bank, you’re effectively making a loan, for which you get interest in return. The process of putting your capital into liquidity pools is called yield farming.

Find the liquidity pools you want to contribute to. You’re looking at 4 things: 1) fees on users, 2) total volume, 3 & 4) and the 2 base assets.

Good yield farming resources include…

Coingecko (shows you # of audits and estimated yearly returns, great for low and medium risk)
Etherscan (sort by Market Cap, will show you all opportunities. Use this if you have time to go between sources)
Zapper (the farm tab shows several opportunities)

Etherscan gives good sources for further research

I hate when teachers give you easy examples. Here’s a hard one :

Playbook #1: Coinbase → DeFiSaver → Yield Farming Spree

Sign up to Coinbase
Buy amount of ETH (You need $500+ in today’s money). You need this money for transaction fees. You’ll be making a few.
Buy large amount of USDC* (I recommend under $2999 per 24-hr period)
Get Metamask
Send both to Metamask
Swap USDC to ETH on Sushiswap (approve USDC)
Go to DeFiSaver
Create a Maker CDP, click-through steps when gas is low
Get a 1.5x leveraged position on your ETH (you now earn interest on your locked ETH)
Find a liquidity pool project you want exposure to (includes projects like Mirror, Idle, Cover, Aave, Compound, Alpha Homora. A good view is also on Zerion’s pool tab.)
Swap a little less than half your ETH for the token that’s needed.
Click add liquidity for that pool on Uniswap or the individual app, this is a transaction where both your ETH and that token are consumed. They’re locked up in this market.
In return, you often get a liquidity provider token, some LP token (for Sushiswap you get a SLP token) for how much liquidity you added. In some cases, the LP token you get from Uniswap or Sushiswap is the token you contribute on 3rd party marketplaces.
You now start earning rewards based on transaction volume.
Profit.
On a weekly or bi-weekly basis, check for transaction prices here.
Cash in your rewards, to service your debt.
Payback the required loan on your Maker Vault, keep all the rest.

Yeah so this is a hard example. But by the end you’re earning in potentially 4 WAYS at once!

The movement of the base assets (like WBTC and/or ETH)
Interest from DeFi saver CDP
Reward tokens from Sushi (which 8x’d since December)
LP token being deployed elsewhere

Plus you have more money to do it with because of your leveraged position.

Regardless, you have those common on-ramp steps. These are the following:

Find a fiat-crypto on-ramp — typically this is a centralized exchange like Coinbase, Binance, Kraken, or Gemini.
Go through the AML/KYC process — any fiat to crypto on-ramp is tightly regulated.
Connect bank account.
Purchase ETH — you need ETH to pay for transaction fees.
Get self-custodied wallet — includes Metamask, Argent, Frontier Wallet, Exodus, Ledger, Trezor among others.
Send ETH to your self-custodied wallet — you copy the new wallet address into the sender adress.

The common on-ramp steps are assumed for the following playbooks.

I’m going to walkthrough the 2 following simpler examples.

Asset Management tool (ex: Zapper)
AMM Yield Farming (with Sushiswap)

Asset Management Tool Route:

Playbook #2: On-Ramp → Zapper → Matcha

7. Go to Zapper.fi (an asset management tool, like Zerion)

8. Click “Farms”

9. Swap for the assets you want on Matcha.xyz (if you’re trading in large quantities or in illiquid markets, use Dexible.io for this step)

10. Go back to Zapper and click add liquidity to the Farm.

11. Profit.

Here’s a longer tutorial video:

AMM Yield Farming Route:

Playbook #3: On-Ramp → Sushiswap

7. Go to Sushiswap

8. Find pools with the highest fees and the “most promising” base assets

9. Swap ETH so you have an equal share of the two base assets

10. Submit liquidity

11. Start earning $SUSHI tokens on top of the increases in your base asset prices

12. Find applications that use SLP token

Here’s a tutorial video (note the app’s User Interface was updated in January but is still similar enough):

The above playbooks are fairly low to medium risk. Never risk what you can’t afford to lose.

To Sum It Up

You want to utilize your assets.
Always have ETH on hand for transaction fees.
Be aware of beta asset risks and potential downside implications—for example, use Dexible.io for stop-loss orders for your assets, such that if the price of your assets drops 15% in a day, you can auto-swap into a stable asset to protect your profits.
You should care about improving your compound returns of investment. Simply investing in BTC/ETH and giving away your keys defeats the purpose of what crypto was all about. Convenience will always be easier, but the compound returns, in the long run, will make you regret not investing more effort.