How to DeFi

1st Edition, March 2020

Darren Lau, Daryl Lau, Teh Sze Jin,

Kristian Kho, Erina Azmi, TM Lee,
Bobby Ong
DeFi can be in imida ing and o e l com le , b hi book make i
im le.
Seb Audet, Founder of DeFiSnap

If I didn' kno an hing abo DeFi and needed o lea n f om c a ch,

this book is he e I d a .
Felix Feng, CEO of TokenSets

Thi book make i ea fo beginne o ge a ed i h DeFi.

Hugh Karp, CEO of Nexus Mutual

The e i a lo of con en abo decen ali ed finance a ailable b

nothing matches this depth and comp ehen i ene of hi book.
Leighton Cusack, CEO of PoolTogether

Thi i an e cellen e o ce fo an one ho an a com ehen i e

in od c ion o DeFi.
Kain Warwick, Founder of Synthetix

Thi book de ail he ne economie c ea ed b a gene a ion of bankle

ionee . I he be in od c ion o co ld a k fo .
Mariano Conti, Head of Smart Contracts at Maker Foundation
 CONTENTS
Introduction 1
Part One: Centralized & Decentralized Finance 3
Chapter 1: The Traditional Financial Institutions 4
The Banks 4
1. Payment and Clearance System 6
2. Accessibility 6
3. Centralization & Transparency 8
Decentralized Finance vs. Traditional Finance 9
Recommended Readings 10
Chapter 2: What is Decentralized Finance (DeFi)? 11
The DeFi Ecosystem 12
How Decentralized is DeFi? 12
DeFi Key Categories 13
Stablecoins 13
Lending and Borrowing 14
Exchanges 14
Derivatives 15
Fund Management 15
Lottery 15
Payments 16
Insurance 16
Recommended Readings 17
Part Two: Getting into DeFi 19
Chapter 3: The Decentralized Layer: Ethereum 20
What is Ethereum? 20
What is a Smart Contract? 21
What is Ether (ETH)? 21
What is Gas? 22
What are Decentralized Applications (Dapps)? 23
What are the benefits of Dapps? 23
What are the disadvantages of Dapps? 24
What else can Ethereum be used for? 24
Recommended Readings 26
 How to Defi

Chapter 4: Ethereum Wallets 27

Custodial vs Non-Custodial 27
Which Wallet Should I Use? 28
Mobile Users: Argent 28
Pro Tip 29
Argent: Step-by-Step Guide 30
Desktop Users: Metamask 36
Metamask: Step-by-Step Guide 37
Recommended Readings 43
Part Three: Deep Diving into DeFi 44
Chapter 5: Decentralized Stablecoins 45
Maker 47
What is Maker? 47
What are the Differences between Sai and Dai? 47
How does Maker Govern the System? 48
Collateral Ratio 48
Stability Fee 49
Dai Savings Rate (DSR) 49
Motivations to Issue DAI 49
How do I get my hands on some Dai (DAI)? 50
Minting Dai 50
Trading DAI 52
Black Swan Event 52
Why use Maker? 52
Maker: Step-by-Step Guides 54
Minting your own DAI 54
Saving your DAI 58
Recommended Readings 60
Chapter 6: Decentralized Lending and Borrowing 61
Compound 63
How much interest will you receive, or pay? 64
Do I need to register for an account to start using Compound? 64
Start earning interest on Compound 64
cTokens? 65
Start borrowing on Compound 66
Price movement of collateral asset 66
Liquidation 67
 How to DeFi

Compound.Finance: Step-by-Step Guides 68

Supplying fund to the pool 68
Borrowing fund from the pool 71
Recommended Readings 74
Chapter 7: Decentralized Exchanges (DEX) 75
Uniswap 77
Liquidity Pools 77
Automated Market Maker Mechanism 78
How to get a token added on Uniswap? 81
Uniswap: Step-by-Step Guide 82
Swapping Tokens 82
Provide Liquidity 85
Stop Providing Liquidity 86
Recommended Readings 87
dYdX 88
Lending 88
Who pays the interest for my deposit? 89
Borrowing 89
Margin & Leveraged Trading 90
Pro Tip 91
What is leverage? 91
What is liquidation? 91
How are Profits/losses calculated? 92
dYdX: Step-by-Step Guide 93
Recommended Readings 99
Chapter 8: Decentralized Derivatives 100
Synthetix 101
What are Synthetic Assets (Synths)? 101
Why Synthetic Assets? 102
How are Synths Created? 103
What Assets do Synths Support? 104
Index Synths 104
sCEX 104
sDEFI 105
Fun fact 105
Synthetix Exchange 105
Synthetix: Step-by-Step Guide 106
 How to Defi

Recommended Readings 110

Chapter 9: Decentralized Fund Management 111
TokenSets 112
What kinds of Sets are there? 112
Robo Sets 112
Social Trading Sets 113
How are Sets helpful? 113
TokenSets: Step-by-Step Guide 115
Recommended Readings 122
Chapter 10: Decentralized Lottery 123
PoolTogether 124
What is PoolTogether? 124
Why bother with Decentralized Lotteries? 125
Wha he Ca ch? 125
So, Lending on Compound vs. participating in PoolTogether? 126
PoolTogether: Step-by-Step Guide 129
Recommended Readings 132
Chapter 11: Decentralized Payments 133
Sablier 134
What is Sablier? 134
What Does Streaming Payment Mean? 134
Why is this important? 134
Trust 135
Timing 135
Example of how it works 135
Sablier Step-by-Step Guide 136
Recommended Readings 139
Chapter 12: Decentralized Insurance 140
Nexus Mutual 141
What is Nexus Mutual? 141
What event is covered by Nexus Mutual? 142
How does coverage work? 142
How is the coverage priced? 143
How to Purchase Cover? 143
NXM Token 144
What is a Risk Assessor? 144
Has NXM ever paid out claims before? 144
 How to DeFi

Nexus Mutual: Step-by-Step Guide 145

Disclaimer 149
Recommended Readings 150
Opyn 151
What is Opyn? 151
What are Options? 151
How does Opyn work? 152
How much does Insurance cost? 153
Why would anyone provide insurance on Opyn? 153
Being a Liquidity Provider on Uniswap 154
Selling oTokens on Uniswap 154
Is Opyn safe? 154
What are the key differences between Nexus Mutual
and Opyn? 155
Opyn: Step-by-Step Guide 156
Conclusion 160
Recommended Readings 161
Chapter 13: DeFi Dashboard 162
What is a Dashboard? 162
DeFiSnap: Step-by-Step Guide 163
Part Four: DeFi in Action 166
Chapter 14: DeFi in Action 167
Surviving Argentina s High Inflation 167
Uniswap Ban 170
Chapter 15: DeFi is the Future, and the Future is Now 173
What about DeFi User Experience? 174
Closing Remarks 177
Appendix 178
CoinGecko Recommended DeFi Re o ce 178
Information 178
Newsletters 178
Podcast 178
Youtube 179
Bankless Level-Up Guide 179
Projects We Like Too 179
Dashboard Interfaces 179
 How to Defi

Decentralized Exchanges 179

Exchange Aggregators 179
Lending and Borrowing 179
Prediction Markets 180
Taxes 180
Wallet 180
Yield Optimisers 180
References 181
Chapter 1: Traditional Financial Institutions 181
Chapter 2: What is Decentralized Finance (DeFi)? 182
Chapter 3: The Decentralized Layer: Ethereum 182
Chapter 4: Ethereum Wallets 183
Chapter 5: Decentralized Stablecoins 183
Chapter 6: Decentralized Borrowing and Lending 184
Chapter 7: Decentralized Exchange (DEX) 184
Chapter 8: Decentralized Derivatives 185
Chapter 9: Decentralized Fund Management 185
Chapter 10: Decentralized Lottery 186
Chapter 11: Decentralized Payment 187
Chapter 12: Decentralized Insurance 187
Chapter 13: DeFi Dashboard 189
Chapter 14: DeFi in Action 189
Glossary 191
This pdf is the brief extracts for the purpose of review, download the full book here:

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