DeFi 101 Supplementary Materials Page
These are supplementary written materials for the Dynamo DeFi DeFi 101 Course.
This course is designed to take you from a crypto investor to a crypto user that is comfortable transacting onchain.
Introduction to Web3 & DeFi
What is DeFi?
DeFi (Decentralized Finance) represents a fundamental shift in how we think about financial services. Unlike traditional finance which relies on banks and other intermediaries, DeFi uses blockchain technology to provide financial services directly to users.
Key Differences from Traditional Finance:
24/7 Operation: Unlike banks, DeFi never closes
No Intermediaries: Connect directly to financial services through your wallet
Instant Settlement: Transactions complete in seconds, not days
Global Access: Available to anyone with an internet connection
Transparent: All transactions are visible on the blockchain
Real-World Applications:
Cross-Border Payments: Send money internationally in seconds for pennies
Lending & Borrowing: Access loans without traditional credit checks
Trading: Swap tokens instantly without an exchange account
Earning Yield: Earn interest on digital assets through staking and lending
Why Use DeFi?
Common reasons people choose DeFi:
Higher Yields: Often offers better returns than traditional savings accounts
Financial Access: No need for bank approval or traditional credit checks
Investment Opportunities: Early access to new tokens and projects
Asset Control: Full control over your digital assets
Innovation: Access to new financial products not available in traditional finance
Getting Started Checklist:
Set up a crypto wallet
Learn about blockchain security
Understand basic DeFi concepts
Start with small amounts
Learn about different tokens
Take your crypto knowledge to the next level with our Onchain Academy - 3 hours of premium content teaching you how to research, analyze, and capitalize on DeFi opportunities.
Getting Started on Solana
Setting Up Your First Wallet
A crypto wallet is your gateway to DeFi - think of it like an email address for money. For Solana, we recommend starting with Phantom Wallet.
Wallet Setup Guide:
Download Phantom
Visit phantom.com (always verify the URL)
Install the browser extension
Available for Chrome, Brave, and Firefox
Creating Your Wallet
Choose between:
Email login (easier but less secure)
Seed phrase wallet (more secure, recommended for larger amounts)
Critical Security Steps:
Write down your seed phrase
Store in multiple secure locations
Never share with anyone
Never store digitally
There’s a printable security checklist at the bottom of this page, scroll to the end to use it!
For maximum security, consider investing in a hardware wallet like Ledger.
Understanding Seed Phrases
Your seed phrase is like the master key to your crypto:
12-24 words in specific order
Can restore your wallet on any device
Cannot be recovered if lost
Anyone with your seed phrase has access to your funds
Making Your First Transaction
Before You Start:
Have SOL in your wallet for transaction fees - it doesn’t have to be
Understand transaction confirmations
Know how to verify addresses
Step-by-Step Guide:
Getting SOL
Purchase on an exchange
Transfer to your Phantom wallet
Always send a test transaction first
Sending Transactions
Double-check recipient addresses
Maintain enough SOL for fees
Understand transaction finality
Need to bridge tokens between chains? RocketX lets you move assets across nearly every blockchain with ease
Common Mistakes to Avoid:
❌ Storing seed phrase digitally
❌ Sending large amounts without testing
❌ Forgetting to keep SOL in your wallet for fees
❌ Connecting to unverified websites
✅ If you’re down bad, here’s how I lost it all and made everything back 10x
Understanding Crypto Assets
Types of Crypto Tokens
Not all crypto tokens are the same. Each type serves different purposes and carries different risks and opportunities.
Network Tokens
What They Are: Native blockchain currencies (SOL, ETH)
Primary Uses:
Pay for transaction fees
Secure the network through staking
Basic transfer of value
Example: SOL is Solana's network token, required for all network operations
Governance Tokens
Purpose: Give voting rights in protocol decisions
Key Features:
Vote on protocol changes
Influence development direction
Sometimes earn protocol fees
Real Example: PYTH token lets holders vote on Pyth protocol decisions
Utility Tokens
Function: Required to use specific services
Characteristics:
Tied to specific applications
Value linked to platform usage
Often serve multiple purposes
Examples:
JitoSOL for staking
BONK for Solana gaming platforms
Non-Fungible Tokens (NFTs)
NFTs represent unique digital assets on the blockchain. Unlike regular tokens, each NFT is one-of-a-kind.
Key Concepts:
Non-Fungible: Each token is unique and not interchangeable
Digital Ownership: True ownership of digital items
Verifiable: Authenticity can be proven on-chain
Transferable: Can be bought, sold, or traded
Common Use Cases:
Digital Art & Collectibles
Unique artwork pieces
Limited edition collections
Profile pictures (PFPs)
Access & Membership
Community access
Event tickets
Exclusive content
Gaming Assets
In-game items
Character skins
Virtual land
Real World Assets (RWAs)
RWAs bridge the gap between traditional assets and blockchain technology by tokenizing real-world value.
Types of RWAs:
Real Estate
Fractional property ownership
Commercial real estate shares
Property development projects
Financial Instruments
Government bonds
Corporate securities
Treasury bills
Physical Assets
Precious metals
Commodities
Art and collectibles
Benefits of RWA Tokenization:
🔹 Increased liquidity
🔹 24/7 trading
🔹 Fractional ownership
🔹 Reduced intermediaries
🔹 Automated compliance
Important Considerations:
Regulatory Compliance: Must follow traditional securities laws
Custody Solutions: Physical asset storage and management
Legal Framework: Evolving regulatory landscape
Market Maturity: Still in early development stages
Understanding Value and Risk
What Makes Tokens Valuable:
Utility: Real use cases and demand
Scarcity: Limited supply
Community: Active user base
Development: Ongoing improvements
Integration: Ecosystem adoption
Risk Factors:
🚨 Smart contract vulnerabilities
🚨 Market volatility
🚨 Regulatory changes
🚨 Team dependence
🚨 Liquidity issues
Want to learn how to evaluate tokens and find undervalued gems? Our Onchain Academy teaches you essential research skills used by successful crypto investors.
Essential DeFi Operations
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Understanding Token Swaps
One of the most powerful features of DeFi is the ability to trade any token, at any time, directly from your wallet. Unlike traditional exchanges where you need an account and have to wait for business hours, DeFi swaps happen instantly, 24/7.
Think of token swaps like a digital currency exchange that never closes. Instead of needing someone on the other side of your trade, special smart contracts called Automated Market Makers (AMMs) make trades possible at any time.
How Swaps Actually Work
When you make a swap on Solana, you'll typically use Jupiter, which works like a search engine for the best prices across all exchanges. Here's what's happening behind the scenes:
Jupiter checks multiple exchanges to find where you can get the best price. For example, if you're swapping SOL for USDC, one exchange might offer $100.50 per SOL while another offers $100.55. Jupiter will automatically route your trade to get you the best deal.
Before making your first swap, here's what you need to know:
Always verify the token you're buying. Unlike stocks which have regulated tickers, anyone can create a token with any name. The safest way to verify tokens is to:
Look for verification marks on Jupiter
Double-check token symbols and decimals
Watch out for price impact. If you're trading a large amount relative to the available liquidity, you might move the price against yourself. Try breaking large trades into smaller pieces.
Staking and Liquid Staking
Staking is one of the safest ways to earn yield in crypto. When you stake your SOL, you're helping to secure the Solana network and earning rewards in return. Think of it like earning interest on a savings account, but you're actually providing a valuable service to the network.
There are two main ways to stake:
Traditional Staking
When you stake traditionally, you're delegating your SOL directly to network validators. This is like depositing money in a term deposit at a bank - you earn interest, but your funds are locked up for a period.
For example, if you stake 10 SOL (about $200 at current prices), you might earn 6-7% APY, or about $12-14 worth of SOL per year. The trade-off is that it takes 2-3 days to unstake your SOL if you need it back.
Liquid Staking
Liquid staking solves the lockup problem. Instead of your SOL being locked, you receive a receipt token (like mSOL or jitoSOL) that you can use while your original stake keeps earning rewards.
Let's say you liquid stake 10 SOL with Marinade Finance. You'll receive about 10 mSOL in return. Now you can:
Trade your mSOL instantly if you need liquidity
Use it as collateral for loans
Provide it to liquidity pools for extra yield
All while still earning your base staking rewards
Advanced DeFi Features
Providing Liquidity: Being the Exchange
When you swap tokens on a decentralized exchange, someone has to provide the tokens that are available for trading. That "someone" could be you, and you can earn fees from every trade that uses your liquidity.
Think of it like owning a small currency exchange booth. When travelers need to exchange dollars for euros, they use your booth and pay a small fee. In DeFi, these "booths" are called liquidity pools, and they work automatically.
How Liquidity Providing Works
Let's say you want to provide liquidity for SOL-USDC trading. You would need to deposit an equal value of both tokens. For example:
10 SOL (worth $200)
200 USDC
Total deposit value: $400
Now, every time someone trades SOL for USDC using your liquidity, you earn a portion of their trading fee. During periods of high trading volume, these fees can add up to significant yields.
Understanding the Risks
However, providing liquidity isn't risk-free. The main risk is called "impermanent loss." Here's a simple example:
Imagine you deposited when SOL was $20. If SOL's price doubles to $40, traders will slowly buy SOL from your pool until its value balances out. You'll end up with:
Fewer SOL tokens (because they were bought)
More USDC (from people buying your SOL)
This sums up to a total value that's less than if you had just held your original tokens.
Lending and Borrowing
DeFi lending is one of the most powerful innovations in crypto. It allows you to:
Earn interest by lending your assets
Borrow against your crypto without selling it
All without any credit checks or paperwork
How Lending Works
Let's say you have 1,000 USDC sitting idle in your wallet. You could lend it on a protocol like Kamino Finance where:
Other users can borrow it
You earn interest from borrowers
Your funds remain liquid (withdraw anytime)
Current rates might be 5-10% APY
How Borrowing Works
On the flip side, say you have SOL but need cash for an expense. Instead of selling your SOL (and triggering taxes), you could:
Deposit your SOL as collateral
Borrow USDC against it
Keep your SOL exposure while accessing cash
Repay the loan anytime to get your SOL back
Remember: DeFi loans are always overcollateralized. If you want to borrow $700, you might need to deposit $1,000 worth of collateral. This protects the protocol, but also means you need to watch your loan-to-value ratio carefully.
Resources
Subscribe to the Dynamo DeFi YouTube channel for DeFi strategies, tutorials and fundamental analysis
DeFiLlama: premiere DeFi metrics & analytics
Coingecko: Find tokens, charts and info on any token
Frequently Asked Questions for Beginners
What is the minimum amount I need to start with in DeFi?
You can start with as little as $10-20, just make sure you have enough to cover transaction fees and have some left for actual investments. Starting small is recommended as you learn.
Can I lose all my money in DeFi?
Yes, there are multiple risks including smart contract vulnerabilities, market volatility, and user error. Never invest more than you can afford to lose, especially as a beginner.
What happens if I send crypto to the wrong address?
Unfortunately, blockchain transactions are irreversible. Double-check addresses before sending and use test transactions (small amounts) first when sending to new addresses.
Is using DeFi legal?
DeFi itself is legal in most countries, but regulations vary. Some jurisdictions have restrictions on cryptocurrency usage. Check your local laws before proceeding.
How do I know which DeFi projects are safe?
Look for projects with audited smart contracts, transparent teams, active communities, and substantial time operating without security incidents. Start with established protocols.
What's the difference between centralized exchanges and DeFi?
Centralized exchanges (like Coinbase) hold your funds and require identity verification. DeFi protocols connect directly to your wallet, requiring no identity verification but more technical knowledge.
Do I need to pay taxes on DeFi activities?
In most countries, yes. DeFi activities like swapping tokens, earning yield, and providing liquidity are typically taxable events. Consult a tax professional familiar with crypto.
What if the website of a DeFi protocol goes down?
The protocol itself lives on the blockchain and continues to function. You can often interact with it through alternative interfaces or directly through the blockchain.
How do I recover my account if I forget my password?
If you've forgotten your wallet password but have your seed phrase, you can restore your wallet. If you've lost your seed phrase, there is unfortunately no recovery method.
Is DeFi the same as Bitcoin?
No. Bitcoin is a cryptocurrency, while DeFi refers to financial applications built on blockchains (typically Ethereum, Solana, and others). You can use Bitcoin in some DeFi applications, but they're distinct concepts.
How much technical knowledge do I need to use DeFi?
Basic computer skills are sufficient to get started, but some understanding of blockchain concepts will help you navigate more safely. Start with simple operations like swapping tokens.
Can I earn passive income with crypto without deep technical knowledge?
Yes, simple options like staking or lending are relatively straightforward and can provide passive income with minimal technical requirements.
Crypto Security Checklist
Feel free to print this out and keep it handy!
ESSENTIAL WALLET SECURITY
□ Write down seed phrase on paper (never on your computer or phone)
□ Store seed phrase copies in multiple secure locations
□ Never share seed phrase with anyone (even "support staff")
□ Use a strong, unique password for wallet access
□ Enable two-factor authentication where available
□ Consider using a hardware wallet for amounts over $1,000
BEFORE EACH TRANSACTION
□ Double-check recipient addresses (first and last few characters)
□ Verify transaction details (amount, token, network)
□ Ensure you have enough native tokens for gas fees
□ Send test transactions first when using new addresses
□ Check that the website URL is correct (bookmark official sites)
□ Disconnect wallet from sites after completing transactions
GENERAL SAFETY PRACTICES
□ Use a dedicated browser or profile for crypto activities
□ Never click suspicious links in emails, social media, or chat apps
□ Research projects before investing (audit status, team, community)
□ Start with small amounts while learning
□ Regularly update wallet software and operating system
□ Never invest more than you can afford to lose
□ Be skeptical of "too good to be true" yields or opportunities
□ Have an emergency plan for security breaches
RECOMMENDED TOOLS
□ Hardware wallet (Ledger, Trezor)
□ Password manager
□ Transaction monitoring tools
□ Bookmark folder of official DeFi websites
□ Offline backup solution for seed phrases
DeFi is basically the cheat code for finance. No banks, no middlemen, just you and your money. The part about RWAs is wild. Owning a fraction of real estate like you own crypto. But let’s be real, regulation is still the elephant in the room. What do you think happens first, mass adoption or governments cracking down?