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:

1. Higher Yields: Often offers better returns than traditional savings accounts

2. Financial Access: No need for bank approval or traditional credit checks

3. Investment Opportunities: Early access to new tokens and projects

4. Asset Control: Full control over your digital assets

5. 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:

1. Download Phantom

   • Visit phantom.com (always verify the URL)

   • Install the browser extension

   • Available for Chrome, Brave, and Firefox

2. Creating Your Wallet

   • Choose between:

     • Email login (easier but less secure)

     • Seed phrase wallet (more secure, recommended for larger amounts)

3. 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:

1. Getting SOL

   • Purchase on an exchange

   • Transfer to your Phantom wallet

   • Always send a test transaction first

2. 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:

1. Digital Art & Collectibles

   • Unique artwork pieces

   • Limited edition collections

   • Profile pictures (PFPs)

2. Access & Membership

   • Community access

   • Event tickets

   • Exclusive content

3. 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:

1. Real Estate

   • Fractional property ownership

   • Commercial real estate shares

   • Property development projects

2. Financial Instruments

   • Government bonds

   • Corporate securities

   • Treasury bills

3. 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:

1. Utility: Real use cases and demand

2. Scarcity: Limited supply

3. Community: Active user base

4. Development: Ongoing improvements

5. 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

For the latest DeFi strategies and opportunities, join 20,000+ readers who rely on our weekly newsletter

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:

1. 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:

   • Use Coingecko to find official contract addresses

   • Look for verification marks on Jupiter

   • Double-check token symbols and decimals

2. 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:

1. Deposit your SOL as collateral

2. Borrow USDC against it

3. Keep your SOL exposure while accessing cash

4. 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

DeFi Glossary

Crypto Tools List

Onchain Academy

⚡How to Track Airdrops the Right Way

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

1. What is the minimum amount I need to start with in DeFi?

   1. 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.

2. Can I lose all my money in DeFi?

   1. 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.

3. What happens if I send crypto to the wrong address?

   1. Unfortunately, blockchain transactions are irreversible. Double-check addresses before sending and use test transactions (small amounts) first when sending to new addresses.

4. Is using DeFi legal?

   1. DeFi itself is legal in most countries, but regulations vary. Some jurisdictions have restrictions on cryptocurrency usage. Check your local laws before proceeding.

5. How do I know which DeFi projects are safe?

   1. Look for projects with audited smart contracts, transparent teams, active communities, and substantial time operating without security incidents. Start with established protocols.

6. What's the difference between centralized exchanges and DeFi?

   1. 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.

7. Do I need to pay taxes on DeFi activities?

   1. 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.

8. What if the website of a DeFi protocol goes down?

   1. 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.

9. How do I recover my account if I forget my password?

   1. 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.

10. Is DeFi the same as Bitcoin?

    1. 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.

11. How much technical knowledge do I need to use DeFi?

    1. 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.

12. Can I earn passive income with crypto without deep technical knowledge?

    1. 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