It can often feel like everyone in crypto is becoming rich from Yield Farming or trading DeFi and I find myself thinking - I too would like to be rich. I work in blockchain, I know more than the average person about the space, I should be able to do this.
I was so young and naive just two days ago. Turns out, it’s not that easy.
The TL;DR: there’s no free way to learn and practice for non-developers because there is a lack of DeFi projects on Testnet that have a front end. You need to be a programmer to take advantage of their APIs.
The takeaway: Retail investors are already skeptical about cryptocurrencies and without a free, easy way to interact with protocols to learn and build trust, it’ll be harder to attract new DeFi traders.
Here’s my mini adventure.
Step 1: Get myself a wallet.
I’m savvy enough to know that to engage with any DeFi projects, I’ll need a wallet to interact with Decentralized Applications (DApps) on the Ethereum blockchain. Most trading platforms let you know which wallets they support.
I was already familiar with MetaMask, so I picked that one.
Step 2: Put money in your wallet
An empty wallet is no way to riches. I was willing to lose $50 on this endeavor. The first step was to take my dollars and turn them into ETH. This meant I needed an “onramp.” MetaMask doesn’t do this as they are a front end for your key address and thus only hold cryptocurrency. Coinbase, Gemini or Robinhood are places that accept dollars in exchange for crypto.
Here was my first frustration. I had ETH from a prior purchase and wanted to move it to my new wallet but the only way I could see doing this was to send myself a transaction and pay a gas fee. Literally pay to move money “between my accounts.” If this transaction was pennies, I would have put aside my gripes and have done it, but gas prices have been insanely high on Ethereum and it was looking like it would be a dollar or two. Not a good start to riches.
Hoping there was a better way, I messaged a few friends who suggested I use a Testnet and avoid all fees as it’s free!
There are a few Testnets on ETH. I chose to use Kovan as you can easily get free ETH daily from the Kovan faucet.
To do this, you need to log in with GitHub. Fine. I didn’t have a GitHub account but made one.
The faucet needs your public key to send you some ETH. MetaMask makes it pretty easy to switch networks and copy your public key.
Step 3: Turn Free Money into Lambos
Great! I got myself some free money and was ready to make my millions. I wanted to try out a few sites: dYdX, IDEX, Uniswap, Compound, and MakerDAO. I picked these as they are pretty popular DeFi apps and I wanted to see what all the hoopla was about.
dYdX
Let’s start with dYdX. A quick google search led me to a Medium post announcing dYdX launched on Testnet - amazing! After clicking all the hyperlinks in the post and then scanning the rest of the Google results, I sadly learned there was no user facing UI. If you wanted to use dYdX on Testnet you needed to know how to interact with their contracts directly. Err.
I moved on to the next platform.
IDEX
Nope. Doesn’t support Testnets.
Well this isn’t fun.
Compound
🙌 🙌 🙌 My new favorite protocol!!! I was able to log in to the Kovan Testnet on Compound.
Now to make money.
Compound allows users to supply assets to the Compound protocol and earn interest. Conversely, users can borrow from the protocol and pay interest. The protocol manages risk by allowing users to liquidate accounts that are underwater, paying back the loan and receiving the underlying assets at a discount.
Unfortunately, only borrowing and lending is available through the web interface. To liquidate, you have to be able to code. I also didn’t see an ability to earn $COMP tokens, which is the fuel that is driving Compound’s current success and what the kids these days are calling yield farming.
But hey, they let me lend some ETH and I saw my balance go up!
I next wanted to lend DAI as it had the highest APY. I wanted to feel rich even if it was fake riches.
But I needed to get DAI. I know you can go to MakerDAO and lock up ETH to create DAI but I couldn't figure out where to do this. I found Oasis which lets you trade for DAI. To do this, I had to turn ETH into WETH. It took some clicking around randomly, but I finally figured out if you go to balances, there is a button to wrap your ETH.
Now armed with WETH, I went to trade. I put in my order and then… crickets. I soon realized it's a Testnet, so there’s basically no liquidity. My trade just sat out there unfulfilled for eternity.
Uniswap
I then searched for an automatic market maker (AMMs) - contracts that trade against you so you don’t need a human counterpart to make a trade. I recently wrote about AMMs covering an article from Haseeb’s at Dragonfly explaining how AMMs are simply contracts that price based on a set algorithm. The contract acts as your counterparty and is always willing to trade with you - at a price of course.
After some more clicking around, I figured out while it’s not immediately apparent, Uniswap lets you connect your Kovan wallet.
I swapped my ETH for DAI. In the past, I have made the mistake of trying to trade all of my ETH and then not having enough to pay the gas, so I only traded 1 ETH for DAI.
I headed back to Compound to make my 15.15% of fake money. When I opened the DAI tab and saw tucked at the bottom of the screen a faucet! 🤦♀️ This whole time Compound had built a nice little faucet for noobs like me. While it would have certainly been easier, I definitely would not have learned as much and the faucet is not a representation of the real trading world - my goal. But if you want a quick way to get DAI, just click the faucet button and DAI magically appears in your connected wallet.
I got myself some free DAI, because - free - and then lent it on Compound. I continued to watch my returns tick up as that’s the only thing a noob can do in DeFi on testnet.
Conclusion
The ETH community has certainly made huge strides in developing tools that are more consumer friendly but this experience highlighted a simple way to get users more comfortable with crypto: more UIs for Testnets. Playing is the best way to learn and right now that learning experience has a high barrier to entry. If crypto really wants mainstream adopts, it needs to continue to build for those outside the crypto bubble.