DeFi Onboarding Guide + What Happened To My 700% APY From "Stablecoins"

Hi there!

If you're HODLing cryptocurrencies and looking to earn some passive income on your holdings, this DeFi onboarding guide is for you!

There are many guides out there covering yield farming strategies and DeFi platform analysis. But for most, their only experience with crypto is buying it on local exchanges, and they have no idea how to begin their DeFi journey.

This pictorial guide aims to bridge the information gap and cover the most fundamental Step 0 on how to even get started on yield farming.

Just a disclaimer that none of this constitutes as financial advice. This article is not meant to recommend DeFi or any related financial products. Do take note that risks are rife within this space so exercise due diligence and caution when engaging in such risky activities.

Most people buy cryptocurrencies using exchanges like Gemini, Coinhako, Binance etc. When you buy coins on these exchanges, they hold onto your coins and your keys.

On the other hand, we have client-side digital wallets like Metamask and MEW that let you control your funds and your own private key / recovery phrase.

Drawing a parallel to stocks, client-side digital wallets are like your personal CDP accounts, whereas exchange wallets are akin to brokerages like Tiger, Moomoo, IB etc whereby the brokerage acts as a custodian and holds onto the stocks for you.

To start off your DeFi journey, we need a wallet and for the rest of this guide, let's focus on Metamask. To install Metamask, go to the Chrome Web Store and find the Metamask browser extension.

Install the Chrome Extension and follow the prompts to set up your Metamask wallet.

When setting up your Metamask wallet, it is crucial to remember the recovery phrase! If you lose your recovery phrase, you cannot prove ownership of your account and will permanently lose access to your funds inside. Be sure to make multiple copies of it and store them securely!

After setting up your Metamask account, you will notice at the top that you’re currently on the Ethereum Mainnet, and your Metamask wallet address can be found below your account name.

This is the default network that Metamask wallets are connected to. You can add new networks if you want to farm there. For the purposes of this guide, we are interested in farming on the Polygon network, so let’s add Matic Mainnet to your Metamask wallet.

Click the colourful logo at the top right-hand corner and click:

1. Settings

2. Networks

3. Add Network

Now that you’ve added the Matic Mainnet, click the Ethereum Mainnet button to see the list of networks you’re connected to. You should be able to see the Matic Mainnet in the dropdown list.

With the Matic Mainnet up and running on your Metamask, the next step is to transfer funds over to the Matic Mainnet. I have summarized 3 main ways for you to do so:

OPTION A

If you’re currently holding onto coins in exchanges like Gemini and Coinhako, you can transfer your coins out from the exchange to your Metamask wallet via the ERC20 network.

For Gemini, go to Transfer, click on Withdraw from Gemini and follow the given prompts. Copy and paste your Metamask address under the transfer destination.

For Coinhako, just click ‘send’ beside the cryptocurrency that you wish to withdraw. Copy and paste your Metamask address under the recipient address.

There is no withdrawal fee for Gemini for your first 10 withdrawals, whereas you’ll need to pay a network fee on Coinhako (0.008ETH).

After the transfer is executed, you’ll be able to find your coins in your Metamask wallet under Ethereum Mainnet.

To bridge your funds over from Ethereum Mainnet to Matic Mainnet, there are 2 main bridges: Zapper Bridge and Polygon Bridge

Follow the prompts on the respective site to bridge your funds over from the Ethereum Mainnet to Polygon’s network.

Because these methods use the Ethereum network, transactions are likely to be slower with higher fees. For a cheaper and faster alternative, consider Option B.

OPTION B:

For this method, you’ll need to set up an Ascendex account.

Ascendex is also an exchange wallet, but unlike the rest, Ascendex allows withdrawals via MATIC network for cryptocurrencies like USDC and MATIC.

Transfer your coins from your respective exchange wallet to your Ascendex wallet.

If the coins you deposited are not USDC/MATIC, you’ll need to convert them to USDT first, before converting them to USDC/MATIC.

To withdraw your USDC/MATIC, go back to your Cash Account, but instead of clicking the Deposit button, click the Withdraw button and you should arrive at the following screen:

OPTION C:

For those using Binance, Option A/B will work too but you can also consider bridging from Binance Smart Chain which is cheaper!

First, we need to set up the Binance Smart Chain on your Metamask wallet. Add the following network:

Once you’ve connected your Metamask wallet to BSC, you should be able to see it in the dropdown list of networks:

Withdraw the funds from your Binance account into your Metamask wallet via BSC.

Once the funds have arrived in your Metamask wallet, you’ll see it under the Smart Chain network.

Go to https://www.xpollinate.io/ and follow the prompts to bridge your funds over from BSC to Matic Mainnet. Do note that xpollinate only supports stablecoins like USDC/USDT/DAI.

Once you’re done farming on Matic network, you can directly deposit MATIC coins from your Metamask wallet straight to your Binance account via the Matic network without having to go through xpollinate.

Now that you have a funded Matic wallet, you can start yield farming! I’m not going to delve into yield farming strategies, but you can check out Mark's guides here and here or watch Taiki Maeda’s youtube channel!

Instead, I would like to share the main lesson I’ve learnt from farming (based on my personal experience with the Iron Finance saga): Don’t be greedy and always do your own due diligence!!

I have to admit that I started yield farming without understanding how stablecoins work. I used to think that stablecoins like USDC/USDT/DAI/FRAX/IRON were the same and took for granted that all of them were pegged to 1USD.

So when most stablecoin pools were yielding 20-40%, I noticed the IRON-USDC pool in PolyCat’s vault was yielding over 700% APY! I had no idea why the yield was so high but I was too lazy to do my own research so I just aped into the pool.

As the yield started climbing to 1,000 – 10,000% APY, I even borrowed on AAVE to pump into the IRON-USDC pool.

It was only when the yield hit 100,000% APY when I started questioning why the yield was so ridiculously high. Once I understood the tokenomics of IRON/TITAN and saw TITAN drop to $40 from its ATH of $60, I pulled out my funds.

However, when TITAN started recovering back to $50, my emotions took over and I used my profits to ape into the TITAN/MATIC pool which was yielding a massive 7,000,000,000% APY, but it promptly became 0 the next day.

Overall, I spent 3 weeks farming with nothing to show for. I still count myself lucky for having retained my capital, but all the profits that I earned vanished overnight.

Lesson learnt: Don’t be greedy; if something is too good to be true, find out why. Always do your own due diligence before investing your hard-earned money into anything. I’ve also stopped using PolyCat because the auto-compounding vaults are not very transparent.

On this note, it is wise to be aware of other risks that arise from using such platforms.

With that being said, despite all the risks found in DeFi, I still believe it is a profitable opportunity as you can accumulate coins for free. The protocols I’m mostly using now are AAVE and Mai Finance. I've been yield farming for the past 2 months and on average, I'm earning 4% per month. Extrapolating to a yearly basis, that's a 60% APY!

For those eager to jump on the DeFi bandwagon, I hope this guide can help you kickstart your DeFi journey! All the best and farm safely 😊