Things I wish I knew before investing in Defi.

Mistakes have been made, but we can learn from them.

Disclaimer: I am not a financial advisor. The content for this article is purely for educational/research purposes only and is merely based on my personal opinions.
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Degenerate — Refer to people who invest in crypto projects without doing their own research.

Well, this is me, I am a Degenerate when I started investing in Decentralised Finance(Defi). The closest I have to invest in Defi is holding, buying and selling my Bitcoin. That changes until my friend introduce me to the world of defi, a whole new investing system that would probably break the current financial world.
Without any knowledge, I dived in and invested my monthly pay into any Defi Project that I can get my hands on. However, little that I know, there are so many terminologies and risks involved with Defi. Therefore here are a few things that I wish I knew before investing in defi and I hope my readers are able to be more cautious when comes to investing in defi.

Gas Fees/Transaction Fees

I’m sure everyone who invested in defi understands what is gas fees, but for that beginner, gas fees are equal to transaction fees. Please do not underestimate gas fees, because every single action you do in all Defi projects will cost you some gas fees. Although it might seem cheap for every action, however, if you are not careful, these gas fees will accumulate over time and will cause a lot of damage to your money. Especially if you are investing in Ethereum chain projects, the gas fees will eat all your profit away, or even leave you with a loss.

Because different chains have different gas fees cost, I would recommend investors take note of the gas fees and factor it into their P&L calculation. My strategy is to do action only if the profit is able to cover the gas fees, as there is no point claiming or withdrawing the profit if the gas fees eat away your profit.

Impermanent Loss (Double side or Single side staking)

Impermanent loss is essentially investors participate in liquidity pool in hopes to earn transaction fees from all transactions in that pool. However, the token loses its value over a period of time, causing damage to investors money. This is worst off if the investors participate in double side staking such as BNB/CAKE, whereby both tokens suffer from the volatility of the market. I personally also suffer from impermanent loss, when I join pancakeswap liquidity pool.

I would recommend new investors to participate in Single side staking or farming, or double side staking but one of the tokens is a stable coin such as BNB/BUSD. Although investors are still exposed to impermanent loss of single side tokens this will minimise the losses if the value drops. The best is to invest stable coin farming/staking such as BUSD/USDC, this will totally remove the impermanent loss at a cost of a lower APY.

Scam (Rug Pull, Ponzi, Pyramid)

The defi world is not as pretty as it seems, though there are many good projects there are also many scam projects as well. The goal of all investors is to find good and credible projects, while at the same time avoiding scam projects. I consider to be very lucky as I had yet to encounter any scam projects but I do get approached by them and almost got scammed, they wanted to access my metamask details, lucky for me I consulted the project community chat group and they help me realise the scam attempt.
Tips for new investors. When joining a defi project’s telegram channel, do not answer any phone calls from these “developers” or reply to their private messages. Because the REAL projects developers will not private message anyone, you can interact with them in the main chat group.

Fantastic projects and where to find them

As mentioned previously, there are too many good projects out there. But the main question is, where do you find them? When I first started, I only happen to know 2 projects, Pancakeswap and Sushiswap. But as we move forwards, more and more projects are popping out everywhere with more and more ridiculous APY to attract investors. My recommendation is to do your diligent research to find the most trustable projects out there. Personally, I research via Medium, Youtube, Dapp aggregator.

If the APY is too high, it is probably too good to be true.

Being a degen investor, all I wanted is to chase the APY. As the higher APY, the more money we can earn. And very often I will end up jumping from project to project which has the highest APY. Little that I know that APY does not really mean anything, the project is just using fake APY numbers to attract as many investors as possible but with no actual plan on how to sustain the high APY.
Let’s take the recently DAOs apocalypse as an example, I invested a large sum of money in Hector Dao. This is a great project, they have a strong and wonderful team of developers behind it and although they are still strong. However, when as time passes they have to reduce the APY from 300,000% to 236% so that they can better sustain the project. No, I did not withdraw any money, because I still believe that they could recover and come out stronger in the future.
Therefore, this could be a lesson for everyone including myself that chasing high APY does not guarantee you a good return. Instead, I would recommend investors look for a strong project with an achievable APY such as Drip Network.

Endnote

These are the few things that I wish I knew before investing in defi, I hope you guys are able to learn from this article and be more cautious when dealing with different projects.

To get rich, you have to be making money while you’re asleep. — David Bailey

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