https://twitter.com/thedefiedge/status/1507722622095613955
“An expert is a person who has made all the mistakes that can be made in a narrow field."
But making mistakes in DeFi is painful, expensive, and no one's eager to teach you.
Here are 17 common mistakes I wish I knew before I started:
/1 You Don't Have Alpha
Your favorite YouTuber gave you alpha on a project - then the token price crashes a few hours later.
Sorry, but you're at the bottom of the food chain.
• Builders • VCs / insiders • Whales • Influencers • and then you.
Adjust your risks.
/2 Not Calculating for VC Dumps
Venture Capitalists get tokens FAR cheaper than we do.
And if they decide to dump, the token's price crashes.
Understand the token allocations and the vesting schedules.
By the way, I'm not saying to AVOID any tokens that have insiders or VCs.
Solana has a TON of VCs and was still a great investment early on.
VCs provide funding, distribution, and advice.
This is more art than science so use your judgement.
/3 Chasing High APR inflationary Tokens
Those 25,000% APY looks sexy right?
Inflationary tokens tend to crash in value if there's not enough utility or $ inflow.
Ironically, a 19.5% APY on a Stablecoin has outperformed a lot of these high inflationary tokens.
/4 Ponzinomics
Some projects are pure ponzinomics.
Do you know what UTILITY the token has? If not then chances it's based on Ponzinomics.
You can still make money with it.
Make sure you know how EARLY you are, and take profits along the way.
/5 Not Taking Profits
It's easy to get caught up in the hysteria of a bull market.
"If this keeps going for another few months, I'm going to be set for life"
When you start thinking you're a genius - TAKE PROFITS. Use systems and formulas to keep your emotions in check.
/6 Don't Fade the Next Wave
• DeFi 1.0 -> DeFi 2.0 • Dogecoin -> Shiba Inu • ETH -> Solunavax • Cryptopunks -> Bored Ape Yacht Club
The new generation missed out on all the gains of the original.
They're going to chase after the next big thing.
/7 Understand the Narratives
The narrative is the current market sentiment about a sector or protocol.
Q4 21: OHM forks are killing it Q1 22: OHM forks are dead
The narrative changed within a few months. Be careful betting against the narrative.
/8 Watch Out for Slippage
You're trading $100 worth of X coin for $100 worth of Y coin. You submit the transaction and end up with $80 worth of Y coin.
What happened? Slippage.
• Low liquidity • Low volume • Highly volatile prices
Many things can happen from the time you submit the transaction to its finalizing.
How do we fix this?
• Go to the DEX's with the most liquidity. (This is why Curve is so dominant for stable coins)
• Adjust slippage tolerance
/9 Not Calculating Impermanent Loss
You want to farm a liquidity pair. The two tokens must always be an even 50:50 ratio.
What happens if one coin shoots up in value, while the other one goes down?
It's now uneven and the AMM has to sell tokens to balance it out.
Go for coins that tend to correlate together
I farm jewel-one because Jewel correlates better with Harmony than other tokens.
I'm calculating the potential impermanence loss based on price predictions.
5.46% isn't a big deal when I'm getting over 300% APR in yield.
/10 Ride the Cycles
Understand where we are in a market cycle.
In a bearish environment, you should be heavier in Stablecoins.
Once the market turns more bullish, move more towards higher-risk plays for higher returns.
https://twitter.com/SecretsOfCrypto/status/1348143701730545667
/11 Autocompounder Risks
To maximize your yield, you need to harvest your farms and deposit multiple times a day.
An autocompounder automates this.
The problem is that it adds an extra layer of risks that can be exploited.
Hackers exploited Pancakebunny and Grim finance last year.
The people affected would've been more profitable staying in the native protocols.
If you do want to use one, go with a proven one like @beefyfinance or @reaper_farm
/12 Portfolio's Too Aggressive
Low market cap coins do have the potential to 10x or even 100x.
But make sure you're hedging your bets with blue chips and some stablecoins.
A strong dip can wipe out all your gains.
Split your portfolio into investments and trades.
/13 Being TOO Diversified
I've seen people post portfolios online before that were >25 coins.
You can't keep up with that many projects.
And if a coin does moon, you won't reap as many rewards.
I find the sweet spot to be between 7 - 12 projects.
/14 Not Diversifying Enough
You also have to be careful of the other risk: not being diversified enough.
My rule is no coin is larger than 15% of my portfolio.
If it grows bigger than 15%, then I take profits and rebalance.
/15 Not Cutting Losses
HODL is a dangerous mindset.
If the tokens price is dumping, you need to research and understand why.
If you're down -50%, might be a good idea to cut it before it's down -95%.
Your assets could be used somewhere else.
/16 Be Careful of Influencers
Some influencers will promote a coin as the best thing ever, but not disclose that they were paid to do so.
You need to developer a bullshit detector and do your own research.
YOU and you alone are responsible for your funds.
/17 Don't Underestimate Marketing
Some protocols are 100% focused on the product and spend 0 effort on marketing.
If the team doesn't care about marketing, then it'll be hard for the money to starting flowing in.
Nike + Apple got to the top because great products + marketing
I didn't mean for this thread to come off so negative.
It frustrates me to see so many people are in a "TO THE MOON!" or "BTC $100k SOON!" mode.
I believe that DeFi can change lives, but only if you play the game right.
And I had to learn the game on hard mode.
Takeaways:
• We're NOT all gonna make it - there's a steep learning curve where many people are out to get your money.
• PLAY IT SAFE when you're starting out.
• You know less than you think.
• Don't trust anyone blindly.
Alright, that's it for today
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