It's Unstoppable #95
Market Meditations | February 10, 2021
? All the tools to start making money in DeFi.
In today’s newsletter we provide you with all the tools to start making money in DeFi.
Because DeFi is here and it is Unstoppable.
From fundamentals to technicals, we’ve got you covered. We even use Chainlink as a case study.
Read, enjoy and share with your network. Let’s all grow richer together.
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Elon Musk Bites Back at Freewallet After Dogecoin Tweet ?
Elon Musk has issued short shrift to Freewallet on Twitter after the cryptocurrency wallet provider attempted to use the Tesla CEO’s tweet celebrating dogecoin to promote its services. Saying Freewallet’s app “sucks,” Musk stated Wednesday his belief that crypto users should avoid wallets that do not give them access to their private keys. Don’t know what a private key is? Check out our ? Beginner’s Guide to Owning Cryptocurrency. Musk followed this up by tweeting an image of Chuck Norris saying the martial artist and actor “can withdraw bitcoins from Mt. Gox”, a take on the popular “Chuck Norris Facts” meme. Read more.
Cryptocurrency Market Hits $1.4T and Surpasses Google Stock ?
Cryptocurrency markets have hit a significant milestone shortly after Elon Musk’s Tesla officially announced their investment in Bitcoin (BTC). For the first time in history, the crypto market has surpassed Alphabet’s GOOG and GOOGL in terms of market capitalization. On Feb. 10, the total crypto market cap hit $1.413 trillion, overtaking the market cap levels of Google class-A and class-C shares. At the time of writing, the market capitalizations of GOOGL and GOOG amount to $1.39 trillion and $1.404 trillion, respectively. Read more.
10 Arrested Over SIM-Swap Hacks That Stole $100M in Crypto ?
Europol said on Wednesday it had assisted in the arrest of 10 hackers suspected of stealing $100 million in cryptocurrency in a “SIM-swapping” attack that allowed suspects to gain access to their victims’ phones. SIM swapping involves taking over victims’ phone numbers and then using cellphone authentication methods to access their apps or bank and cryptocurrency accounts by changing passwords. Read more.
Jack Dorsey Donates $1 Million to Crypto Think Tank Coin Center ?
Twitter CEO Jack Dorsey made a $1 million cash donation to non-profit cryptocurrency think tank Coin Center. Based in Washington, D.C., Coin Center is a non-profit research and advocacy group that aims to address public policy issues facing cryptocurrencies like bitcoin. Its supporters include the Silicon Valley venture capital firm Andreessen Horowitz and cryptocurrency exchange Coinbase. The donation made in cash, will bolster Coin Center’s research and lobbying efforts in Washington, D.C. Read more.
If you’ve been active in the crypto markets recently, it’s likely that an article, YouTube video, or Tweet with the phrase “DeFi” in gigantic bold font has at one point or another popped up across your screen.
✅ Although the phrase itself sounds like a futuristic spaceship of sorts (or is that just us?), in this article of Market Meditations, we’ll break down the basics of DeFi and help you interpret what it means for your trading and investing journey.
We will use Chainlink fundamental and technical analysis for our DeFi case study.
Before we understand what DeFi is, we must understand exactly that which it was designed to improve: CeFi.
CeFi stands for Centralized Finance. It is the financial system as you know it that requires centralized mechanisms such as governments, banks, and middlemen to survive.
Decentralized Finance (DeFi) is a movement leveraging blockchain technology and smart contracts to decentralize traditional centralized financial systems such as bank accounts, brokerages, lending, payments, and more (we’ll dive into a few examples later!).
With DeFi, you trust smart contracts not central authorities. You can think of a smart contract as computer code that has a set of rules that cannot be changed.
For example, let’s say your grandmother wants to send you $100 for your birthday every year. With traditional finance, she’d have to wire you money through a bank, complete direct deposit or send you a check (all options are expensive, slow, and rely on a bank).
She could instead leverage a smart contract someone else has written (unless your grandmother is secretly a coding ninja) that stipulates that every year on the same date at the same time, $100 are to be removed from her account and sent to your account automatically.
That’s it. No middlemen. No bank. Just the internet and a bit of sound computer code.
For more on protecting your capital, check out our ? Essential Crypto Security Guide ?
Here is a quick summary of why DeFi is stronger than CeFi:
1️⃣Permissionless: anybody is allowed to create and use a smart contract.
2️⃣Transparency: anyone with access to the internet can review the computer code that governs the smart contract. This is beneficial not only for people who want to review the public ledger of transactions, but also for developers who want to study existing smart contracts.
3️⃣Global Access: According to this report from 2017, 31% of global adults or 1.7 billion people don’t have access to a bank. DeFi democratizes access to financial systems. All you need is a connection to the internet.
4️⃣Interoperability: whilst you cannot alter an existing smart contract, anyone is allowed to take a part of an existing smart contract and build upon it. The benefits of DeFi, therefore, compound overtime, once more people get involved and more projects are built.
Chainlink’s Role in DeFi
Some of you maybe have tuned in on yesterday’s Chainlink Youtube video, if you didn’t check it out ? here ?.
One big limitation of DeFi revolves around an issue with smart contracts that Chainlink is trying to solve.
As we know, DeFi is centered around a smart contract.
? One issue with smart contracts, however, is that in order to flawlessly execute the set of rules written out in code, they rely on information stored off the blockchain, known as “off-chain data.”
In order to bridge the gap between off-chain data and the blockchain, we need something called an “oracle” which is an intermediary link between information in the real world and the blockchain.
Rather than using one centralized “oracle” (which would have created the same problem as CeFi), Chainlink is a decentralized network of independent nodes that collect and supply information to the blockchain in a language it understands.
? Stated simply, Chainlink is a bunch of non-connected computers that individually validate and translate real world information for the blockchain. Now, let’s dive into some technical analysis on $LINK.
CHAINLINK / DOLLAR
We can see price action compressing and narrowing in between 23/01 to 10/02 while maintaining a bullish market structure.
The moves were slow and choppy until 15:00 today when price broke its previous ATH of $27. This is now the key level to watch, a daily close above implies continuation with a a HTF target at the psychological price level of $30.
Our macro invalidation for the bullish market structure is $20. On the lower time frames we’re paying attention to $23.
If you like these graphs, check out our ? TradingView Tutorial ? where we explain our setup.
More DeFi Use Cases
1️⃣Decentralized Exchanges (DEX)
With a traditional brokerage, you rely on a central authority (e.g., Robinhood, eToro, etc) to secure and exchange your funds. A DEX replaces this middleman with the blockchain, connecting you directly with other users and giving you control over your assets. Project Serum by FTX, for example, is a DEX bringing “unprecedented speed and low transaction costs to decentralized finance. It is built on Solana and is completely permissionless.” Benefits of Serum include:
On-chain orderbooks (sleek and familiar user interface)
Speed (sub second trading and settlement)
Cost (relatively lower transaction costs)
If you want to buy Serum you can do so on FTX. Use our ? link to get a discount ?
2️⃣Lending and Borrowing
Banks take the money sitting in your savings account and lend it out multiple times, collecting interest. They pay you a microscopic portion of that interest for the right to lend out your funds. Just like this, there are dApps that allow you to deposit, store, and “stake” your crypto, earning interest as a reward. APY differs depending on the crypto you deposit and dApp you use but can range anywhere from 8% to 30% APY. Similarly, if you would like to take out a loan by borrowing against crypto as a collateral, you may do so. Please remember to do your own research.
The ability to exchange cryptocurrency between two parties directly and securely without the need for an intermediary like a bank, government, or other financial institution. This is often cited as the very fundamental use case of DeFi—to fix otherwise inequitable, unfair, and corrupt financial mechanisms.
DeFi is unstoppable. The dissatisfaction with centralised finance is growing at pace and is accelerated by sagas like GameStop vs. Robinhood. DeFi increasingly finds product market fit. Having covered the fundamentals and using Chainlink as a case study, we have provided the foundation for you to get started with DeFi investing and trading. Enjoy the journey and don’t drive without a seatbelt (supplement our article with your own research). Good luck.
DeFi Dad: How to Earn Passive Income with DeFi
DeFi Dad (@DeFi_Dad) is a DeFi super-user who provides education on bankless money apps on the Ethereum blockchain and currently acts as the Chief DeFi Officer for Zapper.fi
Things I learned:
DeFi applications are powerful protocols that mirror traditional banking applications. This allows you to make large returns by cutting out the middleman and becoming your own bank.
The best way to learn DeFi is to become an active user. To get started, set up an Ethereum wallet, purchase tokens on the Ethereum blockchain and start interacting with the ecosystem.
Lending on DeFi apps such as AAVE or Compound is a great way to earn passive income. Lenders are protected as borrowers must provide more collateral than the amount they are lending.
Providing liquidity to a decentralized exchange can produce sizeable returns as the user earns a percentage of any trading fees.
Yield farming can net large returns as this allows participation in multiple DeFi protocols at once.
Smart contract bugs are a predominant risk when using DeFi applications. To mitigate this, use the protocols with the highest total value locked as this represents the most used and therefore the most tested code.
Using DeFi allows you to be in control of your own funds. Whilst you can earn larger returns, it carries the risk of losing your private key and your funds. Before using any DeFi protocols, you should do your own research and ensure you are comfortable becoming the custodian of your own funds.
Governance tokens are essentially shares of DeFi protocols that are distributed to early users of that protocol, giving them voting rights alongside a tradable asset.
The gas (network) fees of using Ethereum based applications can be prohibitive for smaller transactions at peak times. Layer 2 applications handle transactions off the Ethereum network making these protocols more suitable for smaller transactions, albeit these are still in early stages of development.
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Disclaimer: The content in this newsletter is for informational purposes only. Nothing in this email is intended to serve as financial advice. We are not financial advisors. Every investment and trading move involves risk. Do your own research when making a decision.