Once we are clear about the security part (/correct-use-of-defi-infrastructure/), we reach the other 50% of the magic formula to be able to start using DEFI in a methodical and clear way in terms of pros and cons in both areas (security and planning).
In the energy sector it is always said that, what cannot be measured cannot be improved. In the financial sector three quarters of the same will happen and in the DEFI sector with even more reason and weight, since this is not about buying cheap and selling expensive and waiting to hit the next ball or trying your luck in a pool with high annual interest rates. This is about financial engineering applied to our assets, so let’s treat the subject with the respect it deserves, since the opportunity is unique and we are living it today.
Before planning and designing a strategy on your operations in the DEFI by seeking to be highly productive, let’s start from the beginning. It is very important that in some way you know before anything else how the work environment was developed, where you are going to spend hours by learning and managing your digital heritage. Summarizing a lot of information and data from 6-8 years ago, I can tell you that the ideal circumstances rarely exist for a new technology, an old problem and a great idea can become an innovation. In this case, 4 old technologies were combined to solve an old problem, the non-existence of vehicles or financial products that would allow saving and storing value without it being devalued over time.
These 4 old technologies are:
–Asymmetric cryptography, which gave us the concepts “Public key – Private key”, thanks to this asymmetry it is easy for us to obtain a mathematical result, but extremely complex (not to say impossible, but let’s be careful) to know what factors apply to obtain that result.
-Blockchain, sum of technologies developed for 40 years that helped us in an exceptional and simple way to prevent fraud.
-Proof of Work, a consensus protocol capable of making a network to work for its own benefit.
-BitTorrent is a technology through which for the first time members of a network share files in a decentralized way (peer to peer) without the need for a central server.
These 4 correctly applied technologies brought to light the end of one financial system and the beginning of another. Thanks to a Telegram chat in August 2018 between Ethereum developers, they went from Trafi to Defi, an unprecedented innovation that later developed an ecosystem, exactly the same as the traditional one known to all where we have a “Central Bank” for the issuance of stable currency, MakerDAO (makerdao.com), “Commercial Banking” for deposit and loan, AAVE (aave.com) which in turn is already connected to a large network of decentralized banks (@0xPolygon, @avalancheavax and @ethereum), “Private Banking” with tailored investment financial products and services. UniSawp (uniswap.org) which is also connected to other private banking networks. “Insurance” an essential niche in a capital market in full growth and expansion to protect our capital. Bridge Mutual (https://bridgemutual.io/) and “Exchange Houses” platforms, where you can exchange currencies without having to go to FIAT, incredible but directly something unthinkable in raw materials or derivatives of the traditional sector, where you cannot directly exchange gold for silver without going through #dollar first.
With this brief historical review of DEFI let’s move on to the topic that concerns this article, planning, and for this I want to start by correcting a common mistake that I see in everyone who talks about this topic, “The Perception”. The TLV in DEFI is the Total Blocked Value (this data is extremely important, to know how big and liquid this market is, and to determine the velocity of the money that circulates on it).
But it does not represent only the total value locked up as the image shows, it represents the value of a new capital market (the money market where banks used to go to access the money and offer it to retailers and retail) where we can now access the money directly. This changes the rules of the game and your perception of the magnitude and importance of this sector.
Another misperception is underestimating the terminology of this ecosystem. Users don’t want to understand the meaning of each word, and do not pay attention to the concept that each one of them hides. This way you are limiting the options and possibilities that you have in the DEFI, since behind the meanings of Oracle, Liquidity Provider, Yield Farming, Pool, Invariant, Impermanent Loss, Aggregator, Dex, AMM, etc. There is the perception of a concept that leads you to design strategies and operations with total clarity and business vision.
The management in the DEFI environment goes through at least 2 very important filters, planning and monitoring. if you don’t do any of this, I will change the word and the result of investing in DEFI becomes betting in DEFI. Motivate yourself in a bullish market or demotivate yourself in a bearish one, for sure you know how to do it, but to stay on your feet and isolated from trends, being 100% operational and profitable, I am going to give you some detail of each of the points.
Before depositing any assets (money) in any DEFI product, you must be clear about the 6 pillars on which you must base to plan a strategy:
What risk are you willing to take?
How much capital are you going to invest?
What network are you going to work on?
What will your daily profit be?
What will be the operating costs (including cost/opportunity)
How long will you be exposed?
If you get these first 6 simple steps right, congratulations, you are getting closer and closer to knowing “why you do an operation and that it is professional”.
FOLLOW-UP and PRODUCTIVITY:
Once we have planned the operation and we are clear that the annual interest rates that we are going to get depending on the time we will be exposed and the risk we take are acceptable and beneficial, it is time to a follow-up of our production activity. This will help us to draw conclusions and evaluate what has happened. For this we will have to write down each day and analyze weekly:
1. Daily payments.
2. Amount of LP generated.
3. Photo of the contribution to the pool when investing and photo after disinvesting.
4. Price of the tokens involved in the pool.
5. Weekly percentage behavior of the tokens involved in the pool.
6. The Smart contract of the pool.
Important: to close the article and give you one more input before making a financial decision with your assets. Please look at the technical graph of the Total Market Cap of the market, since timing directly influences your results for good and for worse. It goes without saying that your results and feelings will not be the same in a strong bullish trend and guideline, as in a bearish one. There is no rush to make decisions, not even to be profitable. Always read between the lines what the market wants to tell you and from there design, plan and manage your strategy. If you do it this way, I am more than sure that your results will be positive and will be constant over time.