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Gambling on #DeFi

My experience going from CEX to DEX

I've traded a lot on centralized exchanges. I've started my crypto experience in February 2012, when one Bitcoin — let that sink in — was still available for a mere 4€. I've traded on bitcoin.de, on MtGox (RIP), on BTC-e (RIP), on Cryptsy (RIP), on Bittrex, on Polo (RIP... it would be more efficient if I mark those exchanges which are still alive 😉), and eventually ended up on BitMEX (not using that defunct platform, anymore) and Binance. According to my tax declarations, I've traded total volumes in the eight figures per year. You can imagine what an insane hell my tax declarations were… and somehow, some weird part of my brain thought: "hey, let's make this a bit more complicated and trade onchain, so your tax declaration becomes pure agony and pain!" – welcome to my world.

Where am I trading, now?

There are a few platforms I regularly use:

Uniswap

Uniswap is my goto place when I want to convert one coin / token into another. Currently, my main plays are BTC and ETH, so I'm converting between wBTC (wrapped Bitcoin, essentially BTC on the Ethereum chain) and DAI or ETH and DAI. Me using DAI has little to do with the decentralization approach; in fact, I'd actually prefer using USDt, but we'll get to that in the next chapter.

What you should definitely avoid when using decentralized trading platforms is anything that comes even remotely close to "scalping". Considering that scalping is an invention from scammy crap exchanges who want to teach you to "trade big, trade often" (so they make money, not you), you should avoid it like the plague anyway. I know, there are a few stories about legends who make money scalping, but especially as a beginner, it's best to forget about them. You will likely lose money in fees and bad trades.

But this is not the main reason when using DeFi platforms. The problem is that the luxury of always being in control of your money / coins comes with a price. The fees are hefty: I've paid up to 10% in fees for a small trade when testing everything in order to get used to it before I do the real trades. But those fees aren't Uniswap's fault. In fact, the Uniswap fees are not that bad: they charge a 0.3% fee which is split between the liquidity providers. But you have to keep an eye on the Ethereum transaction fees. If you're one of those jittery kinds of gamblers who convert back and forth, potential profits are quickly eaten by Ethereum transaction fees. So make sure you want that trade before you convert!

The process is simple: you just connect your wallet (preferably a Ledger or related via MetaMask), select the account and use the interface to convert from one currency to another. It's simple and it works – and sometimes, you even get better prices than on a centralized exchange! I've had this a few times, already: a breakout happens, at or around my entry target, I quickly jump to Uniswap and I get pre-breakout prices. Nice!

Oasis

This, my friends, is where things get interesting. Oasis basically allows you to experience a similar kind of degeneracy you're used from centralized exchanges. Nice, isn't it?

Oasis is the reason I'm converting between ETH and DAI, not USDt. It's really nice: you can deposit ETH (or other currencies, you can select your preferred collateral when setting up a vault) into a smart contract, and those ETH will act as your collateral. Once the transaction is complete, you can generate DAI, and your loan is backed by the Ether you deposited into the contract. This has a few advantages, especially in a bull market:

  • you can get exposure to other assets without selling your initial ETH
  • if ETH price rises in price, your collateral rises in price, backing your loan even stronger
  • if you use the borrowed DAI to buy something which rises in value, too, you've made a profit without losing exposure to ETH

Keep in mind, though, that you play with bleeding edge tech, here. Nobody can guarantee you that the smart contract you deposit into is safe in any way, and there have been instances where attackers have managed to empty the liquidity pools or do other kinds of shit. So, as always: don't put in more than you're willing to lose!

So far, my experience with Oasis was pretty good. In the user interface, you can see how much you've borrowed, what your liquidation price is (always keep this value in mind and make damn sure that you're far, far away from this!), what your collateralization ratio is and some other information. As long as your ETH (or whatever you chose) are in the smart contract, you're free to do whatever the hell you want with the generated DAI. Spend them wisely on well performing shitcoins and the Lambo is yours… someday. Maybe. Or maybe not. 🙈

Metamask

Metamask became the fucking killer in late 2020! I have no idea why I put this amazing piece of crypto art at the bottom of this list, because it deserves a whole page for itself: you can now do trades directly from the Metamask interface. And it's not just a simple trade platform, it's much, much better: Metamask checks all kinds (I think it's seven or eight, currently) decentralized trading platforms, such as Uniswap, Airswap (reminds me: I should buy more AST), Compound, Maker and whatnot, for prices. While this might not make much sense for smaller sized trades (you'll likely end up paying more for the transaction fee, making the whole endeavor unprofitable), it's absolutely amazing for bigger sized trades, especially on markets which are more or less illiquid e.g. on Uniswap.

For example, price was recently good on the Airswap token (AST). I wanted to buy some, but already a few thousand USDt caused a big price impact on Uniswap. And as you can't just set a buy order at a certain price, but have to use the Automated Market Maker, instead (don't worry, it all runs in the background - it's easy!), you're either forced to buy slowly in small increments, and get poor by paying insanely high ETH gas fees, or you just accept the price impact.

But not with Metamask: I bought a decently sized bag of AST and the price impact was close to zero! This is absolutely amazing. Sure, I paid a rather big ETH transaction fee (I think it was something around 0.1 ETH), but if I just bought on Uniswap, the price impact of my buy order would have made this a much worse trade. So definitely check this out if you wanna buy at size. Mucho recommendo!

The bottom line is…

…that, if you keep a few things in mind, using Decentralized Finance can be a good alternative to using CEX products. Don't get me wrong, I'm not one of those "Decentrlaize everything" guys, at all. But for me, using DeFi definitely has its merit. Centralized exchanges are carefully designed to make you generate fees for them. It's their daily bread. Gamification everywhere (the worst example is probably Kucoin... the trading interface itself is fine, basically a Binance clone, but the website is full of traps which cause you to do things you don't want / shouldn't do), and having this clean Uniswap- or Metamask-interface is really refreshing.

The fact that you pay (currently quite high) transaction fees on the Ethereum chain requires you to think before you trade, or else, the fees will eat your portfolio, slowly. I consider this a good thing, and it made trading for me much, much more relaxed and smooth. On Oasis, you won't get the same level of leverage degeneracy you get on centralized exchanges, which also has its merit: your pulse isn't constantly on 200 bpm (or whatever unit you guys use in the imperial system) and you'll be able to sleep much better.

When Lambo? I don't know, yet. While I'm definitely making profits, the amounts are smaller. So, don't go to DeFi with a "lambo soon" attitude. Better plan a trade, execute properly, exit when target is reached and take a moment to enjoy the % you made in relation to your whole account. It's not what you would have made in BitMEX, but it's definitely possible to slowly grow your account to a decent size. 👍