How To Defi - Centralized vs. Decentralized Finance

a base case of 30 to 50 000. if it captures one percent it will be worth 40 000 per ethereum that's a 20x from where we are today that was going to become very valuable so then add a chart onto that again chart of the theorem like it was going to break out and that gave me everything i needed everyone i know is talking about d5 i should buy ethereum before it is too late it looks like ethereum is about to break out i too will buy ethereum and become a millionaire then i can quit this stupid job buy a lambo and play video games all day [Music] what the heck is defy how do i use decentralized financial applications and most importantly do i even care why do why should i even care about this stuff well i'm on twitter a lot so i follow a lot of engineers and developers and also folks who are involved in the crypto and financial twitter space and i keep hearing more and more about this especially over the last six months or so i've been hearing a lot about the dramatic growth of defy and how it's gonna change the world and reinvent the entire financial system and sure uh i'm involved in crypto a little bit i own a little bit of ether i own some crypto a few different tokens on various centralized exchanges like coinbase and binance and a couple other places but seeing all these talented people and wealthy investors get involved in the space has made me question should i be investing of more my money into ether and most importantly should i be investing my time as a developer into understanding the underlying technology of the ethereum network and adapts and solidity and all these different technologies that are involved in creating this new financial system or should i just own some stocks and quality companies like apple and google and microsoft i mean what's what's wrong with that i've been investing that way for a while so why change that up that served me well so far so this entire space is all pretty new to me so i decided to spend a couple weeks here and there reading about the space reading some books watching some youtube videos attending meetups that sort of thing talking to different people and seeing is this something worth investing more time into and i think the answer is yes and in this video i'm going to share why so when i first started reading about this space i found it very confusing just because there's so much new vocabulary to learn like everyone seems like they're speaking another language what do you mean dude you just learn solidity you write some smart contracts and put those daps on the ethereum network and all your data is going to go to the blockchain and and sure the gas fees are high but whenever we upgrade to 1559 it's going to be better and then you can use the polygon side chain and the maker dowel and your tether and dowels in exchange for dye yeah just install brownie and truffle and then you'll be able to use the automated market maker liquidity pools and then you can start staking and mining and yield farming and yeah man then you're going to get into flash flow and arbitrage but maybe you don't want to use unit swap you want to use pancake swap or sushi swap and then get involved in decentralized autonomous organizations and governance tokens so i don't know about you but whenever i heard all those terms i found it very confusing so some of you are way ahead of the game and already know this stuff but i did not and so i needed kind of a d5 for dummies book to help catch me up and what i found was this book by coin gecko called how to defy and when i looked through the table of contents here um i thought this was the type of book i needed it just talked about what is defy compared it to centralized finance and then it gave a bunch of practical applications like what can i even do with this stuff and so talked about stable coins landing and borrowing decentralized exchanges lotteries payments fund management things that i understood in plain english in a way that made sense to me and so i read through this book and i'm going to share with you what i learned from this book and in follow-up videos i'm going to do deep dives into each of these types of applications such as lending and borrowing decentralized exchanges derivatives fund management lotteries and payments and i'm going to start by making tutorials on some of the front-end tools such as web3.pi web3.js and ethers.js so python and javascript front ends and going further i'm going to invest some time and learning some solidity and smart contract development so that i can interact with some of this underlying technology some of these protocols and we'll see what we can do i don't know what i'm gonna do yet but over the course of the next several months or years uh i think i'll get pretty good at this so before i talk more about how to defy i want to spend a little bit more time talking about why to defy like why do i even care about this and do other people that are watching this channel care about this particular area so i posted a poll in the community area and to my surprise over 1200 people answered this poll and i just asked you know this this channel started off talking about stocks and it had a stock market focus but i added some crypto content that's gotten more popular over over time and i asked you know do you want this to be mainly about stocks or mainly about crypto or both and it turns out uh over 50 are both equally fascinated by stocks and crypto and 22 are interested mainly in crypto so it's actually only 25 percent of the channel that is just interested in stocks so as far as the audience is concerned here over three-fourths of the channel is interested in crypto to some extent but there are people you know like this at the bottom said this person at the bottom said all crypto coins have an intrinsic value of zero and this person says i agree with you and so uh let's let's talk about that point for a bit as well so when you first discover the cryptocurrency space there's this barrier in your head that's like this is all completely made up so why is it worth anything isn't it just word zero just some computer scientist comes up with this blockchain concept and i'm supposed to believe it has value and invest money into this what if i just lose all my money and that's a valid concern right and so let's let's talk about more uh how i think about this as an investment because this is something i have to think about myself so one thing i think about when investing in a new company or technology is uh who else is investing in it are there other institutions is there smart money going into the space and this answer is a resounding yes and so i have plenty of examples of large players that are getting involved in the crypto space if you haven't been following along so you can see right here march of this year visa becomes the first major payments network to settle transactions in usdc a stable coin backed by the us dollar to settle a transaction with visa over ethereum visa they know a little bit about money and financial transactions what about mastercard ubs and jp morgan pouring 65 million dollars into an ethereum startup studio or how about this goldman sachs reports nearly half of its rich family office clients want to get into crypto so you see large companies in the payment space and hedge funds beginning to get involved and want some exposure to crypto so if they want exposure and they see value in it don't you want to have a little bit of exposure yourself right the price is determined by supply and demand and you see this increasing demand for ether and crypto and you know there's only a fixed supply of many of these cryptocurrencies so it makes sense to have some exposure to them uh who else andreessen horowitz one of the most successful venture capital firms in silicon valley so i'm in the bay area everyone knows andreessen horowitz they have this article investing in optimism ethereum has proven itself to be extremely popular computing platform with both developer and user demand growing dramatically and yeah so they're investing tons of money these are some of the smartest investors on the planet they have made billions and billions of dollars and invested in all of the most successful companies you've heard of most likely then you got guys like this gary tan uh so he invested in coinbase early which is now you know he made an early bet in cryptocurrency and now that company is worth tens of billions of dollars and he makes a case for ethereum going to ten thousand dollars right you also have hedge fund pioneers like paul tudor jones one of the most famous hedge fund guys of all time saying he's putting one to two percent of his assets in a bitcoin so he wants exposure as well you also have our good friend kathy wood of arkhan vest you know they're putting investments kathy woods arc invest raises square holdings after jack dorsey announcements square's building decentralized finance business using bitcoin paypal lets users pay with bitcoin ethereum and litecoin starting today so square and paypal you know these are companies worth hundreds of billions of dollars these are the leaders in the payment space and they're getting involved in cryptocurrency and then you have this recent discussion between elon musk kathy wood and jack dorsey where they discuss cryptocurrency and elon musk confirmed that he owns ether and so is this a guy that knows nothing about money no he was one of the original founders who helped create paypal over 20 years ago one of the earliest uh financial services on the internet he's literally the richest person in the entire world so he probably knows what he's doing so that's all good and also that's a lot of smart money but who is still against cryptocurrency well you have uh warren buffett and charlie munger who are obviously very wealthy individuals as well and they've called it the equivalent of rat poison i think they called it um but you know they're not always right about everything if you look at articles from this one for instance uh from 2012 buffett said he wouldn't buy google and apple and would rather invest in ibm so although warren buffett is one of the most successful investors of all time he's completely missed the boat on technology and he's admitted to not understanding technology well he has made a lot of money in things like coca-cola and mcdonald's which are great companies as well they make a lot of money but i wouldn't go to him for advice about technology so he's obviously completely missed the boat on technology over the last decade he did eventually change his mind and by apple stock but much much later than most people alright so i'm more than satisfied there i am convinced that some of the most successful investors of all time and some of the largest financial institutions are putting a percentage of their wealth into the crypto space and so that convinces me hey maybe i'm not seeing something here and maybe it's worth exploring more but that doesn't answer the question why should i care about ether and the ethereum network more than other cryptocurrencies like bitcoin uh cardano any of the other hundreds of other tokens out there uh there's a lot of places to put your money in crypto why do i care about ethereum and not bitcoin and and the reason i care more about ethereum why i'm more attracted to it as a software engineer as a developer is because of the applications so when you compare the bitcoin community and the ethereum community uh they're very different so for instance there was this miami bitcoin conference in june and you had you know famous moments like this [Applause] [Music] [Applause] and then you have floyd mayweather appearing there so it kind of has a celebrity thing i believe that it's going to be you know another cryptocurrency that's going to be just as large as bitcoin someday and then yeah he suggests some other cryptocurrency and all the people boom i guess and yeah and so there's kind of this uh celebrity presence at this bitcoin conference and then you compare and contrast that with the ethereum conference here that was i believe that was in paris and you got vitalik here who was the celebrity as an engineer right and he's just talking about technology applications how he's excited about the social layer they're talking about things like scaling the network and making transactions more efficient improving onboarding and the user interface so like it it's attractive to me as a software developer because they're thinking about this like a startup right like infrastructure like a technology and it's not just all about announcing what the price is at any given moment although all that is very exciting as well there's a lot of developers that are just building here and they're exploring the technology and they're building on it and they're not really overly concerned about the price at any given moment in time another reason this defy community resonates with me is that they're trying to build a whole another financial system on top of code and algorithms and as a software developer it's very interesting to me and as someone who's creating a youtube videos and has a website called hacking the markets which is all about the intersection of software development and the financial system uh this is the purest representation of that and so uh this is the perfect way to explore uh software and finance and as someone who works on a youtube channel that is focused on markets and trading it's cool to see uh these financial services that have developers front and center right uh so when you work with wall street and uh these stock brokerages a lot of this data is just very hidden or they'll charge you thousands of dollars a month just to see some basic financial data so it's cool to go to these different uh services where they'll just give you price data for free right and then when you go to some of these decentralized services like uniswap here you see front center at the very top it says developers here's a white paper here's the documentation here's the github what is uniswap here's how you interact with it here's an sdk when i go to compound finance which is for lending and borrowing you know there's a whole section for developers here right compound is algorithmic autonomous interest rate protocol built for developers to unlock a universe of open financial applications and so that's very appealing to me as a developer as well so we have smart money going into the space and we're interested in the technology but what are some other reasons i might want to buy some ethereum or cryptocurrency we got companies here like on-ramp invest that show you the benefits of putting cryptocurrency as part of your portfolio so let's say you have this 60 40 portfolio of stocks and bonds well why not take a couple percent out of that 40 you have allocated to bonds that really isn't paying all that much and put it into cryptocurrency well is that a good idea turns out you can back test that and they're building out all these tools to let you visualize and see what your portfolio would look like if you allocated a small percentage of it to cryptocurrency and it turns out over the past decade you would have done much better if you put a few percent of your wealth into cryptocurrency and when you look at the data and talk about this it seems like a very reasonable uh decision to make to put some money in crypto assets and so this channel is all about back testing and using the data objectively and if the data objectively shows you uh this has performed much much better with minimal risk then how long are you gonna ignore it if bitcoin's been around for over 10 years what if it's around 30 more years right well you go your whole life saying this has no value and will you regret not putting some money into cryptocurrency the other way i'm thinking about investing in ethereum is the same way i would think about investing in an early stage startup right so we're still very early in this trend and some smart money is going into the space but it's still very early this isn't you know mainstream yet this is a space where you can still invest time and money fairly early and it's very profitable to get in early on technology trends so if you're an early iphone developer android developer you did very well if you learned amazon web services very early on or invested in amazon very early on you did really really well and so i'm thinking of ethereum as a way to invest in a very early technology and the way this is similar to a startup investment is uh it's a bet on a team and it's a bet on developers right and so what i see with ethereum is a whole bunch of developers are leaving their fang you know their facebook amazon jobs and joining this d5 movement investing their talents there right and so by investing in ethereum you're kind of making a bet on these people to succeed and so i've made a handful of private investments in my career and some of these investments went to zero and some of them have done very well and one of them will end up being the best investment i've ever made right so it's worthwhile to take some percentage of your money and putting it put it in something that's a little bit more risky but has huge upside and so i believe when i read the article about paul tudor jones making an investment in cryptocurrency he compared it to investing in an early tech company because there are smart and sophisticated people who believe in it and he considered this like investing early in like steve jobs founding apple or larry and sergey in inventing google right you're betting on them to win right you're betting on the world to become digitized right um you see how you know this software is eating the world right and so you're betting on this trend of technology taking over everything you're betting on this trend of decentralization and so these strong trends that happen over the course of decades you want to be in early on those trends and make those types of bets right and when you're making an investment like this when you're making an angel investment right this is a case even though we talk about you know price by the minute and by the daily charts on this channel quite a bit when you're making one of these types of investments a lot of times your money should be locked up for seven to ten years it takes a long time for these things to play out so if you invested in uber like a decade ago the ipo didn't happen until what 2020 right and so this money is kind of locked up for some period of time and you're betting on this thing very early on you're not quite sure how it's going to unfold there's going to be a lot of controversy along the way a lot of ups and downs but you're not really looking at a chart of all this happening there's no room to really panic about it you're just saying hey i'm putting money on this it's going gonna go to zero or pay off many times over so when putting some money into ethereum i'm less concerned actually about the day-to-day price i'm more investing in the applications and ethereum is being described as a giant global uh super computer that talented people are writing programs for right and they're trying to reinvent the financial system so if you think about this as investing in something like the app store or amazon web services like what when when amazon web services were announced what was the value of that people didn't really know right but as developers continue to invest more and more time and build things like dropbox and netflix and scale them on top of amazon web services you began to see the value right and so you have this huge ecosystem you have this huge trend happening and you have lots of talented folks getting involved in this right you can't really bet against that trend and also you have a tremendous growth here right and so if you look at these sites you can see the number of active ethereum addresses over time you can see the tremendous growth you look at this defy pulse site it shows you the total value locked into d5 so you see where it was in 2019 and early 2020 and then you see what's happening in 2021 and so when you're making an investment in a startup you want something that is growing very rapidly and ethereum meets those criteria so why not make a bet here well it's not all sunshine if you've studied the crypto space you you're aware there's tons of drawbacks there's tons of scams if you look the guy that invented dogecoin right he said will he return to cryptocurrency no he thinks it's inherently hyper capitalistic ample amplifies the wealth of its proponents it's not as decentralized as you think it is has a lot of shady business connections influencers financial exploitation and so forth and there's a lot of very very good points here right it's uh when you read about d5 they're like oh we're going to help all the people that are unbanked that don't have access to financial services we're such good people etc etc but when you look behind this there's just all this smart money i just showed you it's tons of people like goldman sachs getting involved visa and andreessen horowitz these are some of the wealthiest people in the world you got folks like uh the the winklev winklevoss twins you got peter thiel is actually the one who uh awarded a vitalik buterin this fellowship to create ethereum itself you got these shady things like bitco bitcloud that are selling people's uh reputations and i don't even think it lets you withdraw your money you got people like tech lead here who are uh releasing their own coins so anyone can put their own coin on uniswap it's hard to really know how to value these types of things are they are they going to rip you off are they going to rug pull you and so forth so there's a lot of confusion and there's a lot of risk involved here and that's probably why you don't want to go all in on crypto so me personally i determined i'm willing to put some percentage of my net worth into cryptocurrency assets and more recently i've determined i'm willing to put in more time into understanding the underlying technology and how to program all of these cool decentralized apps and protocols and i'll be spending a lot of time on the channel talking about this journey as i go so this all brings me back to how to defy so in this video i'm going to focus on part one and part two of the book so part one is all about traditional finance and comparing and contrasting that with decentralized finance part two is all about ethereum and ethereum wallets so part two is called getting into d5 and so this goes over all the terminology related to ethereum and the ethereum network and also goes into ethereum wallets so part three of this book is a deep dive into each category of decentralized financial applications and so each chapter covers a different category so there's an entire chapter on stable coins an entire chapter on decentralized lending and borrowing there's an entire chapter on decentralized exchanges such as uniswap and dydx there's also a discussion of decentralized derivatives such as synthetics and then it goes into decentralized fund management decentralized lottery payments and even decentralized insurance and we conclude with some discussions of various d5 dashboards that lets you that let you track what you're doing across each one of these applications all in one place so let's talk about chapter one which is the traditional financial institutions so one of the best ways to understand defy is to first look at centralized financial institutions and then discuss how d5 is different and so this chapter is focused on the banks so you probably have some interaction with banks in your day-to-day life i have one of these chase sapphire cards that's owned by jpmorgan chase and when i make transactions it has a point system so i gain some points and then i can use those points to transact and earn some travel rewards and buy flights i have a td ameritrade account so this is a centralized stock exchange so i can buy spend 150 and then get a share of apple stock for instance i have a adp right so this is a payroll system so i work at my day job and then every two weeks i get some amount of money and i put some of that money in a vanguard account so that's invested in an index fund which is a basket of different stocks i put some of that money in ameritrade and maybe i'll trade some individual stocks or i'll put some money in interactive brokers which is another centralized exchange and i'll write little trading bots and then show you how i did it and then i also put some money in in places like coinbase or binance.us so these are crypto but they are centralized cryptocurrency exchanges and so chapter one talks about all these large institutions and so these are a multi-billion dollars so jp morgan is probably what worth 300 or 400 billion dollars maybe 500 billion dollars bank of america wells fargo citigroup these are huge huge mega banks that offer so many different services so some of those services would be like i said credit cards uh lending and borrowing so when i bought a house i borrowed a whole bunch of money from the bank and then then you have this agreement to pay them over the course of 30 years i have a physical wallet here and it has some credit cards it has a clipper card and so this has some value stored on it that i use to a ride the bus system i have some physical uh dollars here some some good old us dollars here i can use those to buy myself a drink at the cash bar i can take some of them out of the atm machine i can tip the band and so forth do these have value yes they do because i can exchange them for real goods and services behind all of this right they're still information systems right and so you know when you say crypto has zero intrinsic value what is what does it compare to just because it's a digital a lot of this money is represented in just different information systems and all these systems i interact with are just numbers that are just a score for all the different transactions i've made in my lifetime right and these are just aggregated together in different ways and i can use a site like personal capital to pull all these numbers into one place and get this nice a dashboard of all my transactions and my net worth and how much that money is going up and down right so yeah these banks you know they work out i can live my life and just work with these centralized banks so what's what's the problem why does anyone care right so this right here says d5 seeks to build a better financial landscape made possible by the advent of the internet and blockchain in three areas payment and clearance system accessibility centralization and transparency and a lot of this was motivated by the global financial crisis of 2008 right there was a whole bunch of risk taking going on by these financial institutions one example of a traditional bank that had trouble in the financial crisis was washington mutual here and i actually had a retirement account at washington mutual in early 2008 and i talked to a financial advisor there and she tried to charge like a five percent fee to just put my money in some fund that was essentially no essentially no better than the s p 500 something you could have done yourself right so there were super super high fees for doing this and when i asked about any trouble in 2008 with their finances uh she said yeah you don't have to worry about wamu where we're always going to be here and you know if you look at the history here it was founded in 1889 a 131 years ago and so yeah this seemed like a pretty safe place to put your money but sure enough later that year this this firm had a collapse right and wamu somehow got absorbed into jpmorgan chase right and they consolidated a lot of these banks so so the invention of bitcoin and other cryptocurrencies are essentially a response to this financial collapse so this chapter goes on to point out a few of the problems with traditional finance including payment and clearance system so if you're trying to send money to your friend in another country it could take a long time to process there could be hefty fees it talks about accessibility so there's over a billion people who do not have access to a bank and a lot of them live in developing nations and so you can access these d5 apps just anyone with a smartphone which is a lot more people and then it also talks about centralization and transparency so when a lot of these bad bets were made that led to the financial crisis there were still these credit rating agencies that are giving triple a ratings to high-risk mortgage-backed securities right and so the one of the points of defy is that these protocols are built on top of blockchains such as ethereum that are mostly open source for audit and transparency purposes so all the rules here are defined as lines of code they can be audited you can verify transactions and determine uh what happened and it's verified by multiple parties another thing with traditional finance is how our dollar bills seem to be worth a little bit less and less every year it's because uh when something happens such as the covid crisis we pump billions trillions of dollars into the system and there's just this infinite supply your dollars worth a little bit less every year the cost of housing goes up if you go to a restaurant now you can see how everything cost a little bit more versus five or ten years ago let's see what jerome powell has to say about this simply flooded the system with money yes we did that's another way to think about it we did where does it come from do you just print it we print it digitally so we you know we as a central bank we have the ability to create money uh digitally and we do that by buying treasury bills or bonds or other government guaranteed securities and that actually increases the money supply we also print actual currency and we distribute that to the federal reserve banks or here's what ben bernanke has to say is that tax money that the fed is spending it's not tax money the banks have um accounts with the fed much the same way that you have an account in a commercial bank so to lend to a bank we simply use the computer to mark up the size of the account that they have with the fed so it's much more akin although not exactly the same but it's much more akin to printing money than it is to borrowing so these are all examples of how the traditional financial institutions work and so there were some people out there that decided you know what maybe there's a better way of doing things maybe there are some alternative information systems that we can build that may result in a better system and that brings us to chapter two what is decentralized finance so decentralized finance is a movement that allows users to utilize financial services such as borrowing lending and trading without relying on centralized entities these financial services are provided via decentralized applications dapps in which majority are deployed on the ethereum platform so it's not a single product or company it's a set of products and services that act as a replacement for institutions often called money legos due to its composability so chapter two goes into the overall ecosystem and all the different categories so it gives a big a broad overview of all the categories of d5 starting with stable coins lending and borrowing exchanges derivatives fund management lottery payment and insurance and so i'm going to pull up a couple graphics here to help us go over this let's look at some of these categories and see how all these different applications fit into those categories and let's just pull up a bunch of examples we gave some examples of centralized finance now let's give some examples of decentralized financial applications and so this ecosystem graphic is from looks like about 18 months ago so there's probably a bunch of new ones but you can already see at the end of 2019 this lit this list was quite large so in the top left of this graphic you can see some of the different asset management tools so uh one of the most popular tools you'll see here is metamask and you can see i have metamask added as a chrome extension here so if i click this little icon here in the top right you see it says ethereum mainnet i have an account here so this is my ethereum address you can see i hold a certain amount of ether in my wallet which is currently worth 159 dollars and i bought that in the intro of the video if you watch that i bought that on uniswap right and so i can buy send and swap this shows some of my activity and it shows some assets so you can see i have some ether i have some wrapped ether and i have these us dollar coins here right also in this category you see it we have a trust wallet so i have this trust wallet on my phone and there's some other tools that they grouped under here that we'll go into later so xerion here is a d5 dashboard so if i go to xerion.io what i can do here is connect my wallet to this xerion dashboard and then it aggregates all the different things i've done with my ethereum address right and so if i look at history here you can see the history of all your transactions so you can see where earlier i traded these 100 100 us dollar coins for some ether you can see where i received 250 us dollar coins uh from coinbase so i sent some usdc from coinbase uh and you can see where i tried to buy an nft at some point and then this registry of an ens domain so if i go to etherscan.io and i type in part timelarry.ether i actually have an ens domain here right and it's associated with this particular ethereum address and if i click on that you can see all of my different transactions so you see this uniswap a transaction you see the ens domain you see a meta mask here and you see this wrapped ether right and so you can see all of my different transactions you can see my address and you can also see part-time larry.eth so if you want to send me a payment directly right instead of going through buy me a coffee.com part-time larry which you can do by the way thanks to everyone that supported this goes through paypal which charges a transaction fee but if you want to send me money uh directly you could actually send it to my wallet here you can send it to part-time larry.eth or i'll leave the full ethereum wallet address right here in the description below and so that's an example of how payments work so this xerion application is pretty cool i talked to a lady who worked there and she asked my initial reaction i said yeah it actually reminds me of personal capital because i can track all of my crypto assets in one place so uh this is the total of my assets at least what i've connected here um i can see a history i can invest i can looks like maybe i can claim an nft let me let me do that confirm it says congrats here let's see maybe maybe it'll send me an nft um and then there's an exchange here save borrow and so there's a lot of different services i can access here and it aggregates my transactions so going further so that's some asset management tools and then the next category we have is analytics so i can use a site like d5 pulse here so this is just a an analytics provider so i can see the total value locked in d5 and i see all these different services so i can see uh how popular there they are and there's this daf radar as well so i can see all the most popular decentralized applications the most popular uh games and if nfts like crypto crypto punks uh axey infinity which is some new game uh what are the top sales right so you see this crypto punk did that sell for five million dollars crazy so uh these are just different services that aggregate all these different transactions and you can see to see different trends right um decentralized exchanges so as i mentioned earlier uniswap is a popular example here of a decentralized exchange and so rather than me going through binance right i can go directly through this decentralized exchange and so i've never signed up for an account with uniswap or anything all i did was connect my wallet using metamask and then i can just start swapping so i have ethereum here i have usdc here so i have a 150 usdc in my wallet and i just want to swap it for some particular token let's say i want a little bit more ethereum right and so since i've connected my metamask wallet which is in the browser here and it shows my balance of 150 usdc and so let's say i want to trade usdc for ether or some other coin so i'll do more ether and let's say i want to trade 100 bucks right now for some ether there's my 0.04 ether there and yeah why not allow uniswap protocol to use your udc usdc click that i sign the transaction and i click swap and confirm and i'll confirm that and let's see transaction is submitted it says it's pending and then shortly thereafter i should have a little more ether which will be nice and ethereum has done pretty well i bought some you know when i was about two thousand dollars here and it's up a little bit since then which is cool and it looks like i'm nearing on point one either right so i never created an account with uniswap i never showed them any identification or anything and if you contrast that with when you go to the binance site when i got started and logged in i had to create a new account i had to take a picture of my photo id i had to enter in all this personal information for these rules like know your customer kyc i believe it is and so there's all this information it asks about you that you have to hand over to this centralized institution here whereas uniswap i just connected my wallet and started trading right then right very simple interface here and there's a whole lot of tokens here so i can add i can probably trade all kinds of tokens that are not available on binance and coinbase so coinbase adds tokens over time probably have to pass some approval process which is good in a lot of ways that probably provides some protection against scams but at the same time you know it limits your ability to do things you may want to do which is kind of cool but also a little bit crazy right it feels like a little bit like the wild west these random people meeting up and exchanging these tokens that they could have made up out of thin air under decentralized lending we have services such as a compound finance so i can go to the compound finance site which i've i've never actually used this before but i'm going to dive into this in future videos and i guess i click app here and i can land and borrow right and so let me see do i have my wallet connected here uh yeah let me see if i can connect my metamask wallet and it looks like i'm connected already and so now that this is connected to my wallet you can see uh the ether i have and so i could actually uh lend that ether out or if i had this basic attention token i could lend that out uh and if i have die here looks like i can get an apy of a 2.7 percent and these us dollar coins it looks like i can get a 2 for them so i have 50 usdc right now let me click that and then i'm going to say use usdc as collateral and what did that do did i lend my us dollars am i going to get uh two percent we we will see right that's actually the very first time i've done that so that's one cool thing i can do with d5 is i can just lend some assets and i can get a return i can get a yield here in my bank account right now i get like 0.01 interest or something so there's no point so with this i can lend out my money and get a return and i didn't need to go through some uh centralized bank institution to do that i just went to this interface and clicked a couple of buttons on the other side of this i can borrow some money here so if i want to borrow some chain link tokens or some die i can do that and i think you're supposed to be able to programmatically do borrowing using compound finance so they have these developer apis and resources so i should be able to borrow somehow and i can even make trades on an exchange and then pay the money back and keep the difference and there's a lot of things you can do when you combine all these different financial services together i haven't done any of this stuff yet but i want to learn how and i'm going to share any tutorials on how to do this as i figure it out so just right there we discuss a few of these categories in chapter 2. i used stablecoin so i had some dollars that went from my bank account i put them in coinbase at some point i converted those to usdc which is a stable coin and then i could lend out that usdc and get some interest or i can exchange that stable coin for ethereum the benefit of leaving it as a stable coin is it's more stable it's less volatile right so if i wanted to pay someone you know pay for some food and drink or and whatnot i probably don't want to use ethereum and bitcoin because they fluctuate so much they're more volatile but if its value is pegged to the dollar i can just use it the same as i would a dollar i could send my friend five bucks or i could buy a drink for five dollars and i don't really have to think about it going up or down 20 on any given day we went to compound finance which allows you to lend and borrow i went to uniswap and i exchanged some usdc for ether and i was able to trade from that interface without sending in my id card or submitting my personal information and social security number and all that i just use my wallet directly in exchange usdc for ethereum so this is in contrast to what i do when i use binance or coinbase i need to submit all of this personal information so we'll briefly touch on a couple more categories here so we have derivatives so a derivative is a contract whose value is derived from another underlying asset right so another example of a d5 app is synthetics and so let's let's see what's on here so if i can click uh explore synths you see there's these different categories of synthetic assets and if i click on equities here you can see i can actually buy a token that represents tesla stock or google stock or facebook or apple right so there's all these tokenized assets so that's kind of cool if i can go to a place where i can exchange one crypto for another or one coin for another maybe i'm trading a coin for apple stock and that will open up some new opportunities for me or maybe someone lives in a country where they don't have access to the same investment opportunities they can't buy a tesla stock for whatever reason but they have access to defy and they can buy this derivative token that's backed by actual tesla shares and they can buy and sell that and that gives them exposure because they want to trade tesla stock the next category of decentralized financial applications is fund management so fund management is the process of overseeing your assets and managing its cash flow to generate a return on your investments so when i went to washington mutual in 2008 they had a variety of funds for me to choose from and they said don't worry about it we'll take care of your money well decentralized finance has the equivalent in the form of applications like token sets so token set says it's asset management for a d5 world bring your crypto strategies to life on ethereum so let's explore these different sets they have so if i do explore sets here you see we have a variety of sets of funds i guess we can invest in so there's the metaverse index so that's the trend of entertainment sports business shifting to virtual environments so you can think of things like uh roblox and virtual reality and a lot of people are just saying hey i don't i don't like the real real world anymore i want to live inside of a game and interact with avatars and whatnot uh there's this e2x flexible leverage index i guess if i really believe in ethereum and then it's going to 40 000 right i might as well use leverage and buy this leveraged index fund here so this is kind of the equivalent if i bought a stock index like the s p 500 so i could use the spy etf to buy that but you know if i really have conviction why not be a bit more aggressive and buy spxl which is the uh 3x shares right so just for fun let's check out this metaverse index and what's inside of it so i check that looks like it has a price for the entire index which is 76 dollars looks like it's a bit down off the peak let me look back yeah it looks like it started at about 100 bucks here and so it's down uh and then what does it contain so just like an etf or an index fund you can see the different holdings and their price allocation and so this axi infinity is apparently the top holding and from what i understand this is a popular game right now built on d5 or built on ethereum so i've never played this before i don't know how it works and so if you click around it looks like it's some type of collectible game where you buy and sell these axes here and there must be some token that is underneath all of that so yeah axi infinity it looks like it has a white paper and this is taken off recently and that's why it's a large percentage of this metaverse index and so if i connected my wallet to this application and looks like i can buy and sell this index fund here and so yeah why not let's buy it maybe we can buy it i have 76 dollars so looks like my balance is 0.097 each right now which is 253 dollars so i can afford one of these so why not buy one so let me buy a metaverse index and it says it's .03 each and i have .09 each um which is good so let me do one there and then i'm going to preview the buy and sure yeah why not buy it i'll own some metaverse index so i'm going to submit the buy and i am going to go ahead and confirm here and says my buy order is processing so yeah buy order was completed so if i check my wallet here i click this and i could see activity and it says swap eth for exact tokens and then it says gas limit and units and one thing i just clicked through really quickly i actually got charged like a 19 fee to do that just then so these gas fees are actually quite high so in chapter one we are talking trash about these centralized institutions and how wamu was charging a five percent fee to enter a fund well twenty dollars as a fraction of this uh seventy six dollars here what what is that close to a thirty percent fee just then so you see i paid a total of ninety two dollars to buy something that costs 76 dollars so if you are trading using this system you know you'd be losing money pretty quickly like you start out way underwater so uh this gas fee issue is something that needs to be solved which i think we'll cover in chapter three of this book so you can see what i did just then really quickly was kind of dumb so i wouldn't suggest you do what i did just then but sometimes i like to just buy something and learn my lesson get some skin in the game and i quickly learn from my mistakes and move on so let's talk about the next set of applications so when we're going broke a lot of times we want to gamble a little bit and get some money back so that we can get back on our feet so the next category of decentralized financial applications we have is lottery and so there's sites like pooltogether.com here and so this is an application that lets you join this pool and it says it's an open source and decentralized protocol for no loss prize games so this is a lottery which where apparently i can't lose money so that sounds pretty good to me and so let me click on app here and so you see we have this app and there's all these different uh i guess these are contests or lotteries that are going on and it says uh earn 5.9 apr in the pool earn 14 apr in the pool so it looks like i can deposit my us dollars or deposit my die if i have die into this pool and then i guess how it works is we get this collection of money a lot of people are putting their money in and this money earns some interest rate that builds up over time so i guess after two days pass some amount of interest is earned on this pool of money and a random winner is drawn i assume and that person gets the interest right they win and then everyone else just gets their money back and didn't lose any money so that's kind of cool so i can click deposit usdc and let's say can i deposit uh ten dollars and it says i have a one in two million chance of winning every week so let me connect my wallet here and see if i can make a deposit and sure i will connect that and i'm going to approve that transaction and it says there's a fee of five dollars associated with this transaction i'm going to uh reject this for now so i don't like the idea of buying a ten dollar lottery ticket uh having a one in two million chance of winning and being charged a five or six dollar fee so like a 50 fee to pay so to play so uh this doesn't seem like a very good deal to me yet but i haven't really studied this to see how it works but it's kind of fun i like to gamble and have fun with this stuff and so what i want to do is actually there's a developer section of this site so if i go to pooltogether.com here at the top there's this developer section that says build together and so one thing i think would be kind of cool is to figure out how to build one of these types of applications myself and maybe run a contest of my own and and release that as a tutorial talk about how to create such a thing right so it'd be kind of cool to figure out how you could connect wallets have some money get deposited and then have that earn interest and use some other protocols and then distribute that money to someone and give the rest of the people their money back that seems like a pretty cool programming exercise and an interesting way of learning solidity and other tools that are involved the final category of applications that i'll touch upon here is payments so uh this allows so defy allows some interesting ways of doing payments so there's these sites like sablier which is an example that is given in the book and this says it's a protocol for real-time finance so if you look uh in the bottom right it says a stream has been initiated by your company and payday every day right so when i clock in at mcdonald's i get paid uh 15 an hour but i still have to wait like two weeks to get my paycheck which is which is kind of crazy why do i have to wait two weeks you know i already clocked in you know i worked uh eight hours on my shift why do i have to wait the whole week why can't i just get paid every hour so every hour that i'm on the clock why not send 15 to my bank account and so companies and applications like this they envision a future or even a present where this can happen so this is called streaming payments it looks like even every second you can get some of your money so by building this new financial system that's built on top of code and smart contracts we should be able to make things like this happen where we can get paid uh by the second so these are the types of problems that people are trying to figure out and that pretty much covers uh what i wanted to touch upon in chapter two so that concludes part one of the book and i thought i was going to cover part two in this video but i realize this video is now about an hour long so i'm going to record a new video on part two which is getting into d5 so now that we've looked at all these applications and we've thought about decentralized finance how do you actually build this stuff right and so chapter three and four are on the decentralized layer so it's on ethereum and the code and technology that is underneath all these applications we just touched upon so uh stay tuned for the next video and i will be talking about ethereum dap smart contracts and all these other new terms that we're going to learn about on the channel so thanks a lot for watching and see you in the next video thanks

Channel: Part Time Larry

Views: 9,367

Rating: 4.9506173 out of 5

Keywords: defi, decentralized finance, how to defi, defi applications, defi examples, defi tutorial, defi book, web3, web3py, web3js

Id: UguvomJFqiE

Length: 54min 33sec (3273 seconds)

Published: Sat Jul 31 2021