Are you thinking about trying DeFi now that centralized crypto exchanges and lending platforms have killed your trust? Read these tips before you get started.

Did you lose money on FTX? Celsius? Voyager? BlockFi? Are you interested in having a responsible portion of your portfolio in a new financial frontier based on technology and rules? Do you like the concept of having your wealth accessible 24 hours a day and without institutional constrictions?

Are you interested in getting started in what will probably be a multi-trillion-dollar market before everyone starts using it? If you are forward-thinking and mildly savvy, DeFi presents a tremendous opportunity in its current state.

Getting started in DeFi can be challenging. There’s an extremely high probability your friends, family members, or co-workers don’t understand DeFi. So, what resources online can you trust? And we are dealing with real money here. Nobody wants to lose money they worked hard for.

But that’s why you are doing your research. You are intrigued by this new financial concept and its opportunities. And this article is a great place to start. I’ll share some of the best tips I wish I had known before jumping into DeFi nearly two years ago.

Tip #1: Security is the most important thing!

DeFi is much different than traditional finance because you are 100% responsible for the safety of your funds. For example, imagine you mistakenly give a scammer your credit card number over the phone, and they purchase a new set of tires for their SUV. You get your credit card bill and say, “Hey, I didn’t spend $2000 on a new set of tires!”

You should call your credit card company. They will cancel your card, confirm the fraudulent charge and remove it from your bill. This is not the case with DeFi. If you make a mistake, you can lose everything in your wallet. And there’s usually no way to get it back. These are high stakes; ultimately, you are responsible for your crypto assets.

Here are some essential security tips, but it’s a good idea to do a security deep dive before getting started.

Tip #2: Start with a small amount of crypto when trying something new

You don’t have to send colossal crypto amounts when you get started. You may have to pay a little more in fees, but it’s essential to understand how and if things work.

You can do many things with DeFi, like lending, borrowing, farming, staking, bonding, gaming, buying and selling NFTs, swapping, bridging, and even using derivatives and options. Start with small amounts to test that you can withdraw your funds and have a complete understanding of how the protocol works.

For example, when I first used a lending protocol, I tried being clever and looping funds. This is a risky maneuver, and I used more crypto than I should have. As a result, when my position was liquidated, I thought I had been hacked. In reality, I didn’t have a strong understanding of how the platform worked. I lost a lot of money in fees for this experiment.

Tip #3: Assume every stranger who contacts you on a public platform is a scammer

Unfortunately, there are a lot of nasty people in the finance market. And since DeFi is a new concept to all of us, it’s easy for someone with a little more knowledge than you to scam you out of your funds.

Telegram and Discord are good resources for learning about projects and finding other people with similar crypto interests. Unfortunately, they are a cesspool for scammers. These scammers will often direct message you and impersonate admins, group leaders, or anyone credit-worthy to try and gain your trust. If the person is a stranger and contacts you, assume they are trying to scam you.

Unfortunately, we have to be vigilant. When I started in DeFi, I was on Telegram, and someone sent me a link with a form to enter my seed phrase. I almost did it, and that would have been a multi-thousand-dollar mistake.

I even recently got scammed from an article I read on Medium. I wrote about it here: How Reading an Article Lead Me to Lose $1000 in 1 Minute. YouTube is also filled with scams. Some bright red flags are strangers offering you technical assistance, ways to get free crypto, or someone asking you a question that is none of their business, like, “What kind of wallet do you have?”

Tip #4: Continually learn and try new things

This is a new space with new opportunities. Some options can be highly profitable, and others will lead you to heavy losses. Try to determine your risk profile and make rules for how much you are willing to risk on any project.

Question articles or videos that are promising insane returns. I have written articles about shiny new platforms promising unreal returns; some have provided insane returns, while I’ve lost all my money in others. Nearly everyone in DeFi has lost money on some project, so accept that, like most investments, you will make mistakes and recognize losses.

On the other hand, some investments can provide returns beyond your wildest imagination. I remember first reading about Bored Ape Yacht Club NFTs and thinking the writer was insane for spending $15,000 worth of ETH on buying one. Within months, it increased in value by 20X! Boy, was I wrong about that writer being insane?

Tip #5: Join the community and have fun!

DeFi doesn’t have to be a solo sport. There’s a good chance that people in your circle aren’t involved or maybe haven’t even heard of DeFi. But the DeFi community is generally optimistic and helpful, and you can learn a lot about projects, strategies, and lessons from others.

It‘s fun to be a part of a team. And team DeFi is filled with people who want control of their finances and are embracing new technology, opportunities, and ideas to make a better financial life for themselves. Typically, DeFi is a game where investors win together and lose together.

You can find strong DeFi and crypto communities on Twitter, Reddit, Telegram, and Discord.

Key Takeaways

I know I’ve written a lot about the pitfalls of DeFi with these tips. I have focused on these because it’s no fun losing your money when you can prevent it.

If you want to stay invested in crypto and not use DeFi, you become reliant on centralized exchanges and platforms. Unfortunately, 2022 has been a year that has taught us that corporate suits in crypto are just as bad (and sometimes worse) than corporate suits in devious companies.

DeFi has a bright future ahead. It offers a freedom that is hard to describe if you haven’t used it. And, if it continues growing like the rest of the crypto market, it will prove to be one of the best ways to build wealth in our digital tomorrow.

Do you have any tips for DeFi newbies? Do you disagree with anything I’ve written here? Share your thoughts and feedback in the responses.

This article isn’t financial advice, and I am not a financial advisor. It is strictly my opinion. DeFi and crypto are high-risk investments. I am someone who wants to maintain and grow my wealth so that I can provide a good livelihood for my family and myself. So do your research before making any investments.