DeFiChain Basics Tutorial

From DeFiChain-Wiki
Revision as of 22:04, 11 March 2022 by Misterpiggie49 (talk | contribs) (Rewriting tutorial, proofreading to be more formal)

Part of a series for DeFiChain Tutorials

This tutorial is designed with easy-to-understand language without complex words or cryptocurrency jargon, for a new cryptocurrency user who has already done their research and would like to invest in DeFiChain.

A Short Introduction

DeFiChain has been designed specifically for decentralized finance, and it has its own blockchain. To make our blockchain stronger, it is connected, in a way, to the Bitcoin blockchain for extra security and safety, as Bitcoin has the oldest and arguably the most secure existing blockchain.

( -- verify below please -- )

The main coin of DeFiChain is DFI,

DFI is the native coin of the blockchain. A native coin is basically the currency of the blockchain. To make some examples, ETH is Ethereum's native coin, and BTC is Bitcoin's native coin. An example of a non-native coin (which is called a token) is SHIB on the Ethereum blockchain. Just to clarify, SHIB is a token. Anything that is not native to a blockchain is a token. All transactions on the blockchain are powered by native coins. So, users must have DFI for transaction fees on DeFiChain, swapping between coins, and more. It can be compared to the euro in the E.U., peso in Mexico, or U.S. dollar in the U.S.; people must have it to interact with the economy.

Here on DeFiChain, we also have non-native coins. We have decentralized tokens (non-native coins) that represent real stocks, 150% backed by people providing collateral, and tokens that represent real crypto and are 100% backed by the real asset. These tokens are like sending around assets in the real world. In the U.S. you pay dollars as fees for sending things around like real estate, stocks, etc, and that is how it is like in DeFiChain. The goal of our community is to make a world of decentralized finance, where everyone can interact with each other without having middlemen such as companies and organizations.

There will be more information about the non-native tokens on DeFiChain in the section titled "The DeFiChain Ecosystem."

( -- verify above please -- )

Other questions/topics that might not be answered in this tutorial may be answered in the following tutorials, but if they are not, here are the official groups/social media of DeFiChain to ask questions and get answers. Please note: Scammers are always present in these groups looking to steal money and personal information. Direct messages should be ignored and blocked. Community mods/admins/support will never start a conversation. Legitimacy concerns can be verified in the official groups if necessary.

How to Obtain DFI

To obtain DFI, there are two main methods.

Here we will describe the advantages and disadvantages of each method.

CakeDeFi

Background

Cake was founded in early 2019 by Dr. Julian Hosp and U-Zyn Chua, who also started the DeFiChain project. Cake's goal is helping users "bake cash flow with crypto while [they] sleep." (cakedefi.com) (verify)

They do also have their own subreddit and Telegram group. These groups cannot provide official support. It has been made clear in their respective groups.

Advantages

  • Founded by same crypto investors as the project itself, so they have a great understanding of the project
  • Largest company involved with DeFiChain
  • Hundreds of thousands of users also use the platform (400,000 according to the website, as of March 2021, cakedefi.com)
  • Versatile platform, offers other services on DeFiChain and supports other coins such as Bitcoin and Ethereum
  • They are offering a $30 deposit bonus on any first deposit of more than $50, incentivizing users to start with them

Disadvantages

  • 4% premium, according to the official DeFiChain website (defichain.com)
  • KYC is required (users need to provide proof of residence and other personal information)
  • Certain locations are prohibited from using Cake, users must ensure they are in an authorized location
  • Fees may be higher than using the blockchain, and withdrawals will take longer than using the blockchain

Registration (more information needed)

The official registration form is at https://app.cakedefi.com/register. Referral codes may enable users to get a larger bonus.

Exchanges

Background

You may have heard of exchanges such as Binance and Coinbase. These are two of the largest centralized exchanges in the world. However, these exchanges do not currently support DFI, so investors will have to use less prominent exchanges if they wish to get DFI using this method. Here a couple typical options the community uses to obtain their DFI:

  • KuCoin (large exchange)
    • The registration link is here. Once again, referral codes may give users certain bonuses, so take advantage of them.
    • Advantages
      • Fees are 0.2% and decrease if you trade significantly more. Users also get a 20% deduction if you pay with their native token KCS. Find more information here.
      • DFI staking is offered, although with much higher fees than Cake.
      • Offers a large variety of cryptocurrencies, allowing users to trade other coins and tokens as well.
      • No KYC is required
    • Disadvantages
      • Failure to complete KYC results in a lower daily withdrawal limit. Unfortunately, it is not possible for U.S. users to complete KYC and become verified as KuCoin is not licensed to operate in the U.S. Therefore, users' funds are at a greater risk should the government crack down on such exchanges.
  • Bittrex (small exchange)
    • Bittrex's registration link is here. They do have referral codes, which may give various bonuses and discounts.
    • Advantages
      • Like KuCoin, there is a large selection of cryptocurrencies available for purchase
    • Disadvantages
      • Fees are higher than at KuCoin, starting at 0.35%

In addition to these traditional exchanges, users may also use DFX.Swiss to obtain their DFI if they have a SEPA bank account. It is a community-run business and also offers other services such as staking and trading of the tokens on DeFiChain. This will be explained more in detail in the sections below. However, their services are available only on their app, and their fees are significantly higher. They begin at 2.9% for low-volume traders and decrease to 2.4%, although there is a 1% discount if you use a referral code.

Advantages

  • May be easier to use and have proven track records for exchanging all types of coins
  • Lower fees than Cake, which sells DFI at a premium of 4%.

Disadvantages

  • Exchanges are not as familiar and do not specialize in DFI

There are other methods of obtaining DFI, as this list is not all-inclusive, but they are not important and not of benefit for beginners to understand at the moment, and many users do not use alternative methods anyways. The two methods above are the most common and almost only ways of obtaining DFI.

The DeFiChain Ecosystem

The DeFiChain Ecosystem is the economy or system of DeFiChain. Just like a country has an economy, blockchains have ecosystems.

Unlike Bitcoin's blockchain, which only has the native coin BTC, DeFiChain has its native coin DFI as well as tokens.

Tokens

There are really two types of tokens on DeFiChain. One type can be made by anybody, but users have to pay a fee to make them. The fee is currently 1,000 DFI as of 11 March 2022. However, the fee is returned when returning the tokens. These tokens are not significant to understand, and there is no not need to pay much attention to them, as the majority of users do not use them. It is only important to know that when there is a wallet with seemingly random tokens, they are most likely part of this type. These tokens have no monetary value or use in DeFiChain, with possible exceptions for token holders.

The other type of tokens are known commonly as dTokens. These are very important to DeFiChain. In DeFiChain and its DEX, or decentralized exchange, there are tokens labeled as dBTC, dETH, or even dSPY, and dQQQ. As a beginning user, they may notice that they resemble some assets, but they have a "d" in front of them.

These tokens must be backed with collateral before they can be made (the official word is "minted") and introduced to the network. The tokens have a "d" in front of their name because they are not the real coin or asset. dBTC cannot be sent and sold to Binance, and dSPY cannot be sent to Robinhood to get U.S. dollars. They are tokens that exist only on the DeFiChain network so that investors can invest in crypto and in stocks and ETFs and keep everything in their wallet on DeFiChain.

With this concept, investors can make a portfolio that is almost completely decentralized. No exchange or platform holds your stocks and crypto, but can be put in a cold wallet for security. Investors could buy some dSPY, dAMZN for stock exposure and dVNQ for real estate exposure, then buy some dTLT and dGLD for bonds and gold exposure, then add dBTC and dETH so they can diversify your crypto holdings, leave cash in DUSD, the DeFiChain stablecoin, and then have some DFI, which has a maximum supply of 1.2 billion.

-- verify this table, may be considered subjective --

Traditional Brokerage (example: Fidelity) Fintech (example: Robinhood) CEX (example: Binance) DEX (example: Uniswap) DeFiChain
Decentralized ❌ ❌ ❌ ✅ ✅
Security and Reliability ✅

Been around for decades

✅

Has less of a track record

❌

Often criticized for hacks, seen as sketchy

❌ ✅ Although less of a track record, anchored to Bitcoin and assets are backed up by at least 100% of their value
Trade derivatives ✅ ✅ ✅ ❌ ❌

In progress, not yet available

Trade stocks ✅ ✅ ❌ ❌ ✅
Trade bonds and commodities ✅

Usually available

✅

May be available

❌ ❌ ✅

Available, but with a smaller selection

Trade big cryptocoins (BTC, ETH) ❌ ✅ ✅ ✅ ✅
Trade cross-chain cryptocoins ❌ ✅ Depends ✅ ❌ ✅ Not the actual asset itself but its tokenized version
Trade smaller altcoins ❌ ✅ Highly Limited (25 or less) ✅ Moderately Limited (100-200 or less) ✅ ✅ Highly Limited (only a couple, but it is being worked on)
Potential to use assets for extra cashflow and/or rewards ❌ ❌ ✅

Limited selection due to regulation

✅ Staking/Liquidity Mining/Others ✅ Staking/Liquidity Mining

Common Topics of Confusion

There are many ideas, concepts, and topics that may be confusing to beginners and average users. Here we will go through some of them, and remember, feel free to ask more questions in the official social media groups that were listed at the beginning of the article.

UTXO (more information needed) (verify)

DeFiChain uses the unspent transaction (tx) output model, or UTXO. There are two types of DFI, UTXO and token. UTXO DFI can be spent (sent to another wallet) through the blockchain; it is a user's available balance. The other form of DFI, token DFI, is received in liquidity mining. Because in every block, which occurs approximately every 30 seconds, rewards are distributed to liquidity providers, creating tons of UTXO transactions would be inefficient, spamming the blockchain with transactions, and raising the cost of a transaction that would make it unprofitable to liquidity mine. So, rewards are instead distributed by token, which does not include a transaction fee. Token DFI must be converted to UTXO DFI before it is possible to send any DFI.

This concludes the DeFiChain Basics Tutorial. On our next tutorial, the DeFiChain Intermediate Tutorial, we will go in depth about getting cashflow (rewards)

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