An expert is a person who has made all the mistakes that can be made in a narrow field.
As we know and are familiar with the concept, crypto is highly volatile. We are always on the move, not to make some mistakes to evade losses. But making mistakes in DeFi is painful and expensive, and no one is eager to teach you.
Here are some mistakes you should avoid making in the DeFi world.
1. You do not have Alpha
Your favorite YouTuber gave you Alpha on a project - then the token price crashes a few hours later.
Sorry, but you appear at the bottom of the food chain. There are;
Builders
VCs/Insiders
Whales
Influencers
You
Always function when adjusting your risks.
2. Not Calculating your VC Dumps
Venture Capitalists get tokens FAR cheaper than we do. And if they decide to dump, the token's price crashes. Understand the token allocations and the vesting schedules.
By the way, I am not saying to avoid any tokens with insiders or VCs. Solana has a ton of VCs and was still a significant investment early on. VCs provide funding, distribution, and advice. This is more art than science, so use your judgment.
3. Chasing High APR Inflationary Tokens
Those 25,000% APY looks great, right? Inflationary tokens crash in value if there is an insufficient utility or cash inflow. Ironically, a 19.5% APY on a Stablecoin has outperformed many of these high inflationary tokens.
4. Ponzinomics
Some projects are pure ponzinomics. Do you know what utility the token has? If not, then chances are that it is based on Ponzinomics. You can still make money with it. Make sure you know how early you are and take profits along the way.
5. Not Taking Profits
It is easy to get caught up in the hysteria of a bull market.
"If this continues for another few months, I will be set for life."
When you start thinking you are a genius – take profits. Use systems and formulas to keep your emotions in check.
6. Understand the Narratives
The narrative is the current market sentiment about a sector or protocol.
For instance, looking back;
Q4 2021- OHM forks were killing it
Q1 2022- OHM forks were dead.
The narrative changed within a few months. Be careful betting against the narrative.
7. Watch Out for Slippage
You are trading $100 worth of X coin for $100 worth of Y coin. You submit the transaction with $80 worth of Y coins. What happened? Slippage.
Many things can happen from when you submit the transaction to its finalizing. As such, choose DEXs with the most liquidity. This is why Curve is so dominant for stablecoins. Additionally, get to adjust your slippage tolerance.
8. Not Calculating Impermanent Loss
You want to farm a liquidity pair. The two tokens must always be in an even 50:50 ratio. What happens if one coin shoots up in value while the other goes down? It is now uneven, and the AMM has to sell tokens to balance it.
Go for coins that tend to correlate together.
Takeaway
DeFi is still a new tech yet to be understood by many. As such, its handling should be with care of. Play it safe when you are starting. Have an understanding that you may know less than you think. Additionally, do not trust anyone blindly.
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