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CONTENTS

Introduction 1

Part One: State of DeFi 3

Chapter 1: Defi Snapshot 4

DeFi Summer 2020 4

DeFi Ecosystem 7

Rise of Gas Fees 8

DeFi is Going Mainstream 10

Recommended Readings 11

Chapter 2: DeFi Activities 12

Yield Farming 12

Liquidity Mining 13

Airdrops 15

Initial DEX Offerings (IDO) 16

Initial Bonding Curve Offering (IBCO) 16

Liquidity Bootstrapping Pool (LBP) 17

Initial Farm Offering (IFO) 17

Yield Farming: Step-by-Step Guide 18

Associated Risks 24

Conclusion 24

Recommended Readings 25

Part Two: Evaluating DeFi Sectors 26

Chapter 3: Decentralized Exchanges 27

Types of DEX 28

Automated Market Makers (AMMs) 29

What are the existing types of AMMs out there? 31

How are prices determined on a Constant Product AMM? 33

The Various Automated Market Makers (AMMs) 35

Uniswap 35

SushiSwap 37

Balancer 40

Curve Finance 41

Bancor 43

What are the differentiators between the AMMs? 44

I.

 Pool Fees 44

II.

 Liquidity Mining 45

III Pool Weightage 46

How to DeFi: Advanced

Associated Risks of using AMMs 47

I.

 Price Slippage 47

II.

 Front-running 49

III.

 Impermanent Loss 51

Notable Mentions 53

Conclusion 53

Recommended Readings 54

Chapter 4: DEX Aggregators 55

DEX Aggregator Protocols 56

1inch Network 56

Matcha 58

Paraswap 59

DEX Aggregator’s Performance Factors 60

Which DEX Aggregator offers the most value? 61

Associated Risks 63

Notable Mentions 64

Conclusion 64

Recommended Readings 65

Chapter 5: Decentralized Lending & Borrowing 66

Overview of Lending & Borrowing Protocols 67

Compound 67

Maker 69

Aave 70

Cream Finance 71

Protocols Deep Dive 72

Assets Supported 72

Revenue 73

Total Value Locked (TVL) 74

Utilization ratio (Borrowing Volume/TVL) 75

Lending and Borrowing Rates 76

Lenders 76

Borrowers 77

Associated Risks 78

Notable Mentions 79

Conclusion 80

Recommended Readings 81

Chapter 6: Decentralized Stablecoins and Stableassets 82

Centralized Stablecoin 83

Tether (USDT) 83

Decentralized Stablecoin 84

DAI 84

How do we resolve the stablecoin issue? 85

How to DeFi: Advanced

What are Algorithmic Stablecoins and Stableassets? 86

Rebase Model 87

Ampleforth 88

Seigniorage Model 88

Empty Set Dollar 89

Basis Cash 90

Frax Finance 91

How has Algorithmic Stablecoins fared so far? 92

Why has FRAX succeeded? 93

The Next Generation of Algorithmic Stablecoins and Stableassets94

Fei Protocol 95

Reflexer 96

Float Protocol 97

How will these new Algorithmic Stablecoins and Stableassets fare?

99

I.

 Collateralization 99

II.

 Trader Incentives/Disincentives 100

III.

 Emergency Powers 100

Associated Risks 101

Notable Mentions 101

Conclusion 102

Recommended Readings 103

Chapter 7: Decentralized Derivatives 104

Decentralized Perpetuals 104

Perpetual Protocol 105

dYdX 106

Comparison between Perpetual Protocol and dYdX (Layer 1)

108

Notable Mentions 109

Decentralized Options 109

Hegic 110

Opyn 111

Comparison between Hegic and Opyn 112

Notable Mentions 113

Synthetic Assets 114

Synthetix 114

UMA 116

Comparison between Synthetic and UMA 118

Notable Mentions 119

Associated Risks 119

Conclusion 120

Recommended Readings 120

How to DeFi: Advanced

Chapter 8: Decentralized Insurance 122

What is Insurance? 122

How does Insurance work? 123

Does Crypto need Insurance? 124

DeFi Insurance Protocols 124

Nexus Mutual 124

Type of Covers 124

1.

 Protocol Covers 125

2.

 Custody Covers 125

Cover Purchase 125

Claim Assessment 126

Risk Assessment 126

Token Economics 128

Wrapped NXM (wNXM) 128

Protocol Revenue 129

Armor Protocol 129

arNXM 130

arNFT 130

arCORE 130

arSHIELD 131

Claim 131

Protocol Revenue 131

Cover Protocol 132

Type of Covers 133

Cover Purchase 133

Claim Assessment 134

Risk Assessment 134

Protocol Revenue 135

Comparison between Nexus Mutual and Cover Protocol 135

Capital Efficiency 136

Covers Available 136

Claim Payout Ratio 137

Associated Risks 138

Notable Mentions 138

Conclusion 140

Recommended Readings 141

Part Three: Emerging DeFi Categories 142

Chapter 9: Decentralized Indices 143

DeFi ETF Landscape 144

Index Cooperative (INDEX) 145

Indexed Finance (NDX) 146

PowerPool Concentrated Voting Power (CVP) 147

How to DeFi: Advanced

Comparing the Protocol Indices 147

Protocol Fees 148

Protocol Strategies 149

Fund Weighting 150

Associated Risks 152

Notable Mentions 153

Conclusion 154

Recommended Readings 154

Chapter 10: Decentralized Prediction Markets 155

How do Prediction Protocols work? 156

Market-Making 156

Resolution 157

Prediction Market Protocols 158

Augur 158

Omen 160

What are the other key differences between Augur and Omen? 161

Associated Risks 163

Notable Mentions 163

Conclusion 164

Recommended Readings 165

Chapter 11: Decentralized Fixed-Interest Rate Protocols 166

Overview of Fixed Interest Rates Protocols 168

Yield 168

Saffron.

Finance 170

Horizon Finance 171

Which FIRP should I use? 173

Associated Risks 174

Notable Mentions 175

Conclusion 176

Recommended Readings 176

Chapter 12: Decentralized Yield Aggregators 177

Yield Aggregators Protocols 178

Yearn Finance 178

Vaults 179

Strategies 179

Yearn Finance Partnerships 180

Alpha Finance 181

Badger Finance 183

Harvest Finance 184

Comparison of Yield Aggregators 185

Associated Risks 186

Notable Mentions 186

How to DeFi: Advanced

Conclusion 187

Recommended Readings 188

Part Four: Technology Underpinning DeFi 189

Chapter 13: Oracles and Data Aggregators 190

Oracle Protocols 191

Chainlink 191

Band Protocol 193

Data Aggregators 195

The Graph Protocol 195

Covalent 198

Notable mentions 199

Associated Risks 200

Conclusion 200

Recommended Readings 201

Chapter 14: Multi-Chain Protocols & Cross-Chain Bridges 202

Protocols and Bridge Overview 203

Ren Project 203

Lock-and-mint 204

Burn-and-release 204

Burn-and-mint 204

ThorChain 205

Binance Bridge 208

Anyswap 209

Terra Bridge 210

Notable mentions 211

Associated Risks 211

Conclusion 212

Recommended Readings 213

Chapter 15: DeFi Exploits 214

Causes of Exploits 215

1.

 Economic Exploits/Flash Loans 215

2.

 Code in Production Culture 215

3.

 Sloppy Coding and Insufficient Audits 216

4.

 Rug Pull (Inside Jobs) 216

5.

 Oracle Attacks 217

6.

 Metamask Attack 217

Flash Loans 218

What are Flash Loans? 218

Usage of Flash Loans 219

Flash Loan Protocol: Furucombo 220

Case Study: bZx Flash Loans Hack 221

How to DeFi: Advanced

Flash Loan Summary 223

Solutions 224

Internal Insurance Fund 224

Insurance 224

Bug Bounty 225

Other Possible Solutions 225

Tips for Individuals 225

Don’t Give Smart Contracts Unlimited Approval 225

Don’t Give Smart Contracts Unlimited Approval:

Step-by-Step Guide 227

Revoking Unlimited Approvals from Smart Contracts 230

Use a Hardware Wallet 231

Use a Separate Browser Profile 231

Separate Browser Profile: Step-by-Step Guide 232

Conclusion 234

Recommended Readings 235

Chapter 16: The Future of Finance 236

How Long Before Institutions Build on These Networks? 237

Where Does This Take Us in the Next 5 to 10 Years? 238

Closing Remarks 240

Appendix 241

CoinGecko’s Recommended DeFi Resources 241

Analytics 241

News Sites 241

Newsletters 242

Podcast 242

Youtube 242

Bankless Level-Up Guide 243

Projects We Like Too 243

Dashboard Interfaces 243

Decentralized Exchanges 243

Exchange Aggregators 243

Lending and Borrowing 243

Oracle and Data Aggregrator 244

Prediction Markets 244

Taxes 244

Wallet 244

Yield Optimizers 244

References 245

Chapter 1: DeFi Snapshot 245

Chapter 2: DeFi Activities 246

Chapter 3: Decentralized Exchanges 246

How to DeFi: Advanced

Chapter 4: DEX Aggregators 248

Chapter 5: Decentralized Lending & Borrowing 249

Chapter 6: Decentralized Stablecoins and Stableassets 250

Chapter 7: Decentralized Derivatives 251

Chapter 8: Decentralized Insurance 252

Chapter 9: Decentralized Indices 253

Chapter 10: Decentralized Prediction Markets 254

Chapter 11: Decentralized Fixed-Interest Rate Protocols 255

Chapter 12: Decentralized Yield Aggregators 255

Chapter 13: Oracles and Data Aggregators 256

Chapter 14: Multi-Chain Protocols & Cross-Chain Bridges 256

Chapter 15: DeFi Exploits 257

Chapter 16: DeFi will be the New Normal 257

Glossary 25