Decentralised Finance (DeFi), common mistakes new users should avoid!

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The most common problem new users face in decentralised finance is the lack of balance in native network tokens. For 1-inch DApps, Ethereum, Binance Smart Chain (BSC), Polygon, Ethereum, and Arbitrum networks are supported, and a fee called gas fee is required to transact on each network.

Gas costs are transferred to the corresponding network miners (block producers) and must be paid in native network tokens. If there is no native token in the wallet to pay for gas, the transaction itself will not proceed.

What is a Native Network Token?
A native network token, refers to a token used as the underlying currency of the chain.
Ethereum: ETH
Binance Smart Chain: BNB
Polygon: MATIC

Before a transaction can be made using a specific token, it is necessary to approve and unlock that token. The token approval operation is considered the industry standard on all decentralized exchanges and serves to prevent smart contracts from accessing the user's wallet without the user's permission.

Token unlocking is a task that grants the right to use the tokens you have in your wallet to the smart contract of the DeFi protocol you are currently using.

Although some users find this inconvenient and cumbersome as they have to pay additional gas fees for authorization and unlocking, this is an important security measure to help them safely manage the assets they hold in their wallets.

Many users make the mistake of sending tokens to a chain that does not support the corresponding token because they use a metamask or mobile wallet that supports multi-chain.

There are tokens that support all different chains, but in general, most tokens only work within a specific network, and if you send a token to another network, you will not be able to find it.

Before making a transaction, please double check that your wallet is compatible with the network you want to transfer your tokens to, and that the correct network is selected.

When exchanging tokens in liquidity pools, there are cases where the price (ratio) is very unfavorable to users. The most typical example is that when users want to exchange large assets despite not having enough liquidity in the token pool they want to trade, the price volatility becomes very high.

A significant change in the exchange rate (price) when exchanging tokens is called price impact, and price impact has a direct correlation with pool Liquidity. Therefore, before trading tokens in the liquidity pool, it is imperative to ensure that there is sufficient liquidity and that no adverse price (ratio) is applied to the transaction.

Many users see new altcoins whose prices are skyrocketing, and often invest in tokens of projects that are just being launched or in so-called coin shares with a low price per piece to make a big profit.

However, a sharp rise in token price is often a trap for a certain force's pump-and-dump operation, or a short-term rise from a popular influencer's promotion. In this case, the price of the token may be cut in 5 pieces or 10 pieces within a few hours if it is short or a few days if it is as long as it is short.

There are still many fraudulent projects in the digital asset (cryptocurrency) scene that aim to extort the assets that users have diligently accumulated. The best way to avoid falling for these scams is to DYOR your own project.

These are typical types of problems experienced by newcomers to the world of DeFi. In the DeFi ecosystem, all responsibility and authority rests with the individual user, so we need to study and protect our assets on our own.

Posted Using LeoFinance ^Beta