PRL's short guide to DeFi

This is the condensed form of our "Beginner's Guide to DeFi," which you can read here.

Setting up your wallet

1. Buy a Ledger hardware wallet. The most secure approach is to buy a brand new one directly from their website (https://www.ledger.com/) and not from a distributor like Amazon, not using your real name, and have it delivered to a P.O. Box or another location that is not your home address. The names and addresses from any retailer are targets for hackers—you should not want anyone knowing you own crypto!

2. Follow Ledger's device setup instructions for Ethereum. Make sure to enable smart contract data transactions.

3. Security: Keep your Ledger Live password, your Ledger PIN, and your secret phrase in a secure location. The secret phrase sheet (containing 12-24 words) can regenerate the private keys inside the Ledger device, and should be store in a safe or bank deposit vault.

4. Register for a Coinbase account and buy ETH.

5. Complete Coinbase's additional KYC/AML requirements to allow you to transfer digital assets off their exchange and to a personal wallet.

6. Transfer some ETH to your ledger.

   • https://help.coinbase.com/en/more/coinbase-wallet/sending-and-receiving/how-do-i-move-assets-between-my-coinbase-wallet-and-my-coinbase

7. Add the Metamask Chrome extension. Create a Metamask account and add your wallet to the Metamask account.

   • https://metamask.zendesk.com/hc/en-us/articles/360020394612-How-to-connect-a-Trezor-or-Ledger-Hardware-Wallet

8. Security: Store your Metamask password and secret phrase in a secure location. Ideally, you will not keep any assets on the Metamask wallet between sessions, and only use Metamask as means to transact from your hardware wallet.

9. Once your Ledger is linked to your Metamask, go to any DeFi DApp and experiment with small sums to get started!

Connecting to DeFi

The following diagram outlines the essential steps to use DeFi—your hardware wallet is used to sign transactions and secure your assets. The Ethereum network hosts smart contracts, which are fully open-source, transparent programs running on a decentralized network of computers. Anyone can examine smart contract code and understand the outcome of their transactions—this transparency, speed, security, and rules-based behavior is what makes DeFi so appealing, specially compared to the traditional financial system. DeFi's core ethos is "code is law" — bankers or financiers cannot obfuscate how their products work, and there are no courts or legal systems to bail anyone out.

You can interact with smart contracts directly, although that is difficult. A more common approach is to access the smart contracts through various "front ends" hosted by various project teams. Using Metamask, which is just one of many wallets, you can connect to the these decentralized applications (DApps), whose "back-end" plugs into the smart contracts for you.