Jul 132020
Trading Defi tokens

Here is a guide to buying “DeFi” tokens like $COMP, $BAL, $CRV, $REP, $AAVE, $KNC, $BNT, $LRC, etc. without having to go through KYC or time-consuming registration processes.

Decentralized Finance, or “DeFi” for short, has seen an emergence on Ethereum over the last few months. Many investors are now looking to get exposure to this area via DeFi tokens. Several tokens like COMP from Compound, a lending protocol, and BAL from Balancer, an automated market maker, currently trade at valuations of over $1 billion (fully diluted marketcap).

If you don’t care about KYC or prefer using a centralized exchange, go with the ones that are most trusted, like Coinbase. Coinbase actually lists a lot of these DeFi tokens like KNC, COMP, etc. In fact, Coinbase listed COMP even before Binance did!

You may of course be familiar with many “Decentralized Exchanges” or “DEXes” for short, like Uniswap, Kyber, Balancer, etc. However, we don’t recommend going through these to get the best price. This is because at any given time, there is price variation between them. Also, there are nuances, such as Uniswap V1 vs. Uniswap V2. Finally, there are exchanges that you may not know about or forget to check.

Instead, we recommend going through an aggregator because it can not only find you the best price but also the best way to route the order. If your order is large, it would get the best price when you use multiple exchanges and orderbooks in one transaction. In addition, aggregators are able to use exchanges like Bancor that may be restricted in your country (like the US).

Among all the aggregators we’ve reviewed, we recommend going through 1inch. The team is highly competent technically (they find smart contract bugs in other projects!) and they deliver at a high speed. They also build new amazing features like the Pathfinder which can compute order routing and paths that other aggregators can never find (such as multiple hops to get to your desired output currency)

Step-1: Go to 1inch exchange and connect your Web3 wallet like MetaMask. Here is what it looks like – specifically, take note of all the exchanges that they connect to.

Step-2: Enter the tokens you with to buy, and with what token. This is where 1inch shines. Here, I am trying out a test trade to sell 200 COMP for LEND. 1inch gives me 145,068 LEND for this trade whereas the best individual exchange, Uniswap, only gives 141,053 LEND.

Why this difference? You can see when you hover over the Pathfinder algorithm

As you can see, this is a fairly sophisticated order routing that would be quite hard if you were to manually try to do this.

Step-3: Just hit ‘Swap Now’ and you’ll be all set. You may need to ‘Unlock’ your tokens for trading, which is something you need to do for any DEX trading ERC20 tokens.

1inch actually gives you the option to unlock the exact amount of tokens or ‘infinite approval’. If you’re security minded or trade large volumes, take the first option because if you take the second option, you are taking on smart contract risk (the 1inch smart contract will have authorization to spend infinite COMP on your behalf in this case). Exchange like Uniswap only allow for infinite approvals, so 1inch is a step up for security. However, the downside is you need to approve tokens every time you trade. If you trade often, infinite approvals might just be the way to go.

This is how you get the best prices for DeFi tokens and trade these without worrying about KYC and your identity getting stolen in an exchange hack.

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