Welcome to the DeFi Masterclass. I’m Rick, the DeFi Guy. Today we’re going to be talking about protecting your assets. We’re going to touch on a little bit of centralized exchanges versus decentralized exchanges. We’re going to talk about the different ways to secure your crypto in your wallet, what you can do to protect the security of your wallets, whether you use the Binance wallet or the Phantom Wallet or Trust Wallet or SafePal, MetaMask, whatever. They kind of all work in a very similar fashion, either a 12-word or 36-word phrase or a private key. You definitely want to follow some simple steps to protect yourself and protect your digital assets, because even these major centralized exchanges have hacks.
Now, without getting too deep into how they got hacked, the reality is they are getting hacked, and billions and billions of dollars worth of digital assets are being stolen and sold off, and it hurts everybody as a whole. Looking back early throughout the year, a lot of these crazy bridges have been hacked related to minting functions and overflow, underflow. I mean, even a simple code, a simple line in a code of a contract can make you susceptible to exploits, and unfortunately, you see that quite a bit. Crypto is a very young emerging, I guess you would call asset class. People are saying that crypto is on the verge of mass adoption. I truly believe that it is. We just look at Polygon getting this massive partnership with Meta and Instagram for their NFTs.
BlackRock is starting to invest and starting to buy companies that sell digital assets, either NFTs or exchanges themselves. BlackRock just invested huge capital into Coinbase about three months ago, and BlackRock, as you know, if you don’t know, they are one of the largest financial institutions and commodity institutions in the world. They have their hands and their money into everything, so if that is a sign of the times, I don’t know what is.
While that is all going on, while all of these amazing things are happening and crypto is growing, last year we had, I don’t know, less than 10,000 projects, and now we’re looking at CoinMarketCap is showing over 24,000 projects. Unfortunately, there’s a lot of scams out there, so we’re going to get into that too. Talking about when you look at a project, Strat has moved up to number four by the way. When you look at a project, you look at the number of transactions and you’re looking at the blockchain itself. You want to look at the blockchain and see the number of transactions to the holders. You want to take that average number so you can see health in the project. And that’s one of the indicators that a lot of people kind of overlook. So when you’re protecting your assets and you’re investing in something or you’re just holding it, this is where these classes can really help you kind of protect yourself from falling into a scam or leaving yourself open to exploits or hacks.
One of the first things you can do when you’re looking into a crypto project is you got to figure out how you get your money into crypto from the start. Unfortunately and fortunately, centralized exchanges kind of make that easy for you. You can go from your bank into a centralized exchange. They do generally have higher fees, but they make trading usually a lot easier. You get your major layer ones and then you move into DeFi. You want to send those tokens or those digital assets into a wallet. And it’s very important that you do that because if you look at what’s happening, one of the largest exchanges, FTX, finished their filing for bankruptcy just this morning, so centralized exchanges are not immune to economic collapse.
DeFi is a little bit more, we’re deep into the layer. There’s always risk with volatility, but if a project is being traded and there’s healthy liquidity and the liquidity’s growing and the trades are happening, you have essentially a store of value with hope and excitement and technology, so that’s one of the things you want to make sure you’re looking at. You use a centralized exchange to get your money into crypto and then you send it to a wallet.
But first, to get a wallet, you got to download a respectable and trusted software. Just looking at the big three that I personally use, I’ve used Binance as well, but here in the US it’s a little tricky. I use Trust Wallet, SafePal, and MetaMask. MetaMask is one of the biggest ones. It’s what all of the developers are effectively using on pretty much every major network. It’s very simple, and that kind of makes it challenging in some ways to use it because of how simple it is. It is just the core base of crypto. You have to load up your RPC, the network that you want to trade on, and then you have to get all that data so that you can connect to that network.
So you want to make sure that when you get that information, you get it from the source. Binance is a great source. Binance is the largest exchange in the world for crypto. They have some of the best information out there related to pretty much everything. They talk about impermanent loss. They talk about everything. They walk you through loading the RPCs for the different networks to trade on because they themselves trade just about every asset. And that goes to looking at a solvent project that, a healthy project, that is something that you can invest in.
So when you’re looking at this stuff, you want to make sure that they’re not just a one trick pony. Like FTX, they just claimed they had all of this money and all of this action. When looking at the bankruptcy report, they were actually just moving money around. They were fractional banking. And that is, as we’ve been discovering, a major, major problem in the financial world. Banks just move money around and claim that they have this massive ledger. When it’s time to do a bank call, they actually don’t have the money and investors get screwed. People holding their money with those banks get screwed, and that’s exactly what happened to FTX.
Now, when you compare FTX to Binance, you want to see transparency. Transparency is one of the biggest things when investing in a project. And not just a project but a company or an exchange or a decentralized exchange. A lot of you guys already know this, I’m just kind of going through this stuff, but when you’re looking at a project or a company, you want to see how transparent they are. You want to make sure that the face of the project is always there, giving updates. You want to see crystal clear information related to what they have for assets, how much trading volume that they can handle, influx of markets. You want to make sure that they actually have the money that they say is moving through their exchange.
That’s so great about DeFi, you can’t fake that stuff, and blockchain shows you all of that. You can see how much liquidity. You can see if it’s locked. You can see the trading. You can see how many holders. That’s the beauty of blockchain. And those are the things that you want to look for when you’re looking at a crypto project or even a company. Binance, like I said, I really like Binance, and that’s one of the reasons because of how transparent they are. They tell you how many users. They give us weekly reports. They tell us how many users are staking on their nodes. They show you all of the capital that is flowing into those nodes being held by those nodes for staking for the beacon chain.
And then of course they tell you the payouts. They have their ledger completely transparent. This is one of the reasons why Binance, in my opinion, will probably stand the test of time, because they just have a brilliant system of transparency and an economic structure that just makes sense. And honestly, everybody should kind of follow that economic structure, which of course we are doing too in some ways.
Now, when you’re looking at high risk investments, it goes back to looking at the blockchain, looking at their lock liquidity, looking at the number of holders, looking at the wallets that are actually trading. If you see just one wallet trading, one wallet trading in and out, they are faking actions to draw you in, to get you to FOMO, and that’s one thing that you want to definitely stay away from. Now, if they have a lot of transparency, then you can kind of weigh those concepts. Is the proprietor of the project very cool and very informative and very transparent with all the things going on? If they’re like that, but yet their trades aren’t there, well maybe they’re just trying to get that initial investment to get people excited and then they’ll let it grow intrinsically, so it’s a balancing act.
So as an investor, what you can do is at least secure your wallet, make the choices. That’s the beauty of DeFi. You have so many choices and you’re not bottlenecked into one asset, you’re not bottlenecked into one network. And again, that comes down to the technology. You look at the technology. You see is the technology there where it can make trading easy for me and anyone that I bring into this project? Does it actually have use case? Does it have cool functions, whatever, whatever? Those are all part of securing your assets. Because if you make a poor investment, well then you lose. You could lose all the money that you put in.
So that goes back to doing the research and looking for transparency and looking at the number of transactions and just putting all that information together and ask people, ask a lot of questions. If they have a Discord or a Telegram or even an email support service, use those services, use those platforms to ask questions. And then it comes down to, do you trust the person? Is there transparency there? It’s just a big circle that everyone has been doing for over a year now. DeFi has been really running for about two years, and you see a lot of the same thing, a lot of hype this, hype that, hype this, hype that. And if they just don’t deliver anything, then that’s a problem. But again, if they’re transparent and they’re telling you, “Hey guys, look, we are a small team or whatever, whatever. It might take time,” then you just have to weigh the different options that you have.
Now that you get your money into crypto, I’m kind of going back now, you get your money into crypto into a centralized exchange and you decide you want to use a wallet. The first thing you want to do when you download that wallet is play with it. Write down the security phrase. Keep it in a safe place, where even in your house or your apartment or your campsite, wherever you live, make sure that you store that security phrase or that private key written down somewhere. Don’t put it in a digital place where somebody can steal, it unless you know that you’ve got some great software that can lock this stuff up.
I have my security phrases physically written down on pieces of paper, put into a safe, and I don’t just have one of those. I have multiple of those, systems of redundancy. So you want to protect yourself because just like a lot of you guys, I have a lot invested into crypto. So I have a way, if I lose my phone, I can immediately just go home and get my security phrase, put it on another device and move my assets in case I feel like my wallet is compromised. So make sure you write down your security phrase and put it in a safe location.
Now, when it comes to doing your research, this is very important. Connecting your wallet to different sites and different applications. This is where it gets really tricky because you just don’t know what crazy backend back doors that these people are writing in to actually drain your wallet. A lot of these scammers, they are actually sending you a backdoor connection to where they have control of your wallet. So one of the things you can do is actually create kind of a dummy wallet, and just use a small amount of capital to test to see if you’re looking at something that is extremely volatile, something that’s brand new and you just don’t know much about it, create a new wallet, create a new wallet, write down that security phrase and send some assets from your other wallet into this dummy or test wallet and then go play on these crazy different applications.
And then just wait and see what happens. If all of a sudden your assets are drained out of that wallet. Well, there you go. There’s your first line of defense. You know never to touch that again. Generally speaking, you would probably want to reset your device in case there’s any malware, any lingering backend software that’s been uploaded to your device. But yeah, same thing with your PC or Mac. I have a backup computer. Whenever I’m trying out new stuff, I use the other computer that doesn’t even have any crypto, any wallets associated with that machine. And that’s actually connected through a different IP, and I’ll get into that too.
Using a VPN. I pretty much always use a VPN when I’m connecting to anything. Nobody needs to know where I’m at. That’s what DeFi is. It’s totally anonymous investing. It should be like that. Now granted, you guys know I’m Rick. I’m Rick from New Jersey, but that’s about as deep as it gets, but nobody needs to know my wallet address or anything like that. It’s just that whole anonymity thing is something that is what makes crypto so appealing for everybody. So make sure you’re always securing your 12-word phrase and kind of having a system of redundancy to protect yourself when connecting to stuff that you’re just not familiar with.
Now, major centralized exchanges, yeah, sure, you can connect with your main wallet. I pretty much use my main wallet to connect to Strat and anything else that I’ve been investing in for a while, but again, when I’m logging into these things, I use a test wallet first to kind of see if there’s like, is it easy to trade there? Is it easy to buy their token? Is it easy to sell the token? Definitely, definitely, definitely one thing you should really do, I recommend that strongly. Hey Joe, do you have anything to add? I’m kind of just going crazy here off the top of my head. Yeah, chime in.
Just perfect, just to continue.
Okay, great. So yeah, then it comes down to, let’s say you are using a backup wallet. And actually me and Joe ran into this with a crazy, we saw some crazy APRs. And they looked too good to be true, so we all created a dummy wallet. And we put, I don’t know, 20, 30 bucks in there and we invested in this project. Come to find out a few days later, you couldn’t sell the token. You look for audits. You want to make sure that you look for audits. You look for lock liquidity, and there’s a lot of great services out there. And actually, we’re going to try to partner with these services to kind of include in security, I guess, vetting for our users. So we would look to see if you can actually sell the token.
What’s really great is Poocoin.app kind of shows that, but there’s a lot of other services out there that will show you if the token is tradable. They do a flash audit, they show you all the contract functions. Definitely use these services. It doesn’t require any crypto to do so. You don’t have to connect your wallet. You just plug in the contract address and it shows you everything.
That just goes back to the research. Research is important. Me and my friends discover some crazy new asset and we want to look into it, and almost immediately you’ll know because of our system of redundancies of protection, whether it’s a viable project or not. And I’m getting into that, using these services to plug into contract to see if it’s tradable, to see what contract functions exist, to see what kind of liquidity. That’s another thing. Liquidity to market cap ratio. This is actually one of the most important things in DeFi is, actually in investing, period, liquidity is huge.
This is where centralized exchanges generally are not as transparent. They don’t tell you how much capital they have for liquidity to support all the trading that goes on. You just kind of have to rely on their honesty. And that’s going back to Binance. They do give you, they tell what they have for assets. They basically show their liquidity, pretty much every week or at any time if somebody were to ask. But in DeFi, you can see how much liquidity. You put in the token address and let’s say DEXTools or DEXScreeners or LiveWire or whatever. And you can see how much liquidity between what tokens, so you can see what is tradable.
Now the amount of liquidity to market cap, this is also very important. Generally, you want to see a minimum of about 9, 7 to 9% liquidity only at the very early stages. If you’re two, three years in and you only see 7 to 9, 7, 12% liquidity and they’re sitting at 300 million market cap, guys, that’s a dangerous play. You’ve got some massive, massive accumulated wallets that pretty much control all of that liquidity, because as they start selling, the liquidity gets drained instantly. Liquidity means health of the project. So you typically, at the very low market cap, it’s okay to see 10, 15%, 7, 8, 9, 10% liquidity, because that allows for decent growth. And liquidity, depending on what the contract does or if they have yield farms or whatever, the liquidity will change very rapidly, especially as the token value increases or decreases.
But later down the stage, you want to see at least 25, 30, 35% liquidity, because if you’re sitting at 10 million market cap, that 3 million market cap can support a lot of people to buy in and sell. And the larger liquidity, the more or the higher the trade values can come in, and that’s why liquidity is so important. It’s actually part of the health of the project, stability of the token price or coin price. And it just gets better and better there depending on the balance of the liquidity to market cap ratio.
So that goes back to centralized exchanges, like I just mentioned. If they don’t tell you how much liquidity they have, honestly, I probably wouldn’t use their services. Coinbase is very transparent about it. They’re a registered company in multiple, multiple continents where they are showing their revenue reports, their total war chest asset holdings. Same with Binance, same with a few others. FTX was one of those ones that did not, so that’s the big thing. You want to make sure there’s transparency across the spectrum for everything.
Now, when you are looking and using Telegram, Discord, or YouTube, or any of these things and you’re doing your research, unfortunately guys, a lot of you already know this, there are a lot of scammers out there. There’s a lot of scam tokens and coins out there. And what they are trying to do is get you to either invest in their project so they can pull the rug, meaning they drain the liquidity, or you just can’t sell the token. It’s a total honeypot. Or you just invest in something and they claim that they’re going to give you equity in their project, and six months later they shut it down. All of that is considered a rug pull. And that’s where you use those services to find out if it’s tradable, and all that stuff goes into that we already mentioned.
So yes, don’t click links that you’re not familiar with. Don’t respond to DMs from people who hit you up first. I had one, this is a really great one. I actually had one with a buddy of mine. We were looking at buying a service from them. Or no, they were looking to invest in one of our services. And they had invited us to Discord. They had created a fake me and a fake them and got us into separate channels. And they were communicating with us at the same time saying, “Oh, I already sent the money, go ahead and release the tokens.” And it just didn’t work out. It was a fake them, fake me, fake my buddy. And they tried to coordinate this swift action so that we send tokens without having any money come in. It was a very, very wily operation. Luckily, I was on the phone with the gentleman, so we caught it before it became a problem. And that is how crazy things get.
I’ve even had fake software companies create a fake app for me and put our logo into it and claim that this is what it’s going to look like when we pay for their services, and then they just never follow through. This is the unfortunate thing with international operations with such low regulation in this space. So it’s not just investment, but it’s actually running the company or the project itself. We’ve already had that here as well. So yeah, scammers are everywhere, and unfortunately, they’re going to do some amazing things that not everyone is going to catch.
But what you can do is make sure, at least in our main chat or in our DMs, send your questions directly to the open area so that we can see it, so that I can see it. And I’ll never DM you first, neither will anybody else, because they’re going to create fake mes. They’re going to create fake Joes or whoever else, and they’re going to try to steal from you. And again, that goes down to not clicking links, not sharing your personal information, not going to sites that you’re unfamiliar with, with your main wallet connected. These are all things, simple steps that you can take to protect yourself.