It is quite easy to make mistakes that can cost you money when you’re using a decentralized finance (De-Fi) platform. Some of the common five mistakes that a user can avoid are shown in this post.
1) Insufficient Balance of The Native Token
The first mistake that is common among De-Fi users is that they may not be aware of the minimum balance required to use a platform. If a De-Fi protocol is built on a network such as Ethereum, there is a minimum gas fee or transaction fee that is needed to make a transaction in ETH.
This means that the owner should hold the minimum volume of ether in their wallet before commencing to make a transaction on the DE-Fi platform that they are using. When this is not done, it would naturally result in failed transactions.
You have to understand that the gas fees paid by the user of the De-Fi platform is paid to the miners, this is why you must have the native token of the blockchain on which the De-Fi platform was built, whether Polygon, Ethereum, Solana or even IOTA.
2) Token Unlocking Mechanism
Another common mistake noticed with the users of De-Fi systems is that they do not understand cross-chain mechanism involved in token unlocking and approval. The development of the blockchain ecosystem has made it possible to have cross-chain interaction among block chains.
This is evident in the fact that it is possible for one chain to interact with another an make on-chain transactions possible in both chains in the so-called interoperability. This however means that one chain on which the transaction was initiated would require a sort of permission on the second chain before its tokens are unlocked and used in transactions.
If you’re sending BTC to be used on the Ethereum network, it has to be unlocked via some cross-chain mechanisms before the equivalent value of BTC is spent on the Ethereum network.
The unlocking mechanism or permission is essential to ensure that your wallet is not accessed by smart contracts. Thus the need for a sort of check when transactions are across two blockchains. The implication of this is that you have to pay some gas fees to have your transactions unlocked.
3) Sending Tokens Across Incompatible Chains
There are many chains that can interact, one with another. There are also blockchains that make interoperability easier. However, it is important to know that not every blockchain interacts with another.
This is why you should make sure that your wallet is compatible with any blockchains that you’re interacting with. Failure to do so could lead to sending your coins to the wrong blockchain thereby losing them.
4) Lack of Understanding of the Liquidity Market
There are many liquidity pools in the De-Fi market. However, this does not imply that a user would always meet a favorable price to swap their tokens. Good prices is a function of a liquid market.
When the user is swapping rare pairs that have low liquidity, this could result in unfavorable deals. So it is important that platforms with high liquidity and support for the target token are used.
5) Lack of Adequate Research
There are coins and tokens that rise in value quickly. These are high velocity tokens that may be subject to pump and dump. If the De-Fi user invests in such tokens, their prices fall as quickly as they rose due to market manipulation. This is one of the reasons why every investor should carry out essential due diligence before investing in any token.