Using DeFi Protocols
What Are DeFi Protocols?
DeFi protocols are autonomous smart contract systems that provide financial services without traditional intermediaries. Think of them as automated financial institutions that run on blockchain networks, available 24/7 to anyone with an internet connection.
Key Characteristics
- Non-custodial: You always control your funds through your wallet
- Transparent: All transactions and code are publicly verifiable
- Composable: Protocols can interact with each other like "money legos"
- Permissionless: No approval process or credit checks required
- Global: Accessible from anywhere with internet access
Major DeFi Protocols in 2025
Aave
Uniswap
Compound
Curve
Where to Find Current Protocol Data
- DeFiLlama: Comprehensive TVL and protocol metrics
- Dune Analytics: Custom dashboards and on-chain data
- Protocol Websites: Official stats and documentation
- CoinGecko/CoinMarketCap: Token prices and market data
Connecting Your Wallet
Step-by-Step Wallet Connection Process
Download MetaMask from metamask.io and create or import a wallet. MetaMask has 30M+ monthly active users and is the most widely supported wallet for DeFi.
- Available as browser extension and mobile app
- Supports Ethereum and EVM-compatible chains
- Hardware wallet integration available
Visit the official protocol website (e.g., app.aave.com, app.uniswap.org). Always verify the URL to avoid phishing sites.
- Bookmark official protocol URLs
- Look for HTTPS and correct domain
- Check social media for official links
Click "Connect Wallet" and select MetaMask. Approve the connection in the popup.
- Protocol can view your address and balance
- Cannot access funds without your approval
- You can disconnect anytime
Many protocols support multiple networks. Switch to Layer 2 for lower fees:
- Arbitrum: 90-95% lower fees than Ethereum
- Optimism: Fast and cheap transactions
- Base: Coinbase's L2 with growing adoption
- Polygon: Established L2 with wide support
Understanding Transaction Approvals
When using DeFi protocols with ERC-20 tokens, you need to approve the protocol to access your tokens. This is a security feature that gives you control over your funds.
Types of Approvals
- Exact Amount: Approve only what you're using (most secure)
- Unlimited: Approve max amount (convenient but riskier)
- Custom Amount: Set your own limit
⚠️ Approval Best Practices
• Review approval amounts carefully
• Use exact amounts for unfamiliar protocols
• Regularly revoke unused approvals at revoke.cash
• Check approval requests match your intended action
Gas Fees and Optimization
Gas Fee Calculator
Gas Optimization Tips
- Use Layer 2 networks: 90-95% cheaper than Ethereum mainnet
- Time your transactions: Weekends and late nights (US time) often have lower fees
- Batch transactions: Some protocols allow multiple actions in one transaction
- Set appropriate gas limits: Too low fails, too high wastes money
- Monitor gas trackers: Use etherscan.io/gastracker for current prices
Managing Slippage
Slippage is the difference between expected and executed price. It's crucial for successful DeFi transactions, especially in volatile markets.
Recommended Slippage Settings
- Stablecoins: 0.1-0.5% (low volatility)
- Major tokens (ETH, BTC): 0.5-1% (moderate liquidity)
- Altcoins: 1-3% (higher volatility)
- Low liquidity tokens: 3-5% or more
When Transactions Fail
- Slippage too low: Increase by 0.5-1% increments
- Insufficient gas: Increase gas limit or wait for lower fees
- Token approval needed: Complete approval transaction first
- Insufficient balance: Check you have enough tokens + gas