How to Participate in a DeFi Lending Protocol

Detailed Instructions

First, you need a non-custodial Web3 wallet like MetaMask, Coinbase Wallet, or WalletConnect. Ensure you have ETH or the native gas token for the network you'll use (e.g., MATIC for Polygon). Navigate to a trusted lending protocol's interface, such as Aave (app.aave.com) or Compound (app.compound.finance).

• Sub-step 1: Connect Wallet: Click the 'Connect Wallet' button on the protocol's website and authorize the connection from your wallet pop-up. This allows the dApp to interact with your assets.
• Sub-step 2: Select Network: Verify you are on the correct blockchain network. For example, Aave supports Ethereum Mainnet, Polygon, and Avalanche. You can switch networks in your wallet extension.
• Sub-step 3: Review Safety: Check the protocol's security audits, total value locked (TVL), and the specific market's liquidity and borrowing rates before proceeding.

Tip: Bookmark the official website to avoid phishing scams. Never share your private keys or seed phrase.

Detailed Instructions

Navigate to the 'Supply' or 'Deposit' section of the protocol. You will see a list of supported assets like USDC, DAI, WETH, and WBTC, each displaying a supply APY (Annual Percentage Yield). Your supplied assets are converted into aTokens (Aave) or cTokens (Compound), which are interest-bearing tokens representing your share of the pool.

• Sub-step 1: Choose Asset: Select the asset you wish to supply, for example, 1000 USDC. The interface will show your wallet balance.
• Sub-step 2: Approve Token: For your first deposit, you must grant the protocol's smart contract permission to access your tokens. This is a one-time ERC-20 approval transaction, costing gas.

javascriptCopy
// Example contract call for approval
tokenContract.approve(spenderAddress, amount);

• Sub-step 3: Execute Deposit: After approval, confirm the deposit transaction. You will receive aTokens (e.g., aUSDC) in your wallet, which automatically accrue interest.

Tip: Start with a stablecoin for lower volatility. Monitor gas fees and consider using Layer 2 networks for cheaper transactions.

Detailed Instructions

Once supplied, your assets start earning interest in real-time, which is typically added to your aToken/cToken balance. Crucially, monitor your Health Factor (HF)—a metric representing the safety of your position against borrowing. A HF below 1.0 risks liquidation. You can view your position in the 'Dashboard' section.

• Sub-step 1: Track APY: The supply APY is variable and depends on market utilization. Check the protocol's analytics page for historical rates.
• Sub-step 2: Enable Collateral: If you plan to borrow, you may need to enable your supplied asset as collateral in the protocol's settings. This allows you to borrow against it but increases liquidation risk.
• Sub-step 3: Reinvest or Withdraw: You can compound earnings by supplying the interest earned or withdraw partially/fully at any time by converting your aTokens back to the underlying asset.

Tip: Use DeFi portfolio dashboards like DeBank or Zapper to aggregate your positions across protocols for easier management.

Detailed Instructions

To reclaim your principal and earned interest, go to the 'Withdraw' section. Select the asset and amount. The protocol burns your aTokens and sends the underlying asset to your wallet. Additionally, many protocols offer liquidity mining rewards in their native token (e.g., AAVE or COMP) for supplying assets.

• Sub-step 1: Initiate Withdrawal: Enter the amount to withdraw. Ensure you leave enough to maintain a healthy HF if you have open borrows.
• Sub-step 2: Claim Incentives: Navigate to a 'Rewards' or 'Claim' tab to collect any accrued governance tokens. This is a separate transaction.

bashCopy
# Example CLI command to claim COMP rewards (conceptual)
compound-cli claim-comp --from YOUR_ADDRESS

• Sub-step 3: Confirm Transactions: Sign both the withdrawal and reward claim transactions in your wallet. Verify the received amounts on a block explorer like Etherscan.

Tip: Time your withdrawals during low network congestion to save on gas. Remember that claiming reward tokens may be a taxable event in some jurisdictions.

Detailed Instructions

Begin by ensuring you have a self-custody Web3 wallet like MetaMask, Phantom, or WalletConnect installed and funded with ETH for gas fees. Navigate to a reputable DeFi lending protocol such as Aave, Compound, or MakerDAO. Always verify you are on the official website to avoid phishing scams. Once connected, the interface will display your wallet address and available networks. For this example, we'll use Aave V3 on the Ethereum mainnet.

• Sub-step 1: Open your wallet browser extension and ensure it's connected to the correct network (e.g., Ethereum Mainnet).
• Sub-step 2: Visit https://app.aave.com/ and click 'Connect Wallet', selecting your wallet provider.
• Sub-step 3: After connection, confirm your wallet address (e.g., 0x742d35Cc6634C0532925a3b844Bc9e...) is displayed in the top corner.

Tip: Bookmark official sites and consider using a hardware wallet for large transactions to enhance security.

Detailed Instructions

Navigate to the 'Deposit' or 'Supply' section of the protocol. Here, you will select an asset from the available list, such as Wrapped Ethereum (WETH), wrapped Bitcoin (WBTC), or USDC. Each asset has a specific Collateral Factor (e.g., WETH might be 82.5%), which determines how much you can borrow against it. You must approve the protocol's smart contract to access your tokens, which is a one-time transaction per asset. Then, specify the amount to deposit.

• Sub-step 1: Select WETH and click 'Approve'. Sign the gas fee transaction in your wallet.
• Sub-step 2: After approval, enter the amount (e.g., 5 WETH) and click 'Supply'. Confirm the deposit transaction.
• Sub-step 3: Verify the transaction on a block explorer like Etherscan. Your Health Factor, a critical risk metric, will now appear on your dashboard.

Tip: Deposit stable, high-liquidity assets to maintain a healthy collateral ratio and avoid liquidation.

Detailed Instructions

Move to the 'Borrow' section. Based on your deposited collateral and its Loan-to-Value (LTV) ratio, you will see your Maximum Borrowing Capacity. It's crucial to borrow conservatively to keep your Health Factor well above 1.0; if it drops below 1, your position may be liquidated. Choose a stablecoin like DAI or USDC to borrow, as they have less price volatility. You can select between a variable interest rate (fluctuates with market demand) or a stable rate (more predictable, but often higher).

• Sub-step 1: Check your current Health Factor and available borrow limit (e.g., you can borrow up to 8,000 USDC).
• Sub-step 2: Select USDC, choose 'Variable' rate, and enter an amount (e.g., 3,000 USDC).
• Sub-step 3: Click 'Borrow' and confirm the transaction in your wallet. The borrowed assets will be sent directly to your wallet address.

Tip: Use a borrowing calculator provided by the protocol to simulate how price changes affect your Health Factor before committing.

Detailed Instructions

Active management is key. Regularly monitor your dashboard for your Health Factor, outstanding debt, and accrued interest. You can repay the loan at any time, partially or in full. To repay, you need the borrowed asset (plus interest) in your wallet. Navigate to the 'Repay' tab, select the debt, and approve the repayment. Once the debt is cleared, you can withdraw your original collateral. Some protocols also allow you to add more collateral or repay with collateral to improve your Health Factor.

• Sub-step 1: To check your debt, view the 'Your Borrows' section. Note the current variable rate (e.g., 4.25% APY).
• Sub-step 2: To repay, ensure your wallet holds 3,000 USDC plus interest. Click 'Repay', approve the token spend, and confirm.
• Sub-step 3: After repayment, go to the 'Withdraw' section to unlock and retrieve your 5 WETH collateral.

Tip: Set up alerts for your Health Factor using DeFi monitoring tools to avoid unexpected liquidations during market volatility.