Table of Contents:
What is a Wrapped Coin?
What is an ERC-20?
How to Read a Blockchain Transaction
What is an Airdrop?
What is ERC-4626 and how can it help DeFi?
What is a Wrapped Coin? You may find it frustrating to realize that you cannot use BTC tokens on the Ethereum blockchain. You want to use BTC in DeFi applications on Ethereum or another blockchain, but obviously they’re different blockchains! Wrapped tokens are a way to circumvent this and use native assets (like BTC) on a non-native blockchain (like Ethereum).
So, wrapped tokens create cross functionality, allowing a token to be used on another blockchain. How does this work? Well, the wrapped token has its value pegged to an asset on another blockchain (like BTC) by actually using that other asset to back the wrapped token at the time the other asset is wrapped. This also allows wrapped tokens to be unwrapped at a later point in time. Confusing? Let’s walk through an example.
Say we want to be able to use BTC on Ethereum in order to trade BTC for some other token on Ethereum’s Uniswap exchange. First, we decide to use RenBridge to wrap our BTC. Being a bridge, RenBridge can help us convert our BTC into a wrapped token that can be used on another blockchain; in this case, into a wrapped token on Ethereum. RenBridge will take our BTC, lock it, and mint (create) the equivalent amount of renBTC to our Ethereum wallet. We are then free to use this renBTC, which holds the same value as one normal BTC, since it is backed by BTC, on Uniswap to make our trade.
If we decided against making the trade and instead wanted to get the native BTC back, we’d send our renBTC back to RenBridge. RenBridge would then burn (destroy) our renBTC and give us back our initial BTC.
As you can see, wrapped tokens are essentially just a way to enable cross-chain use for different tokens. One more note on wrapped tokens: you may have come across the WETH (wrapped ETH) token and been confused on why we would need to wrap ETH while it is still on Ethereum. The reason behind this is typically to allow smart contracts that are built to interact with ERC-20 tokens (a standard method of defining tokens on Ethereum) to interact with ETH in a more standardized way, rather than having to write specific contract functions that deal with ETH. If you don’t understand this right now, don’t worry. We’ll discuss ERC-20s next.
Video:Article: https://academy.binance.com/en/articles/what-are-wrapped-tokens
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-What is an ERC-20 token? ERC-20 refers to a standard that basically every token created on the Ethereum blockchain adheres to. The standard allows for predictable, interoperable methods of interacting with various tokens for projects like DEXs. This way, Ethereum developers can write code that can work with all tokens that adhere to the ERC-20 standard, which is basically all of them.
At a high level, this ERC-20 standard includes certain functions, such as transferFrom (allows transferring of tokens from one wallet to another) and totalSupply (returns the total number of tokens in the supply), that all tokens adhering to the standard must implement. More functionality can be added and the specific implementation of functions can be modified, but, in order for a token to be ERC-20 compliant, it must at least include all of the basic functions.
ERC-721s offer the same type of standard for NFTs, and wrapped tokens, as we discussed in a separate section, actually use the ERC-20 standard (if they’re wrapped for use on Ethereum).
Video:Article: https://www.investopedia.com/news/what-erc20-and-what-does-it-mean-ethereum/
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-How to Read a Blockchain Transaction: Understanding how to read a transaction on Ethereum, or any other blockchain for that matter, is a good skill to have. It can help you remember what exactly you’ve done over time, it can help you collect tax information when needed, and it can help you troubleshoot issues where you may not know where your tokens went.
Etherscan is a block explorer; this means that it tracks all transactions on the Ethereum blockchain and records them on an easy-to-view website. Not only does it record transactions, it also allows you to read smart contract code, view information about them, and call smart contract functions directly from the website. We won’t go over that today, but in the future we will! Also, keep in mind that Etherscan is an Ethereum block explorer. Other blockchains have different websites.
I’ve pulled a basic transaction off of Etherscan involving the swap of one token (ETH) to another (FRAX). I’ll post the picture below, and then we can go over what happened.At first glance, this may look confusing, but let’s go step by step.
Transaction Hash: Think of this as a unique identifier for your transaction. Just a bunch of letters and numbers (I blocked out part of it).
Status: Tells you whether the transaction is Pending, Successful, or Failed. Here, it was successful.
Block: The block the transaction was included in. We know blockchains constantly add new blocks; this is the specific block that the transaction was put into.
Timestamp: The time at which the transaction occurred.
Transaction Action: A more easily readable version of what happened in the transaction, provided by Etherscan. We can see here that .35 ETH was swapped for 1,531.12 FRAX, and we can see that it occurred on Sushiswap, a decentralized exchange.
From: The address that started the transaction. In this case, it was a user wanting to swap two tokens. I blocked out part of it since it is someone I know.
To: Where the transaction went to. We can see that it went to the Paraswap smart contract (Paraswap is a decentralized application that helps you route trades to the best exchange for the swap you’re trying to do), and, by understanding the Transaction Action, we know that Paraswap decided to use Sushiswap to complete the swap.
Tokens Transferred: A more in-depth view of what occurred. Paraswap sent .35 ETH to Sushiswap, which swapped it for FRAX and then sent the FRAX back to the user.
Value: If any ETH was involved in the transaction, it will appear here. For this transaction, we can see that 0.35 ETH was involved.
Transaction Fee: The amount of tokens you paid to miners. This is the gas fee. For this one, it was about .013 ETH.
Gas Price: The level of gas that the transaction was sent with. Not too important, what matters more is the Transaction Fee.
Ether Price: What the price of ETH is.
That’s it! There is actually a lot more information you can get on specific transactions such as all the different interactions that happened with smart contracts (there may be multiple!), logs to help you understand every action that occurred, and more. To view these, you can click the other tabs at the top of the transaction, but usually that’s unnecessary and it takes some technical knowledge to understand. All you really need is the ability to read the basics like we went over above!
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-What is an airdrop? An airdrop involves a project giving out tokens, for free, to users who meet some criteria. Some examples of criteria that have been used by projects, to determine who is eligible for airdropped tokens, in the past are:
-All users who have used the project
-All users who have used the project AND fulfill specific responsibilities (ie, provide liquidity in a specific pool or do more than $x of volume)
-All users who are staking some other token
-Rewarding tokens in tiers: Users who have used the project more often/with more $ volume get more tokens
-All users who filled out a google doc that the project released
-All users who were active in the project's Discord, or boosted the server, or joined early, etc.
Airdrops are commonly used to get a token off the ground, bring publicity to the project, reward early/consistent users, get the token into as many hands as possible early on, or incentivize users to come use the protocol before it has a token in the hope that they will qualify for an airdrop.
In recent months, there have been some extremely profitable (think 5-6 figures) airdrops given out to early users of already-popular protocols: $DYDX (for some, worth almost $1 million), $ENS, $RBN, and others. However, this has also led many people to try to "sybil attack" airdrops by using projects that have no token (but are likely to release one) with multiple wallets, doing smaller transactions with each wallet to try to qualify multiple times. Many projects who do airdrops are accounting for this and changing their qualification metrics to reduce it, and many projects will also exclude certain countries, including the US, from airdrops to avoid possible regulatory issues. This exclusion, specifically, angered a lot of would-be $DYDX airdrop recipients who lost out on 6 figure airdrops because of where they lived (DYDX had their frontend track the locations of users - had you used a VPN every time, you would've been ok).
Video:Article: https://www.investopedia.com/terms/a/airdrop-cryptocurrency.asp
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-What is ERC-4626 and how can it help DeFi? Right now, there are a lot of yield-bearing tokens in DeFi. Think of xSUSHI, gOHM, or yvUSDC for example; if you’ve not heard of these yet, don’t worry! Essentially, they represent some underlying asset that is growing. For instance, if I deposit 100 SUSHI into the xSUSHI staking pool, I will get some amount of xSUSHI back. If I come back 6 months later to withdraw my SUSHI, I’ll get more than 100 since I was earning yield. Tokens like xSUSHI, gOHM, or yvUSDC are yield-bearing in the same way, and you can think of them like a “receipt” for some underlying tokens that are growing and that you can come back to claim later.
This is all fine and well, but the issue is a wide variety of yield-bearing tokens, right now, means a wide variety of implementations. Each of these tokens uses a smart contract to define how it works, and most of these are coded in different ways. Therefore, if a service like yield aggregator, lending market, or anything else wants to accept these yield-bearing tokens, they likely need to write custom code to support that token. This adds more development work and opens up more room for mistakes, which can lose people money. This is the problem that ERC-4626 seeks to solve.ERC-4626 standardizes the process of depositing and withdrawing from a vault denominated in one token. It does this by creating specific smart contract functions, such as “deposit” and “withdraw”, that take specific parameters. Similar to how developers can expect ERC20 tokens to all implement transfer functionality, developers will be able to expect specific functionality from tokens adhering to the ERC4626. The token would already have “deposit” and “withdrawal” functionality, and more, built. One of the biggest advantages in DeFi is composability, and this standard would increase composability by making it easier for yield aggregators and lending markets to quickly integrate yield-bearing tokens.
Among the authors of this standard are Joey Santoro, founder of Fei Protocol, Jet Jadeja, a developer at Rari Capital, and t11s (@transmissions11 on Twitter), who is an anonymous developer also at Rari Capital. Fei and Rari actually just merged, and they will be among the first to implement this standard. Alchemix finance, who’s founder stated that ERC-4626 solves a major pain point for them, will also likely adopt it. If more protocols adopt it, and it seems like many will, this can help increase safety and reduce development time in DeFi.
Video: None
Article: https://www.coindesk.com/layer2/2022/01/13/erc-4626-defis-newest-money-lego/
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