This series is all about transparency and keeping you informed as we continue to refine, enhance, and expand the Bankless Academy experience. We’re always striving to make the platform better for you, and exciting updates are on the horizon! 👀

🧭 Enhancing the Explorer Profile

We launched the Explorer Profile at the end of last year, envisioning it as your onchain resume that truly reflects your crypto journey.

As we enhance this feature, the Explorer Profile will become an even more powerful tool for tracking your progress 📈, building your reputation 💪, and visualizing the milestones you’ve achieved in the crypto space 👨🏻‍🚀.

The Explorer Score 📊 is a representation of where you are on your journey, acting as a spectrum that captures your progress and guides you toward your next steps. We’ve fine-tuned the scoring system to better reflect your activities and achievements, making it easier for you to understand your position and growth within the Web3 ecosystem. 🌱

🏛️ Introducing Communities

One of our long-term goals at Bankless Academy is to become a cornerstone for community onboarding. We're not just an education platform; we're building a community onboarding and leveling system. The Gitcoin 2.0 Essentials lesson we recently launched with Gitcoin is our first exploration into this. 🎓

Your improved Explorer Profile isn’t just a tool for personal growth—it’s also a way to signal your place within the ecosystem. By selecting your community and building your profile, you're making a statement about what you care about and how you're contributing to that vision. 🤩

We have pre-approved certain communities that have been with us since the early days, but you can also enter your own community. 💬

🎓 Referral System: From Learner to Mentor

Bankless Academy is a place where you can start your crypto journey and transition from learner to mentor. Our platform isn’t just about acquiring knowledge; it’s about sharing that knowledge and helping others along the way. With these latest improvements, our referral system now allows you to track the impact you’re making by bringing others into the space. 🌍

🏅 Achievements: Measure Impact

As a public good, Bankless Academy depends on community donations, grants, and partnerships. The first two achievements are based on any donation that you have made on Gitcoin (since June 2023) or Giveth. 💸

Behind the scenes: 🛠️ To display these achievements, we’ve integrated Gitcoin's Allo Protocol Grant Stack Indexer and Giveth's Impact Graph.

The new system is designed to highlight positive actions across the ecosystem, like supporting public goods. This is all part of our ongoing effort to make your Explorer Profile a true reflection of your positive impact in the Web3 space. 🌟

We’re excited about these changes and eager to hear about your achievements that you think should earn Explorer points! So stay tuned, and feel free to reach out with any ideas! 💡

✅ Action Items

Here’s how to get started:

• Generate Your Profile: Head over to My Profile and log in with your wallet. 🔑

• Select Your Community: Choose your favorite community to signal your interests and align your profile with what matters to you. 🏛️

• Subscribe: Sign up for our monthly newsletter to stay updated on the latest enhancements and features. 📬

• Share & Refer: Spread the word on social media with your referral link to earn points, and help your friends curious about crypto get started by sending them your referral link. 📣

• Collect this article: If you enjoyed this article, you can mint this NFT for free as a token of appreciation. 🎁

A big shoutout to Tetranome for his incredible help with the design of these enhancements. 🙌

Thanks, everyone, for being part of the Bankless Academy community and for your support. We're looking forward to continuing this product blog and our incredible journey with all of you! 🚀

• Using the Ethereum Name Service (ENS), you can create a single username that represents you across multiple blockchains.

• ENS names simplify sending and receiving cryptocurrency by replacing your lengthy wallet address with a memorable label like web3explorer.eth

• Your ENS names become associated with your online presence: your cryptocurrency portfolio, your blockchain interactions, social media pages, avatars, websites, and emails, forming a single onchain identity.

• Registering an ENS name is similar to registering a .com website address. It requires a cryptocurrency wallet and 10 minutes.

Introducing Universal Usernames

Imagine having a single username for the entire internet. One account for your entire online presence — an account that you own and plug into other apps across the internet. This username would serve as your digital personality, allowing you to be recognized across the internet, making you a unique, memorable member of the online community.

Projects like the Ethereum Name Service (ENS) are building this single username reality, leveraging the powers of cryptocurrency wallets. Using ENS, your custodial wallet address can be transformed into a personalized address of your choosing, with a .eth extension.

0xB00e26E79352882391604E24b371A3F3c8658e8c → web3explorer.eth

Just like a .com website address, it’s easy to read, memorable, and personalized to you. No matter where on the internet you are, your name will be consistent and recognizable. Sending cryptocurrency to your wallet no longer requires saving, copying and pasting a lengthy address.

And this is just the beginning.

Originally we envisioned ENS as a naming system to name crypto addresses.. (but) as web3 users, the meaning of an address is so much more, it can be your Farcaster id, your crypto payment address, a DAO contract and more.

The use cases of web3 are expanding and if we want the next billion people to be onboarded onto web3, it needs to be usable. When all these things are properly named, web3 becomes usable, it becomes human.

ENS makes web3 human.

— Jefflau.eth, Core Developer at ENS Labs

By linking your wallet address to a unique .eth username, you’ve actually created a web3 personality with the ownership powers of a custodial wallet. ENS names can support wallets across multiple networks. One universal name is now linked to your digital property across blockchains, your blockchain history, and more. This includes any special credentials you may have unlocked — like your Bankless Academy badges.

Onchain Identity

The capabilities of ENS extend beyond labelling wallet addresses; ENS can label almost any entity or asset on the blockchain, like a smart contract, and point to any location on the web2 internet. Your website, social media profiles, and email can all be associated with this single username.

Picture ENS as your onchain passport. A physical passport contains your name, photo, birth date, and passport number, linking to extensive information in your government’s identity database. ENS maps your .eth domain (yourname.eth) with an Ethereum address, a profile picture, onchain data like trades and governance votes, and offchain data like your website.

Here’s the key difference: You own and control all aspects of this onchain passport.

ENS names are represented as NFT tokens (ERC-721 tokens) on the Ethereum blockchain, which are owned by and managed through your custodial wallet — just like cryptocurrency. In web3, you can truly own your online identity and carry it with you around the internet. Your account — its data, content, followers etc. — can’t be erased by the platforms you use. We’re moving beyond the control of YouTube, Instagram, and the other web2 giants managing the internet community.

Let’s take a look at how our ENS names plug into onchain apps, starting with the Bankless Academy ‘Explorer Profile’ feature. As a Bankless Academy user with an ENS name, you will automatically find your ENS name and profile picture represented on your profile. This information is displayed alongside your Academy achievements — like lesson badges and collected content.

Another example is Farcaster, a decentralized social network. Instead of requiring users to create a new social account, it allows them to connect their wallet and leverage their existing ENS name along with its associated data. This approach enriches the Farcaster social graph with existing information, showcasing practicality of ENS in decentralized identity management.

Fun fact: As of this writing, ENS has registered nearly 2,070,797 domains, as per Dune Analytics data. That’s close to the population of Houston, Texas. 🐂

It's time to become an onchain citizen and shape our decentralized future. It’s time to register your ENS name. We'll guide you through the process, helping you to unlock its key features, including assigning your profile picture for visibility across numerous onchain apps like Bankless Academy.

The process is very similar to registering a .com website address on a platform like GoDaddy or Google Domains. It’s as simple as choosing a unique name and submitting two blockchain transactions.

Prerequisites

1. Create a Crypto Wallet

To buy and hold your ENS name, you'll need to set up a wallet if you haven't already done so. Check out our quick guide, ‘Creating a Crypto Wallet’, and create your wallet in 5 minutes.

2. Ensure You Have ETH in Your Wallet on the Ethereum Mainnet

You can fund your wallet by sending cryptocurrency from a Centralized Exchange, or by using services like Moonpay or Transak. As another option, you can also pay for an ENS name using a credit or debit card.

Walkthrough

1. Open the ENS Manager App and connect your wallet.

2. Search for and select your desired name.

3. Choose the duration of your registration.

You’ll need to periodically renew your ENS name. Be sure to set a reminder in your personal calendar to notify you before it expires.

4. Select your payment method.

You can use the balance in your Ethereum wallet, or pay with a credit/debit card.

Optional: Set your domain as your primary name during this phase. This means your ENS name and profile picture will be displayed instead of your lengthy wallet address on Bankless Academy, Farcaster and other ENS-supported platforms.

5. Review the upcoming registration steps.

6. Start the 60 second timer by signing the first transaction.

This first transaction prevents others from front-running your registration process.

7. Wait for the timer to finish.

8. Sign the second transaction.

This is the transaction that will secure ownership of your new ENS name, and send it to your wallet.

9. Success!

Your ENS name will now be represented as an ERC-721 token in your wallet.

You can verify that your ENS name redirects to your wallet address by visiting https://etherscan.io/ and entering your ENS name in the address search bar; note that this process might take a few minutes. Once this is working, your ENS name is ready to be shared with your friends and plugged into Ethereum apps.

For more ways to utilize your new ENS name, don't forget to check out the ‘Frequently Asked Questions’ section below!

Conclusion

By registering your web3 username, you are embracing self-sovereignty on the decentralized web, moving towards a future where you alone own your onchain identity. ENS serves as both your web3 username and wallet address, marking your presence in the digital realm. It integrates seamlessly with onchain apps, reflecting and building your identity with every transaction.

Your onchain identity, once established, is solely under your custody, and it is your responsibility to ensure its renewal. The adoption of ENS is key in shaping a user-empowered internet, free from abuses of authority. With ENS, each interaction on the decentralized web is a testament to your unique onchain persona.

It’s time to take control of your onchain identity, with ENS. We hope you’ve enjoyed this entry in the Explorer’s Handbook: ‘Registering Your Web3 Username’.

Don’t forget to collect this entry if you want to own a copy for easy reference on your travels, or to support future content at Bankless Academy. Safe travels, Explorer!

Frequently Asked Questions

What is a Primary Name?

Your primary name functions as a nickname for your onchain wallet address, simplifying your complex Ethereum wallet address. By assigning a primary name, you allow various apps to use and display it, along with your profile picture. Learn more here!

Can I link my email, website, or social media to my ENS name?

Yes, absolutely! Just as your passport can hold different details about you, your ENS name can link to a variety of personal data. This includes your email, personal website, profile picture, and social media handles.

These standard records allow you to publicly share your contact information in a decentralized way. They’re stored onchain and accessible via any application that recognizes ENS names.

For a beginner-friendly guide on setting records for your ENS name and what each type of record could be used for, please refer to this article.

How much does it cost to register an ENS Name?

Currently, the registration costs for ENS names are set at the following prices:

• Names with 5 or more characters: $5 in ETH per year.

• Names with 4 characters: $160 in ETH per year.

• Names with 3 characters: $640 in ETH per year.

This doesn’t include transaction gas fees for interacting with the Ethereum Network, which are roughly estimated in the ENS Manager App. Additional gas fees are required for onchain data updates like setting custom records. Prices for shorter names are higher due to scarcity. Fees deter speculative registrations and support the DAO's development of ENS.

Can I connect multiple wallet addresses with a single ENS name?

Absolutely! Your ENS name can either map several wallet addresses to a single ENS name, like 'yourname.eth', or you can sort your addresses into separate subnames to identify the type of cryptocurrency associated with each, like 'ethereum.yourname.eth' or 'bitcoin.yourname.eth'.

You can set up either option using the ENS Manager App. For more details, refer to this guide for step-by-step instructions

Can I use my existing website address as my ENS name?

Yes, if you own a website like web3explorer.com, you can use this instead of web3explorer.eth. This is thanks to infrastructure co-built by ENS and GoDaddy.

To learn more, check out ENS Labs’ blog post.

Authors

Marcus publishes the ENS DAO Newsletter. He researches how surplus revenue generated from protocol fees can subsidize application layer development and other open source infrastructure.

Tetranome is the Content & Design Lead at Bankless Academy, focusing on the learning journey, user interface & experience, and platform artwork.

Patron

This walkthrough is powered by Bankless Academy.

This article does not contain financial or tax advice. Bankless Academy is strictly educational and is not investment advice or a solicitation to buy or sell any assets or make any financial decisions. Talk to your accountant. Do your own research.

Explore more lessons on Bankless Academy to level up your web3 knowledge.

Key Takeaways

• You’ll need a crypto wallet to access the world of blockchains!

• A wallet is like a blockchain account.

• Wallets are used to store cryptocurrency, log into blockchain apps, and more.

• These wallets work on both computers and phones.

• Creating a wallet is easy and takes around 5 minutes. We’ll show you how, in our video below!

What is a Crypto Wallet?

Crypto wallets are an essential piece of web3 equipment, allowing you to use cryptocurrency on your computer or phone. Wallets are accessed using software called a wallet app — a web browser extension for your computer, or an app on your phone.

It gets better. Wallets are more than accounts for holding cryptocurrency — they’re our connection to the blockchain. We can use them to exchange cryptocurrency with others, log into blockchain applications, and even collect digital items like Bankless Academy badges. The more we explore, the more our wallets become — with some viewing them as the beginning of digital identity.

Wallets come with two core pieces of account information:

• A public key, that you can think of as your username. You’ll share it publicly to receive cryptocurrency.

• A private key, acting as your password. This should always be kept private, and cannot be changed.

Protecting your private key is critical because this key grants instant access to your wallet. You should never share your private key. You can learn more by taking the full lesson.

Today we will set up our first wallet, using our recommended crypto wallet: Zerion!

Walkthrough

Set up your first wallet on your computer, using the walkthrough below, or keep scrolling for our phone wallet walkthrough.

Computer Wallet

Phone Wallet

It’s time to join the blockchain multiverse!

Don’t forget to collect this handbook entry for easy reference on your travels, and to support Bankless Academy.

Safe travels, Explorer!

FAQ

What is a cryptocurrency?

Cryptocurrencies are a form of digital money, secured by cryptography. These currencies can run without the need for centralized authorities and banks, reducing possibility for fraud while increasing the financial freedom of the holder.

Learn more about cryptocurrency through our Bitcoin Basics lesson, and see how these digital currencies are revolutionizing the financial world!

What are public and private keys?

Public/private key encryption allows your wallet to make some information public, like the address where others can send cryptocurrency to you, while keeping access to your cryptocurrency private. One key is like your cryptocurrency’s house address, and the other unlocks the front door.

You can share your public key with anyone you trust to send you cryptocurrency, but your private key is for your eyes only — because it grants access to all assets inside the wallet. Never share it, even if your contact claims to be from Bankless Academy or Zerion.

Learn more and get rewarded for creating your first wallet, in our Wallet Basics lesson.

What happens if I lose my recovery phrase?

Your recovery phrase, also known as a “secret phrase” or “seed phrase”, is your only backup if you lose access to your wallet on your device. If you lose your recovery phrase, your wallet’s holdings will be lost forever. This is why it’s important to store it somewhere safe — from not only theft or loss, but fire or water damage too.

Can Ethereum wallets hold Bitcoin?

Ethereum wallets can hold Bitcoin, but in a “wrapped” form. If you want to hold original Bitcoin, you’ll have to create a wallet that runs on the Bitcoin network, like Exodus or Mycelium.

Author

Tetranome is the Content & Design Lead at Bankless Academy, focusing on the learning journey, user interface & experience, and platform artwork.

Patron

This walkthrough is powered by Zerion.

This article does not contain financial or tax advice. Bankless Academy is strictly educational and is not investment advice or a solicitation to buy or sell any assets or make any financial decisions. Talk to your accountant. Do your own research.

Explore more lessons on Bankless Academy to level up your web3 knowledge.

Key Takeaways

• Staking is essential to decentralization and transaction processing on Ethereum.

• It’s simple: lock Ether on the network, earn rewards.

• Running a validator node is the fundamental form of staking on Ethereum, requiring 32 Ether.

• Using the rETH token, Explorers can get involved in staking with any amount of Ether.

What is Staking?

Put simply, staking on Ethereum is an action that allows anyone to help secure the network. You lock a portion of Ether on the network, aiding network validators, and earning rewards.

Staking is an essential part of Ethereum’s consensus mechanism: the separation of legitimate transaction and blocks from the fraudulent ones, in a decentralized way. This sorting is integral for maintaining a fair economy across the network.

This might sound familiar — because it has the same goal as mining does on the Bitcoin network. Yet there’s a crucial difference between mining and staking: On Ethereum, staking can be accessed by anyone. You don’t need a powerful computer to process transactions, like you would for mining on Bitcoin.

So by simply buying Ether and locking it in a network smart contract, you can become a staker. In doing so, you’ll help keep Ethereum running smoothly, and earn rewards in return!

Start Staking with rETH

Now, the best way to get involved in securing Ethereum is to run a validator node. It grants the most rewards, and has the biggest impact on network decentralization. The problem is… it requires 32 ETH, some technical knowledge, and a dedicated computer with 24/7 power and internet access. That’s a tall order for most Explorers. Fortunately, innovators within the Ethereum community have created an easy entry point that anyone can use to get involved: staking pools and liquid staking tokens (LSTs).

Rocket Pool is a leader in this category, with an approach granting high positive network impact. By locking Ether in one of their staking pools, you’ll mint rETH. While minting rETH directly from the Rocket Pool smart contract has the largest impact on network decentralization, you can also buy it on a decentralized exchange. In holding this token, you’ll begin earning staking rewards, generating annual returns between 3% and 16%.

With rETH, staking rewards are added straight to the value of the token: If you hold 1 rETH today, you will still own 1 rETH in a year. It will just be worth more.

Prerequisites

• You’ll need some regular ETH on one of the following networks: Ethereum, Optimism, Base, Arbitrum or Polygon (POS).

Walkthrough

Option #1: Minting New rETH

Requires >0.01 ETH, and only works on Ethereum Mainnet.

1. Head over to https://stake.rocketpool.net/ and connect your wallet.

2. Enter the amount you’d like to stake, hit ‘Stake’, and then in your wallet hit ‘Submit’.

Your rETH will land in your wallet once your transaction has been processed. It’s that easy.

Option #2: Buying rETH on a Decentralized Exchange

No minimum balance requirements, and works on all networks listed above.

1. Jump to https://app.uniswap.org/swap and connect your wallet.

We’re swapping on the Optimism layer 2 network, because gas fees are a lot lower than on Ethereum mainnet. Learn how to bridge to Optimism, in our “How to Fund Your Wallet on L2” article.

2. Enter the amount you’d like to hold, hit ‘Swap’, and then in your wallet hit ‘Confirm’.

Your rETH will land in your wallet once your transaction has been processed. It’s that easy.

It’s time to become a guardian of Ethereum! We hope you’ve enjoyed this entry in the Explorer’s Handbook: ‘’Staking Ether”.

Don’t forget to collect this entry if you want to own a copy for easy reference on your travels, and to support future content at Bankless Academy.

Safe travels, Explorer!

FAQ

What are the risks of staking?

It depends on the method used, but the one shared risk is that the validator nodes you’re involved with could get slashed. In most staking pools and centralized exchange staking, these kinds of losses are diluted across the entire platform (everyone shares the loss, diminishing its impact) or even insured.

Other risks include:

• Solo Staking: A bug in the validator node’s chosen validator client software.

• Staking Pools: A bug in the staking pool’s smart contracts, or the validator client software.

• Centralized Exchange Staking: Sudden bankruptcy of the exchange, and loss of any stake in it.

The potential impact of each risk is really difficult to predict, but it’s safe to say that staking Ether is more risky than simply holding it. Where there’s reward, there’s risk! Only invest what you’re willing to lose.

Does all staking benefit Ethereum?

Benefit comes in the form of decentralization — you want as many independent node operators as possible.

• Solo Staking: Maximum decentralization, as this typically means just a few nodes under one person.

• Staking Pools: It depends on the platform. Some staking providers only allow specific people to act as validator nodes within their pools. That means many nodes under a few people — a centralizing force. Rocket Pool is one of the few providers that allow anyone to become the node operator of a staking pool. This makes their platform one of the best staking options for citizens of Ethereum.

• Centralized Exchange Staking: Much like the centralizing forces within staking pools, many nodes under one entity is bad for Ethereum.

Do staking rewards change?

Yes, rewards depend on two key factors:

• Network Activity: Generally speaking, in times of low traffic rewards are lower, and in high traffic they’re higher.

• Number of Validator Nodes: With more participants, rewards are further divided.

Rewards also change based on the staking method chosen. Check out our “Staking on Ethereum” lesson to learn more!

How do I run a validator node?

If you want to become a solo staker, you’ll need the full 32 ETH, as well as your validator hardware. Check out this great guide by CoinCashew.

You can get started with just 16 ETH by running a staking pool with Rocket Pool, where other participants will help you reach the 32 ETH required. Of course, you’ll still need your validator hardware. Check out the documentation over at Rocket Pool to get started!

Author

Tetranome is the Project Champion at Bankless Academy, focusing on user experience, interface, design, and content.

Patron

This article is funded by Rocket Pool.

This article does not contain financial or tax advice. Bankless Academy is strictly educational and is not investment advice or a solicitation to buy or sell any assets or make any financial decisions. Talk to your accountant. Do your own research.

Explore more lessons on Bankless Academy to level up your web3 knowledge.

• Ethereum token standards are predefined rules and functions used for deploying tokens on Ethereum.

• The most popular Ethereum token standards are ERC-20, ERC-721, and ERC-1155.

• Each standard enables different levels of fungibility, allowing creation of both common and unique onchain assets.

• Token standards enable token interoperability across the Ethereum ecosystem, making it very easy for dApps to integrate new tokens, and for you to have access to them!

What are Ethereum Token Standards?

Ethereum hosts tens of thousands of different crypto tokens, each with different properties and use cases. How can the network ensure seamless token support across its dApp ecosystem, without developers having to spend hours integrating each token? How can users of these tokens understand their key properties without scrolling through hours of documentation?

Enter token standards!

These templates and rulesets support token interoperability across the Ethereum ecosystem. This means that dApps only need to support a few common token standards rather than thousands of individual tokens. For Explorers like yourself, this means that you can look at a token’s founding standard and understand its basic abilities across Ethereum.

Token standards dictate:

• How a token’s smart contract should be coded.

• The use cases a token can have within the Ethereum ecosystem.

Currently, Ethereum has three commonly used token standards:

1. ERC-20 — A standard for easily exchangeable (or fungible) tokens.

   e.g. USDC and UNI tokens.

2. ERC-721 — A standard for unique (or non-fungible) tokens, known as NFTs.

   e.g. CryptoPunk and Bored Ape NFTs.

3. ERC-1155 — A standard used for both fungible and non-fungible tokens in the same contract.

   e.g. Items inside a web3 video game.

Now, you are probably wondering: “What exactly is fungibility?”

Let’s take a look at this concept from traditional economics to understand its importance in the Ethereum ecosystem.

Fungibility vs. Non-Fungibility.

‘Fungibility’ is a property of an economic asset or good, indicating two key features:

• When the asset is traded, its units are interchangeable without any alteration in value.

  ($1 USD can be exchanged for another $1 USD, or four 25¢ coins, or twenty 5¢ coins.)

• When the asset is divided, the smaller fractions maintain its fundamental characteristics.

  ($1 USD, split into four 25¢ coins, still functions as a store of value or is used for making purchases.)

Examples of fungible assets include oil, fiat currency, government bonds, and company shares. These non-unique assets can be easily exchanged and divided.

Conversely, ‘non-fungibility’ indicates:

• The asset has unique properties which make it distinguishable from its counterparts, giving it a unique value.

  (A canvas painting by Van Gogh is priced differently to one by an emerging modern artist, because of the appearance, rarity, level of skill, and reputation behind the paintings.)

• The act of division affects its fundamental characteristics.

  (A painting cut into four pieces has sections that do not resemble one another, and each section may be valued differently. The initial intention of the painting is also gone.)

Some examples of non-fungible assets are real estate, artwork, digital identities, and certifications. These assets are more difficult to exchange and divide because of their unique properties.

If you’re ever confused about fungibility, just ask yourself: “How easy is it to exchange and divide?” If it’s difficult, it’s likely non-fungible!

Ethereum aims to become “the settlement layer for the world economy”. Fungible and non-fungible asset functionality opens opportunities for traditional asset classes to be represented onchain — and for new ones to be created!

Standards & Token Functions

When deploying a new token contract on Ethereum, the asset creator will select from one of the existing token standards. This grants it initial properties — called functions — such as the total supply of the asset, whether or not it can be transferred to another wallet, and what information it can hold.

For example, ERC-20 uses functions like these:

1. totalSupply: Defines the total supply of an ERC-20 token.

The total supply of a token informs important qualities like its value and distribution.

2. balanceOf: Checks the token balance of a specified address.

This helps services and platforms check your wallet’s balance before executing your requested transaction.

3. transfer: Transfers tokens from your address to other addresses.

Every time you send a crypto token from your wallet to another wallet, you’re using the transfer function.

4. approve: Allows an address (usually a smart contract) to automatically transact on behalf of your wallet up to a specified amount.

Using this function, you can approve a platform or service to automatically use a defined portion of your funds and execute transactions.

5. allowance: Used to get the amount that a spender can transact from a wallet.

A platform may use this function to check the total amount you’ve approved it to use and if it can execute the transaction without you signing it manually.

Standardizing the token creation process enables composability in the Ethereum ecosystem. For instance, a developer building a decentralized exchange (DEX) can add support for any token following the ERC-20 standard because they will all behave in a similar way. They will not need to build in individual support for each listed token.

Similarly, someone building an NFT marketplace just needs to make the platform compliant with ERC-721 and ERC-1155 standards to support all NFTs created on Ethereum.

Now that we understand token standards, fungibility, and functions, let’s take a look at the use cases for the three primary standards on Ethereum.

ERC-20: Fungible Tokens

ERC-20 is a token standard that defines the rules for creating fungible token contracts.

ERC-20 tokens can be anything from a memecoin to a mode of payment in a decentralized marketplace. In most cases, they’ll fit into one of these four categories:

1. Utility token: Serves a specific use case within an app/platform ecosystem.

Example: Filecoin (FIL) is used to reward storage providers who validate and add new blocks to their data storage network.

2. Governance token: Offers holders voting rights in governance decisions of a platform.

Example: Ethereum Name Service (ENS) holders can vote in proposals to update the domain registry protocol.

3. Stablecoin: Designed to maintain a stable value, usually equal to the U.S. dollar.

Examples: Tether (USDT), USDCoin (USDC), DAI (DAI).

4. Security token: Represents ownership in an underlying asset, like stocks of a company.

Examples: Blockchain Capital (BCAP)

A single token could fall into more than one category. For example, a governance token can also have certain utility within a platform.

You can easily buy ERC-20 tokens on a DEX like Uniswap or a centralized exchange like Binance or Coinbase.

ERC-721: Non-fungible Tokens

ERC-721 is a standard that defines the rules for Ethereum users to create or use non-fungible tokens. It ensures that each NFT created is provably unique.

What are some use cases of ERC-721 tokens?

1. Ownership of assets: ERC-721 tokens are widely used to represent the ownership of unique digital and real-world assets. For example, this Explorer’s Handbook entry has 100 individually numbered versions available — not just to read, but to own — like a book on your digital bookshelf. (You can mint and own it by hitting the gold ‘Collect Entry’ button at the top). Bankless Academy’s ‘Datadisk Collectibles’ work in the same way.

2. Subscriptions and memberships: Creators, artists, clubs, and companies are already using NFTs for subscriptions, event tickets, and memberships. The provable uniqueness of NFTs ensures that each of the fixed supply is tied to an individual user.

3. Loyalty rewards: Starbucks launched a loyalty program called Odyssey where its members can complete quests to obtain NFTs that they can redeem for digital and real-world rewards. Many other brands are offering NFTs as a loyalty reward that users can choose to redeem or sell whenever they want.

4. Identity and Certifications: ERC-721 tokens can be used to create tamper-proof identities and certifications. When your digital identity or certificates are ERC-721 tokens, it is easy for you to prove your ownership and nearly impossible for anyone to forge your documents and misuse them.

To get an ERC-721 token, create an account on an NFT marketplace like OpenSea or Blur and purchase any listed NFT. Make sure you take our Web3 Security lesson to protect yourself from marketplace scams.

ERC-1155: Fungible & Non-fungible Tokens

Often referred to as a multi-token standard, ERC-1155 merges the concepts of ERC-20 and ERC-721 and lets builders write contracts that can support both fungible and non-fungible tokens. This doesn’t make a major difference to the user experience but can help to optimize platform features. An example would be deploying both a fungible in-game currency and non-fungible in-game assets under a single contract.

This standard also allows the creation of semi-fungible tokens — tokens that are fungible and non-fungible in specific circumstances. For example, in a trading card collection, all cards that have the same rarity might be fungible (interchangeable) whereas cards with differing rarity levels might be non-fungible (non-interchangeable).

ERC-1155 also enables batch transactions to send multiple token types at once, potentially reducing the gas cost for users.

We commend you for making it through this lengthy entry in the Explorer’s Handbook: ‘Understanding Token Standards’.

Don’t forget to collect this entry if you want to own a copy for easy reference on your travels, or to support future content at Bankless Academy. Safe travels, Explorer!

Ethereum Token Standard FAQ

How are Ethereum token standards created?

Token standards are proposed and published on Ethereum through a proposal process called Ethereum Improvement Proposals (EIPs). Once a proposal is passed, it becomes a standard and is called an Ethereum Request for Comment (ERC). The serial number of the EIP is then appended to complete the standard name, e.g. ERC-20 or ERC-721.

Does ether (ETH) follow a token standard?

No. In fact, ETH is known as a ‘coin’ not a ‘token’, meaning it has its own blockchain.

Can anyone launch a token?

Yes. Ethereum is a permissionless ecosystem and anyone can launch a fungible or non-fungible token. However, you will need technical know-how or access to no-code tools.

If two tokens have the same name, how do I know which is the official token?

To identify the original token, you should check the contract address that’s used to publish the tokens you want to use and reference it against official project documentation. This way you’ll ensure that you do not interact with a malicious token contract that could drain your wallet.

Are there other token standards on Ethereum apart from ERC-20, 721, and 1155?

Yes, there are other token standards on Ethereum that are not in use or have very niche use cases. Some examples include ERC-223, ERC-1462, ERC-1948, and ERC-4626.

Authors

Musharraf is the co-founder of Unhashed. He helps web3 projects with content strategy and execution.

Tetranome is the Project Champion at Bankless Academy, focusing on user experience, interface, design, and content.

Editors

Trewkat is a writer and editor at BanklessDAO. She’s interested in learning about crypto and NFTs, with a particular focus on how best to communicate this knowledge to others.

Patron

This unsponsored article is part of your free Bankless Academy education. Collect the article to support future content!

This article does not contain financial or tax advice. Bankless Academy is strictly educational and is not investment advice or a solicitation to buy or sell any assets or make any financial decisions. Talk to your accountant. Do your own research.

Explore more lessons on Bankless Academy to level up your web3 knowledge.

• Delegation is a voting mechanic that allows a representative — called a ‘Delegate’ — to make votes on another person’s behalf.

• Optimism handles voting and delegation via their ‘Optimism Agora’ dApp.

• You will maintain self-custody over delegated OP tokens, able to transfer or sell at any time.

Introduction

Delegation is an onchain voting mechanic that allows a community member to temporarily grant their governance voting power to a community representative. This process allows a user to contribute to network governance, without having to actively monitor every proposed action or change in the ecosystem.

On Optimism, governance power is represented by holding OP tokens in a self-custody wallet. OP tokens do not leave your self-custody wallet during delegation. You can transfer or sell them at any time, but your Delegate will only receive the voting power held in your wallet. You can change your community Delegate at any time.

On Optimism we use a voting dApp called ‘Agora’ to look through eligible Delegates, perform delegation, and monitor proposals. Let’s take a closer look.

Prerequisites

If you want to hold voting power, you’ll need to purchase OP tokens. You can continue without completing these two steps if you simply want to set up delegation.

1. Buy ETH on the Optimism Network.

You can find a step-by-step guide in our Explorer’s Handbook entry, ‘How to fund a Wallet on Layer 2’.

2. Swap your ETH to OP tokens on the Optimism Network, using a DEX.

Check out our Explorer’s Handbook entry on ‘How to Swap on a Decentralized Exchange’ for a step-by-step guide on using a DEX to buy OP tokens.

Delegating on Optimism Agora

1. Open the Optimism Agora dApp: https://vote.optimism.io/

2. Connect your wallet.

3. Scroll down, and choose your favorite Delegate.

By clicking on a delegate, you will find a short statement, their vote history, and influence measurements. Take your time to find a representative that aligns with your vision for Optimism.

4. Hit the ‘delegate’ button, and approve the transaction in your wallet.

No OP tokens will leave your wallet throughout this process. There is a small gas fee, charged in ETH.

It’s time to explore better voting systems. We hope you’ve enjoyed this entry in the Explorer’s Handbook: ‘Delegating on Optimism’.

Don’t forget to collect this entry if you want to own a copy for easy reference on your travels, or to support future content at Bankless Academy. Safe travels, Explorer!

Frequently Asked Questions

How many tokens do I need to delegate?

You can begin delegating while holding any amount of OP tokens — even zero! As you increase or decrease your OP holdings, your delegated voting power will be updated. You don’t have to redelegate every time you make changes to your OP holdings.

How do I choose the right delegate?

It comes down to your personal values, and your vision for how you want to see Optimism grow. Take some time to scroll through the Delegate profiles and see what resonates with you.

Can I become a Delegate?

You can! Check out the ‘How to be a delegate’ guide, hosted on Optimism Docs.

Note: this won’t count for the ‘Optimism Governance’ lesson quest at Bankless Academy.

Do I need to delegate to vote?

You can skip delegation and represent yourself by tracking votes under the ‘Proposals’ tab on Optimism Agora.

Note: this also won’t count for the ‘Optimism Governance’ lesson quest at Bankless Academy, but you can do so once you’ve collected your badge!

Author

Tetranome is the Project Champion at Bankless Academy, focusing on user experience, interface, design, and content.

Patron

This article was funded by Optimism.

This article does not contain financial or tax advice. Bankless Academy is strictly educational and is not investment advice or a solicitation to buy or sell any assets or make any financial decisions. Talk to your accountant. Do your own research.

Explore more lessons on Bankless Academy to level up your web3 knowledge.

• Token allowances refer to permissions granted to smart contracts to spend tokens from a wallet without further approval.

• They can be exploited by malicious actors if the user is not aware permissions are in place.

• Tools like Revoke.cash allow users to easily inspect and revoke token allowances.

Introduction

DeFi grants users control over their assets, including their private keys, offering unprecedented sovereignty and authority over their funds. However, with great power comes greater responsibility, requiring users to take full charge of the safety and management of their assets.

There are four common categories of scams that DeFi users should be aware of:

• Seed Phrase Compromise: Attackers attempt to deceive users into revealing their seed phrases, which would give them unauthorized access to funds. With your seed phrase, an attacker can drain all your funds and continue doing so if you deposit additional funds into the wallet. Unfortunately, there is no way to recover from this situation, and the only solution is to create a completely new wallet with a new seed phrase.

• Direct ETH Transfers: Scammers can conceal ETH transfers by either requesting an “eth_sign” signature or disguising it as a function call, such as “Security Update.” Falling for this scam means you won’t be able to recover your funds, but you can still safely use your wallet for other transactions.

• NFT Marketplace Listings: Be cautious of fake listings and malicious contracts that exploit the allowances you grant to marketplaces like OpenSea. Scammers may trick you into signing an offchain message that lists your approved NFTs for sale, with no actual token transaction taking place.

• Token Allowances: Attackers may manipulate permissions to gain access to more funds than initially approved. “Approvals” are on-chain transactions that grant access to your tokens or NFTs. “Permits” offer the same access but only require an off-chain signature.

  As smart contracts gain popularity, token allowances become necessary to enable trusted contracts to execute transactions without exposing private keys. Token allowances allow dApps to automatically move tokens in your wallet on your behalf. While this convenience boosts efficiency, it also exposes users to potential attack vectors through scams and unauthorized access.

In this article, we’ll discuss ‘Token Allowances’ and introduce a community tool built to help manage your permissions.

Token Allowances: Understanding, Managing, and Ensuring Safety

Token allowances are permissions given in advance to smart contracts to spend tokens from a wallet. They serve a crucial role in facilitating transactions without requiring explicit permission every time for direct asset transfers from the wallet. When misused, however, token allowances can become an attack vector for the unsuspecting. To address this risk, it’s important that DeFi users exercise caution, educate themselves on the security landscape, and understand how token allowances actually work.

There are two steps involved when granting permissions to a third-party contract:

1. Wallet permission: When connecting your wallet to a dApp, you grant its smart contract permission to access your wallet’s public key, view your balances, and monitor your wallet activity.

2. Token approval: Once you’ve granted this access to your wallet, you then approve your tokens to be moved on your behalf in order to complete transactions.

By proactively managing token allowances, users can ensure that no contract withdraws more than the initially specified amount from their wallet. Luckily, there are community tools built to help give DeFi users confidence and peace of mind.

Walkthrough: Using Revoke.cash

Revoke.cash empowers users to easily manage their token allowances through a simple website that helps inspect and monitor allowances given to different dApps. Let’s walkthrough how you can use this powerful community tool to help you safeguard your assets and take back control of your wallet.

1. Connect your wallet:

To begin the process of revoking your token allowances, head to Revoke.cash and click on “Connect Wallet” located in the top-right corner. Alternatively, you can manually enter your wallet public address in the search bar. Once the loading is complete, you’ll see a list of all your token approvals on that network.

2. Inspect your allowances:

Once you have connected your wallet, you can inspect your existing approvals. You can sort, filter, or search for specific approvals based on the authorized spender address. Sorting by “Newest to Oldest” is particularly useful if you suspect a malicious approval recently. Use the network selection, sorting, and filtering options provided to gain an overview of token allowances you have granted across various networks.

3. Revoke undesired allowances:

Once you identify the approvals you want to revoke, simply click the “Revoke” button next to each of them. Optionally, you can update the approval to a different amount by clicking the pencil icon next to the approved amount if you still require the approval in the future but wish to reduce your risk.

It might be in your best interest to revoke or adjust a token allowance if:

1. A recently deployed smart contract is exploited and creates a vulnerability in a decentralized exchange you regularly use.

   Earlier this year, popular DEX SushiSwap suffered a similar exploit, when ~$3.5M was stolen from users. Affected users remained at risk if they hadn’t revoked their token allowance.

2. A malicious governance proposal updates several contracts with the intent of draining users’ funds.

   More than $2.5M in assets were compromised when Atlantis Loans, a DeFi protocol on a BNB chain, executed a governance proposal that targeted several contracts. Users who managed their approval limit mitigated the risk of their wallets being fully drained by the malicious proposal.

It’s time to strengthen our wallet defenses! We hope you’ve enjoyed this entry in the Explorer’s Handbook: ‘Managing Token Allowances’.

Don’t forget to collect this entry if you want to own a copy for easy reference on your travels, or to support future content at Bankless Academy. Safe travels, Explorer!

FAQ

When should I use Revoke.cash?

Use Revoke.cash periodically, especially during periods when you are not actively using a dApp, particularly for NFT marketplaces. Limiting approvals lessens the risk of funds loss due to hacks, exploits, or phishing scams. By sorting your approvals to show the most recent, you can identify the suspicious approvals and revoke them promptly, mitigating further damage.

Does disconnecting my wallet protect me from approval exploits?

Disconnecting your wallet from a dApp does not protect you from exploits, approvals or otherwise. The token approvals you previously granted remain active even after disconnecting, because they are stored onchain.

How can I avoid token allowance exploits and similar risks?

A proactive approach to token allowances includes:

• granting allowances only to trusted dApps.

• periodically reviewing token allowances.

• removing unnecessary or suspicious allowances.

• staying informed about dApps’ security updates.

Consider using third-party tools like the Revoke.cash browser extension — it acts as a proactive measure against potential threats. The extension warns you if you are about to sign something potentially harmful, protecting you from phishing scams or other malicious activities.

Can I recover funds with Revoke.cash?

Unfortunately, Revoke.cash cannot recover stolen funds. It serves as a preventive tool to reduce the likelihood of becoming a victim of approval exploits. However, revoking the approvals used to steal your funds can prevent further theft.

Why does my wallet keep getting drained each time I top it up?

Your wallet may contain a “sweeper bot,” a script that monitors and acts on transactions from a compromised wallet. When it detects such transactions, the bot initiates a new transaction before the original one completes, allowing it to rapidly transfer any new deposits out. If your wallet has such a “sweeper bot” stealing incoming ETH, it means your seed phrase is compromised. Revoking approvals won’t improve your wallet’s security. The best course of action is to abandon the compromised wallet and create a new one.

Author

Marcus publishes the ENS DAO Newsletter. He researches how surplus revenue generated from protocol fees can subsidize application layer development and other open source infrastructure.

Editors

Tetranome is the Project Champion at Bankless Academy, focusing on user experience, interface, design, and content.

Trewkat is a writer and editor at BanklessDAO. She’s interested in learning about crypto and NFTs, with a particular focus on how best to communicate this knowledge to others.

Patron

This unsponsored article is part of your free Bankless Academy education. Collect the article to support future content!

This article does not contain financial or tax advice. Bankless Academy is strictly educational and is not investment advice or a solicitation to buy or sell any assets or make any financial decisions. Talk to your accountant. Do your own research.

Explore more lessons on Bankless Academy to level up your web3 knowledge.

• Stablecoins are the blockchain equivalent of fiat currency, like the dollar or euro.

• Stablecoins are ERC-20 tokens: they allow DeFi users to quickly move between fiat value, and crypto value, while staying on the blockchain.

• There are several categories of stablecoin, each with their own trade-offs and risk profile.

• Stablecoins can generate more annual interest than holding fiat in a traditional bank.

Why Hold Stablecoins?

Stablecoins have become a cornerstone of the DeFi ecosystem, reaching over $140 billion USD in supply value at their 2022 peak. Stablecoins settled over $7 trillion in transaction value that year — that’s ~0.3% of global USD settlement in 2022.

Here’s why they’re in demand:

• Stability: Holding stablecoins in your self-custody wallet is like holding fiat currency, but on the blockchain. When holding a stablecoin like Circle’s U.S. dollar (USDC), you can expect it to maintain 1:1 value with the U.S. dollar while the prices of assets like ether and bitcoin fluctuate.

• Flexibility: Because this pegged value exists as an ERC-20 token on the blockchain, it’s easy to move between fiat value and crypto value.

• Access: Stablecoins provide access to a range of decentralized financial services, like permissionless borrowing or lending to earn interest.

• Security: Cryptography makes it extremely difficult for attackers to capture or forge transactions.

The way a stablecoin maintains a 1:1 equivalence, or peg, to its fiat counterpart is its most important property. Just as fiat currency is only worth the fundamentals that underlie it, a stablecoin peg mechanism dictates the value of your holdings.

Stablecoin Categories

There are three common strategies for a stablecoin to maintain its price peg:

• 💵 Fiat-backed: 1:1 collateralized by real-world fiat reserves.

• 🔗 Crypto-collateralized: overcollateralized by crypto deposits into DeFi protocols.

• 🔃 Algorithmic: fixed supply/demand algorithms that maintain price stability.

1. Fiat-backed Stablecoins

Fiat-backed stablecoins maintain value by issuing a fixed token supply matched by real-world currency reserves. Their on-chain price is maintained via supply/demand economics: few people want to pay more than one real-world dollar for a dollar of on-chain value, so they simply take their trade elsewhere. To meet increased demand, the stablecoin issuer locks up additional fiat and increases the token supply by the same amount.

Notable fiat-backed stablecoins include Tether (USDT) and Circle (USDC).

Stablecoin issuers generate revenue through various methods. These methods include investing a portion of their fiat reserves in short-term US Treasuries and cash equivalents, as well as employing a mixed revenue model that involves collecting transaction fees and offering lending services.

Innovation & Philanthropy through Fiat-Backed Stablecoins: Glo Dollar

The Glo Foundation has introduced an innovative approach when it comes to revenue generation through the creation of Glo Dollar (USDGLO), its US dollar-backed stablecoin. Glo Dollar sets itself apart from other stablecoins by directing the interest earned from its reserves towards basic income programs for people in extreme poverty.

Holders of USDGLO contribute to this mission by practicing embedded philanthropy. Learn more about Glo Dollar and how it works, here.

Considerations when using fiat-backed stablecoins:

• Collateral Audits: Holders need assurance that their stablecoin tokens are matched one-to-one by fiat reserves. Ideally the provider is open to regular audits by independent parties. USDT has historically made it difficult to know the total value of their locked assets. USDC regularly undergoes independent audits, increasing certainty that their reserves equal their token issuance.

• Censorship Risk: With both USDC and USDT subject to government investigation, these tokens’ smart contracts include a freeze function whereby a user’s on-chain holdings can be locked in cases of disagreeable activity. This freeze function also applies to tokens held in non-custodial wallets.

The high degree of centralization in the fiat-backed stablecoin sector leaves great room for improvement in holding fiat-pegged value in a crypto-native way.

2. Crypto-collateralized Stablecoins

Crypto-collateralized stablecoins are a more transparent, decentralized option — and these qualities help eliminate certain risks. They maintain a fiat peg through crypto asset reserves. As crypto market volatility influences the total value of these reserves, these stablecoins are overcollateralized — sometimes up to 200%! All collateralized assets are viewable on chain, giving users 24/7 access to the real composition of their stablecoins.

The most notable example in this category is MakerDAO’s Dai (DAI).

Considerations:

• Collateral Valuation: A stablecoin’s reserves typically consist of crypto, other stablecoins, and even other asset classes. For example, DAI is backed by BTC, ETH, stablecoins, real world assets, and several other minor components. To mitigate the risks of this diverse range of assets, DAI is overcollateralized (at the time of writing). Even if the ETH price was to crash by 20%, DAI would still have enough collateral to cover their token. However, further price volatility across its range of assets could begin to erode the peg.

• Counterparty Risk: Reliance on multiple asset classes means there’s a higher chance one of the assets will experience difficulty and affect the value of your holdings. However, you only have fractional exposure to the impact of each individual risk.

• Governance Risk: This type of stablecoin and its treasury are managed by a decentralized group of governance voters. This means there are risks of human error, or possible governance capture.

3. Algorithmic Stablecoins

These tokens maintain their peg by automatically balancing their own supply. An onchain algorithm reduces the number of tokens in circulation when the market price falls below the peg, and injects new tokens when the market price surpasses the peg. Both the balancing algorithm and the stablecoin's smart contracts are public, meaning anyone can clone and improve, or audit the existing system.

As algorithmic stablecoins have the fewest external dependencies, and no administration or governance demands, they almost entirely eliminate counterparty risk. This makes them the most decentralized and self-custody-ready stablecoin option.

Notable examples include Liquity (LUSD) and Frax (FRAX).

Considerations:

• Dynamic Holdings: With the balancing algorithm adjusting token supply, your number of tokens held will fluctuate with supply adjustments. The total value of your token holdings remains constant — you aren’t losing or gaining any value — but this aspect can be confusing for new users.

• Highly Technical: You need to understand the technology to build confidence and risk/reward awareness.

• Emergent Tech Risk: With algorithmic stablecoins being so new, unknown smart contract risks could be present. Only use algorithmic stablecoins with several smart contract audits, performed by top-level auditors.

Choosing a Stablecoin

What is the best stablecoin to hold? As with everything DeFi, the answer to that question depends on your needs, values, and risk tolerance.

Here’s a quick refresher on each category:

• 💵 Fiat-backed: The traditional approach — the closest you’ll come to holding fiat on chain.

  • Values: Conventionality, institutional trust.

  • Risks: Opaque collateral backing, ability for provider to freeze funds.

• 🔗 Crypto-collateralized: A balanced, crypto-native approach, spreading collateral risk across multiple asset classes.

  • Values: Diversification, transparency, progression.

  • Risks: Crypto market volatility, dependence on other assets.

• 🔃 Algorithmic: The decentralized — but experimental — option that minimizes counterparty risk.

  • Values: Self-sovereignty, transparency, progression.

  • Higher risk of smart contract bugs.

As always, the best way to learn about something is to try it. You might even decide to hold a variety of stablecoins.

And remember, not all stablecoins in each category are created equal! Do your own research before interacting with any new token.

We hope you’ve enjoyed this entry in the Explorer’s Handbook: ‘Understanding Stablecoins’.

Don’t forget to collect this entry if you want to own a copy for easy reference on your travels, or to support future content at Bankless Academy. Safe travels, Explorer!

Frequently Asked Questions

What are the most popular stablecoins?

Looking at the leading stablecoins by market cap gives an idea of the current market preference, but this isn’t guidance on how you should position yourself, or how safe that position would be.

Here’s a realtime list of top stablecoins by market cap: https://defillama.com/stablecoins

Cryptocurrency users often refer to the ‘Lindy Effect’ when choosing investment options. This concept says that the longer something has existed, the more we can expect it will continue to exist. Ten years of cryptocurrency history have shown this to only be true on occasion.

Where can I buy stablecoins?

Centralized Exchanges (CEXs) offer popular fiat-backed stablecoins (and typically their own branded stablecoin), other types of stablecoin are often missing.

Visit a Decentralized Exchange (DEX), or use a direct wallet on-ramp service like ‘MetaMask Buy’, to acquire crypto-collateralized and algorithmic tokens. Check out our lesson on Decentralized Exchanges to learn more about peer-2-peer marketplaces.

How can I earn interest on stablecoins?

Some CEXs offer yield by just holding stablecoins on their platform, funded by a share of platform profits to incentivize platform use.

You can also earn interest in DeFi, with trustless lending and borrowing platforms. These platforms connect lenders and borrowers, managing risk through onchain collateral and smart contracts. Stablecoin lenders can earn annual returns far higher than available in the traditional banking sector — but where there’s reward, there’s risk!

The lending and borrowing topic deserves its own Bankless Academy entry. If you’re already interested in learning more you can research platforms like Aave.com and Curve.fi.

What happens if a stablecoin loses its peg?

The price of any stablecoin can shift slightly (usually around the +/- 2% mark) in peak network hours. This effect is usually temporary, with prices quickly stabilized by traders taking advantage of arbitrage opportunities.

However, there are cases where a stablecoin loses its peg beyond safe, temporary ranges. This effect isn’t necessarily permanent (USDC, March 2023) — but it can be (Terra, May 2022).

Some fiat-backed stablecoin issuers, like USDC, offer 1:1 redemption from their stablecoin to regular fiat through their website. Whether this remains true during times of crisis is another story.

Author

Tetranome is the Project Champion at Bankless Academy, focusing on user experience, UI, design, and platform curriculum.

Editor

Trewkat is a writer and editor at BanklessDAO. She’s interested in learning about crypto and NFTs, with a particular focus on how best to communicate this knowledge to others.

Patron

This unsponsored article is part of your free Bankless Academy education. Collect the article to support future content!

This article does not contain financial or tax advice. Bankless Academy is strictly educational and is not investment advice or a solicitation to buy or sell any assets or make any financial decisions. Talk to your accountant. Do your own research.

Explore more lessons on Bankless Academy to level up your web3 knowledge.

• Decentralized Exchanges are a type of dApp that facilitate self-custody token swaps.

• There is some practical knowledge required for confidently interacting with a DEX.

• We can use block explorers to inspect our on-chain transactions.

The Decentralized Exchange (DEX) is the most commonly used application in the world of Decentralized Finance (DeFi) — and for good reason! DEXs enable automated swapping of one cryptocurrency token for another, without need for a mediator. Unlike Centralized Exchanges (CEXs), this type of swap also enables users to swap while retaining full ownership of their assets.

Autonomy, and permissionless protocols, are backbone features of DeFi. They empower DeFi users with true ownership over their digital assets, and open access to fundamental blockchain services 24/7. Anyone with an internet connection can access DeFi, regardless of their personal background, beliefs, or geographical location.

In this handbook entry, we will cover how to use your self-custody wallet to interact with a DEX, with the goal of swapping one token for another. You can learn more about the mechanics, qualities, and risk profile of this technology, and how it compares to CEXs, in our lesson on Decentralized Exchanges.

Choosing a DEX

Selecting an affordable and safe platform is the first step in performing a token swap. In this walkthrough we will be using Velodrome, the most popular DEX on the Optimism network (at time of writing). As you become more confident in blockchain navigation, you’ll learn how to evaluate other exchanges and find the best fit for your needs. Our Decentralized Exchanges lesson includes a comprehensive list of qualities to look out for.

DEXs are a great start to your web3 journey because most dApps follow a user interface layout similar to DEXs, and use similar interactions with your self-custody wallet.

Let’s begin our token swap.

Performing a Token Swap

1. Load the dApp:

Open Velodrome in a new browser tab.

2. Connect your wallet:

Use the standard ‘Connect’ button typically located in the top right corner of any dApp.

If you are on desktop, connect with your browser wallet.

If you are on mobile, you will be prompted to use WalletConnect — the web3 standard for connecting mobile wallets to dApps.

3. Approve the connection:

Select ‘Connect’ in your wallet application to confirm the site connection. This allows the dApp to see your wallet address and token balances. You haven’t granted any other permissions yet.

4. Check and sign the terms of service (if you accept):

Many dApps will ask you to sign a message to confirm you have read their terms and conditions. Signing messages doesn’t cost gas, and doesn’t store any information on the blockchain. If you agree with the terms, you can sign the message.

5. Switch to the right network:

For this walkthrough, make sure your wallet is set to the Optimism network.

6. Customize your swap:

It’s time to select your desired input and output tokens. In this example, we will be swapping ETH for OP — but you can swap whatever tokens you like!

7. Approve token permissions:

You will be prompted to set and approve permission for Velodrome to access your wallet funds. We recommend limiting this to your trade size to limit future interactions with your tokens. (Stay tuned for future content on token permissions!)

8. Confirm the transaction:

Once you’re happy with your swap quote and settings, you can begin the swap. This step includes confirming on the dApp, and again in your wallet.

9. Check your balance:

Your transaction should take around 40 seconds to confirm, after which you will see your new token balance in your wallet. If your token type is not displayed, make sure you’ve imported the token addresses.

Optimism token contract address: 0x4200000000000000000000000000000000000042

10. Fetch your transaction hash:

To complete the quest for our Decentralized Exchanges lesson, you’ll need the transaction hash of the swap (not to be confused with the hash from your token permission transaction, or your wallet address). A block explorer link will usually appear on the DEX interface, letting you view the confirmed transaction details.. If you missed it, or it’s missing, you’ll find another link in your wallet activity log — tied directly to your trade.

It’s time to explore the world of decentralized trading! We hope you’ve enjoyed this entry in the Explorer’s Handbook: ‘Swapping on a Decentralized Exchange’.

Don’t forget to collect this entry if you want to own a copy for easy reference on your travels, or to support future content at Bankless Academy. Safe travels, Explorer!

Frequently Asked Questions

Why does my price quote change a few times every minute?

Price quotes are typically calculated at the time you enter your desired swap into the DEX interface. As time goes by, other users are making swaps and affecting token supply on the exchange. The DEX will regularly refresh your quote to stay up to date.

How long does it take for a token swap to execute?

The answer depends on a variety of factors, primarily the block speed of the blockchain and how much you underpay or overpay the gas fee. DEX transactions submitted to Ethereum Mainnet typically take between 15 seconds and a couple of minutes to be confirmed. Layer 2 transactions are usually faster!

Why did my transaction fail?

There are a number of reasons why a transaction could fail: insufficient funds to pay gas, gas limit set too low, or slippage set too low. The best way to begin troubleshooting is to look for User Interface error messages. You can also view your transaction on a block explorer, like Etherscan, to check if there are any on-chain error messages. We’ll cover more troubleshooting specifics in future content!

Can I change or remove token permissions?

Granting token permissions to a smart contract can leave our wallet vulnerable to unwanted future interactions, in the case of a smart contract hack. It is possible to change or remove token permissions using apps like Revoke.cash. As adjusting permissions costs gas, this precaution can quickly become expensive. This is one of the reasons why many users store their digital assets in one wallet (cold wallet), while interacting with dApps on another (trading wallet). Users transfer assets between them only as necessary.

Why is the token I'm looking for not available to swap?

If your token isn’t listed by default, you’ll have to paste the token contract address into the list. To find the token contract address, check https://www.coingecko.com/ or the official project website.

Note: Token addresses can change for a given token on different networks. For example the USDC contract on Mainnet is different than the USDC contract on Optimism. Always verify token addresses before swapping!

Author

Tetranome is the Project Champion at Bankless Academy, focusing on user experience, UI, design, and platform curriculum.

Editor

Trewkat is a writer and editor at BanklessDAO. She’s interested in learning as much as possible about crypto and NFTs, with a particular focus on how best to communicate this knowledge to others.

Patron

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This article does not contain financial or tax advice. Bankless Academy is strictly educational and is not investment advice or a solicitation to buy or sell any assets or make any financial decisions. Talk to your accountant. Do your own research.

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Decentralized Autonomous Organizations, or DAOs, have become increasingly popular in recent years with the emergence of web3 technology, which centers around blockchain and cryptocurrency. But what exactly are DAOs, and how can they be used for communal learning in education?

DAOs are a new type of organization in which decisions are made by a collective using the blockchain, rather than by a centralized authority. Voting, distributing funds from the treasury, distributing tokens, and granting access to content based on membership status can all be done without having to depend on any one entity. This is because the charter and coded rules have created a system of automation. This system permits the DAO to run smoothly, fairly, and without the need for trusted intermediaries. The blockchain can be monitored, so current and potential members can verify that all the DAO's actions are valid and trustworthy.

DAOs could become the new form of universities, colleges, and trade schools — imagine decentralized learning spaces that emerge to help users to upskill or reskill their knowledge across various domains according to industry demand.

The DAO Use Case in the Education Space

One use case for DAOs in communal learning is the creation of a learning community that is managed by its members. Such a community could use a DAO to pool resources, share knowledge, and make collective decisions about how to further their education. For example, they could use the DAO to collectively fund the creation of educational resources, such as online courses or textbooks, that they may not be able to afford on their own.

One of my favorite examples of an early DAO for education is Invisible College which provides gated membership using NFTs which grant authority to join the platform and contribute within the community.

https://www.invisiblecollege.xyz/

They are even partnering with Nas Academy, offering benefits by creating a more engaging and interactive learning experience. Allowing students to earn tokens for their participation, the courses incentivize active engagement and create a more collaborative learning environment. The DAO structure also allows students to have a say in the development of the course, which can create a more tailored learning experience that meets their specific needs.

The trend of using DAOs for community-driven learning space is still in its early stages, but there is potential for this type of organization to become a major player in the future of education. Here are some reasons why:

1. Decentralization: In a DAO, communal learners can ensure that decisions are made democratically and transparently, without the need for a central authority. This can help to prevent bias and ensure that everyone has an equal say in how the organization is run.

2. Incentives: DAOs often use cryptocurrency tokens to incentivize members to contribute to the organization. This could mean that members who contribute more to the learning community, such as by sharing their knowledge or helping others, receive more tokens in return. This can create a positive feedback loop that encourages members to continue contributing and improving the organization.

3. Scalability: As more people join the DAO, it can become more powerful and influential. This means that the communal learning community can grow and evolve over time, without being limited by the resources or expertise of any one individual.

4. Collaboration: By working together in a DAO, communal learners can benefit from the collective knowledge and experience of the group. This can help to create a supportive and collaborative environment where everyone can learn and grow together.

The potential benefits of using DAOs for community-driven education are clear. By creating a decentralized and collaborative environment, this approach to education has the potential to transform the way we learn and teach. However, there are also some challenges that must be addressed in order to make this vision a reality. For example, the use of cryptocurrency tokens in DAOs can be complicated and require some level of technical expertise. Also there may be legal and regulatory issues to consider.

Despite these challenges, the future of web3 and DAOs in education looks promising. As more people explore the potential of these new technologies, we can expect to see new and innovative approaches to communal learning emerge. Whether it is through the creation of new DAOs, the development of new educational resources, or the adoption of new technologies, web3 has the potential to transform education and create a more collaborative and inclusive learning environment.

Ed3 DAO

Join a global community reimagining education, with web3 & AI. Ed3 DAO is the first DAO for educators, by educators, committed to onboarding 1 million educators into the world of web3.

https://www.ed3dao.com

Community-driven learning has led to a bigger impact by exposing more people to the potential of Web3. One of the most prominent education-focused DAOs is Ed3 DAO, initiated by Vriti Saraf and Mike Peck; it’s the first DAO for educators, by educators, with a mission to onboard 1 million educators into the world of web3. In late 2022, they hosted the Ed3 Unconference via learning space in the metaverse, but the most interesting aspect they introduced is the landscape of how DAOs work autonomously by accommodating constructive ideas and collaborative, inclusive learning for everyone. Without boundaries of space and time, everyone can contribute!

Bankless Academy

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humanDAO Academy

Improving lives through crypto

https://academy.humandao.org

I would say that collective knowledge is now more accessible than ever before for everyone around the world to learn about web3, crypto, NFTs, DeFi, or DAOs. More and more communities are riding the wave of emerging transformation of the internet. Bankless Academy provides such an opportunity to create impact by launching the collective library of resources, cohort-based writing, and whitelabel platform for education which has been implemented by HumanDAO. The future of web3 for education is looking brighter with the participation of community-driven people who have a common purpose to harness the potential of DAOs in web3.

• There are a number of ways to fund your wallet on an Ethereum scaling solution like Optimism, Arbitrum, or Polygon.

• Centralized exchanges often provide a direct Layer 2 onramp.

• Third-party payment apps enable users to fund a wallet on Layer 2 from a bank account or a debit or credit card.

• Protocol bridges let users send funds from Ethereum Mainnet to Layer 2.

If you’re new to crypto, all the talk about the importance of Layer 2 (or L2) must seem a bit odd, confusing really. In contrast to Layer 1, which often refers to Ethereum Mainnet, Layer 2 is a term for a specific type of Ethereum scaling solution that enables users to inherit the security of Ethereum but enjoy low transaction fees and fast block inclusion times. If you’ve ever heard of Optimism, Arbitrum, or Polygon (which is really a side chain, but let’s not worry about that here), those are Layer 2 scaling solutions.

When the Ethereum network is busy, it can cost the equivalent of 80 USD in transaction fees — known as gwei or gas — to swap tokens, and much more to mint NFTs or provide liquidity to a decentralized exchange (DEX) on Mainnet. When network activity is low, most transactions on Ethereum Mainnet still cost a few dollars, and it takes an FTX-level debacle or a beyond-hyped NFT drop to really spike transaction fees.

Because transactions on Layer 2 confirm quickly and are inexpensive to execute, many of the most innovative protocols are building on L2s. Unless you’ve been in the ecosystem for a while, however, it’s not intuitive to know how to start using Layer 2s. But there is a clear place to begin your journey into Ethereum scaling solutions: funding your wallet on Layer 2.

There are three main ways to fund an L2 wallet: moving your crypto from a centralized exchange straight to a Layer 2 network, using a third-party crypto payment service to fund an L2 wallet, or sending your digital assets from Mainnet to L2 via a bridging protocol.

Please note, you’ll need to have a cryptocurrency wallet, like MetaMask or Tally Ho, and an Ethereum wallet address to proceed. If you haven’t yet created a non-custodial wallet, please take this lesson first!

After you have a non-custodial Ethereum wallet address, you’ll be ready to continue on your crypto journey.

Funding From CEXs

Funding your wallet directly from a centralized exchange (CEX) is perhaps the simplest way to move digital assets to an L2, particularly if you already hold cryptocurrency on the exchange. Most major CEXs offer users this option, although it isn’t always clear to the user.

On Coinbase, for example, users can send their funds directly to Optimism or Polygon in just a few steps:

1. Go to Coinbase.

2. Purchase or hold ETH on Coinbase.

3. Select ‘Send & Receive’, located at the top of the website.

4. Enter the amount in fiat or ETH you wish to send (you can toggle between fiat and crypto to the right of the amount), select ‘Pay with’ and choose Ethereum, and in the ‘To’ field, enter the wallet address where the funds will be sent. Select ‘Continue’.

5. On the next screen, select ‘Network’ and change the network from Ethereum to Optimism.

6. Review, and if accurate, select ‘Send Now’.

Most major exchanges offer users the ability to send their crypto directly to an L2. Binance supports Optimism and Arbitrum, for example. On whatever centralized exchange you convert fiat to crypto, check to see whether it offers support for direct-to-L2 services. Pro Tip: Use Blockscan to find the exchange compatible with your preferred L2.

Third-Party Onramps

Another simple way to fund your L2 wallet is to take advantage of direct-to-L2 services offered by many third-party crypto payment companies. MoonPay, Ramp, and Transak are three of the most popular options to fund crypto wallets without having to use a centralized exchange.

Like most exchanges, these third-party onramps will require you to provide Know-Your-Customer information. However, once you get past those basic hurdles, these payment options are an easy way to buy crypto across the ecosystem and transfer it to Layer 2.

For MoonPay, the steps are:

1. Go to MoonPay.

2. Select ‘Buy crypto’, located at the top or middle of the website.

3. Enter the amount of fiat you wish to send and the proper denomination.

4. Select a digital asset, in this case ETH. Type in “ETH'“ and you will see different networks on which you can purchase ETH (you may need to scroll down); choose the Layer 2 you want to use. Click ‘Continue’.

5. Next, you will be prompted to enter personal verification and payment data.

6. Once complete, enter your Ethereum wallet address. You’ll be asked to make sure the wallet is safe to use.

7. Complete, confirm the information is correct, and select ‘Pay’.

As with CEXs, most major third-party payment onramps provide direct-to-L2 functionality. Take advantage of these innovations to save on transaction fees and increase the range of your blockchain explorations.

Funding Via Bridges

If you already have funds on Ethereum Mainnet, by far the easiest way to get your crypto on to L2 is to use a bridging protocol. Bridges are the name we’ve given to protocols designed to help us move our funds around the cryptoverse, and there are a number of bridges designed to move crypto from Ethereum Mainnet to Layer 2s.

Native Bridges

Native bridges are those designed by the Layer 2 protocols themselves. For true Layer 2 scaling solutions like Arbitrum and Optimism, it takes about 30 minutes to move funds onto L2, but one week to move that crypto back over to Mainnet. The Arbitrum Bridge and the Optimism Bridge both take longer to transfer assets and settle transactions because of the way the scaling solution is designed.

Third-Party Bridges

Because no one likes to wait, a number of third-party bridging services exist to help us move our funds instantly to and from L2s. Among the most popular options are Hop Protocol and Across Protocol, but you can use Bungee to compare bridging fees across a number of protocols. To use Across, for example, all you need to do is:

1. Go to the Across Protocol bridge and connect your wallet.

2. To bridge funds to L2, select Ethereum under ‘From’.

3. Choose your asset and the amount you wish to bridge (Pro Tip: only bridge a blockchain’s native coin, in this case ETH).

4. Next, select your L2 solution in ‘To’.

5. Review the transaction, and if all looks correct, select ‘Send’.

Moving funds from Mainnet to L2 is really that simple, and nearly all bridges work the same way. Select a blockchain to send funds from and your destination, pick an asset and amount, and across the blockchain crevice you go. Pro Tip: As with sending from a CEX, you can use Blockscan to find a compatible bridge for your L2 destination.

The Road to L2

Layer 2s offer users of all experience levels the opportunity to experiment with decentralized finance in a way that is often prohibitive on Mainnet. Because it costs mere pennies to transact on these networks (you can compare costs here), it’s a great place to become familiar with the basic building blocks of decentralized finance, such as swaps, liquidity pools, or yield farms.

Using a CEX or a bridge to move funds to L2 is a necessary step in your journey from crypto novice to crypto competency. Remember, to see your funds displayed in your wallet, you may need to add the network in your wallet settings, which can be done at Chainlist. If you just want to check that the funds made it safely to your L2 wallet, you can also check Etherscan (click on the ‘b’ for ‘Blockscan’ to the right of your wallet address to see L2 transactions) or go to a DEX, like Uniswap, and select the L2 network and the asset to see your balance.

As you scale up your skills, you’ll need to figure out how to scale down your transaction fees. Learning how to fund an L2 wallet is the first step, but the next steps on your crypto journey are up to you. Welcome, explorer, a new world awaits.

Let’s get moving, Layer 2 Ethereum awaits! We hope you’ve enjoyed this entry in the Explorer’s Handbook: ‘Funding a Wallet on Layer 2’.

Don’t forget to collect this entry if you want to own a copy for easy reference on your travels, or to support future content at Bankless Academy. Safe travels, Explorer!

Author

Hiro Kennelly is a writer, editor, and coordinator at BanklessDAO and the Editor-in-Chief at Good Morning News. He is also helping to build a grants-focused organization at DAOpunks.

Editor

Trewkat is a writer and editor at BanklessDAO. She’s interested in learning as much as possible about crypto and NFTs, with a particular focus on how best to communicate this knowledge to others.

Patron

This article was funded by Optimism.

This article does not contain financial or tax advice. Bankless Academy is strictly educational and is not investment advice or a solicitation to buy or sell any assets or make any financial decisions. Talk to your accountant. Do your own research.

Explore more lessons on Bankless Academy to level up your web3 knowledge.