Basic concepts to start in DeFi with Oh! Finance (2/3)
In the 1st part, we covered what was a wallet address, a wallet app and a seed phrase.
In this article, we will explain why you have to pay for transaction fees and what is a gas token, what is a smart contract and a token contract address.
Gas token and transaction fees
Transaction executions on a blockchain can be compared to a road network with transportation services between houses representing the wallet addresses: Every time you want to have tokens transferred between 2 addresses, you have to pay a transaction fee for the transportation services. In crypto, these are called miners, delegators, validators, etc.
On some blockchains like Ethereum or Avalanche, as a user, you propose a max transaction fee you are willing to pay when initiating a transaction. MetaMask automatically proposes an amount for you for that purpose, but you can tweak it manually depending on the network conditions, on not running the risk of a transaction request cancellation, on how fast you want it processed, etc. The actual fee paid can be lower than the max amount you were ready to spend.
A transaction can be more or less expensive in function of the blockchain (Ethereum is a prime example of an expensive network). And just like the roads in real life, a network can become congested at times: Transfer times can dramatically go up as a consequence.
In times of congestion, there is the equivalent of a fee war. The transportation services will give a higher priority to the transactions with the highest fee offered (= they will earn more). And may even not deal at all with some transaction requests if their offered fees are too low compared to other transaction requests still available to execute and with higher offered fees.
Oh! Finance has decided to launch on Avalanche, because it solves a lot of Ethereum issues (which can become severely congested, so slow, and is expensive to trade on): It’s scalable, fast and cheap to trade on it.
The transaction fees are paid in the native gas token of the blockchain:
- For Ethereum, it’s ETH
- For Avalanche, it’s AVAX
You need gas tokens of the selected network in your wallet for transactions, no exception. So the 1st step in DeFi is to acquire some gas tokens.
Smart contract
Smart contracts are automatized procedures scripted in a code which are executed without any intermediary’s involvement. All the agreements around the conditions and outcomes are defined in a smart contract, transactions are registered automatically on the blockchain.
If we take an analogy from the past, a smart contract would replace a bank employee doing a manual transfer of funds on your behalf from a bank account to another and making you sign a document for the agreement (= contract), stating which account to which account, which amount, which currency. Or when you borrow money against collateral, a whole bunch of administrative process and paperwork: That kind of procedure can be defined in a smart contract and executed automatically with no middlemen.
Token contract address
A token is identified on a blockchain with a unique contract address, its alphanumeric format being similar to a wallet address format. A token address can be compared to a product in a supply chain identified by a unique product number.
When using a wallet app like MetaMask, it doesn’t automatically list all the available tokens on a blockchain (remember, there can be thousands of them!). A token is added on your MetaMask list:
- When you add manually the token by copying/pasting its token contract address in MetaMask
- When the DeFi application to which your MetaMask is connected proposes to add a token to the list and you follow the procedure.
Should your smartphone get stolen and you have to install MetaMask onto a new one: You can reconfigure the same wallet address by entering its seed phrase. MetaMask won’t automatically list all the tokens that you hold, you will have to add again manually each contract address to make them visible.
Remember, MetaMask is just a visual interface (+ allows to process transactions request), all the data is registered on the blockchain. There are tools that allow you to check which tokens are held by a specific wallet address on a blockchain, you don’t have to try to remember them all by heart for all the wallet addresses that you possess.
About OH! Finance
Oh! Finance is an optimized yield-generation protocol, focused on reducing risk and increasing volume exposure. Start earning industry-leading interest rates on stablecoins in just a few clicks: https://oh.finance
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