Asking for a Friend: Trading on a Decentralized Exchange

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1:30Mike Rainbow, co-founder of Rainbow. Welcome to Real Vision's Crypto Daily Briefing. It's great to have you here today. What's up, Nico? Thanks for having me, man. I'm just so excited to have you here on our Friday Asking for a Friend episode because we've had so many people, including the CEO of our company, being like, how the hell do I participate in these decentralized exchanges? How do I go and maybe hop on that Turbo or Pepe bull run? Obviously, none of this is financial advice, but Mike, we thought it would be perfect to bring you in and teach us a bit. So before we get started, I just wanted to hear a little bit more about your background and how you got into crypto and why you founded Rainbow.

2:12Yeah, let me think. My background, yeah, I don't know. Always been a computer kid. Been working in startups for a long time. I got into crypto in 2018 full time and we started Rainbow in 2019 just endlessly fascinated with Ethereum and all of the cool things people build on it and to us the opportunity to build the app that lets everybody play with these things more accessibly it was just the opportunity was just staring us in the face so that's why we started Rainbow Oh, amazing. And so before we get into our fun little screen share and showing everybody how to actually participate, can you explain a bit the differences between a Coinbase, a centralized exchange and something like Una or SushiSwap, which is a decentralized exchange?

3:04Yeah, good question. So, you know, Coinbase is a centralized exchange. It's very similar to how, you know, financial exchanges traditionally work in traditional finance, right? It's a centralized counterparty, you know, with a proprietary matching engine. They hold the money and they execute the trades. I guess to contrast that against a decentralized exchange like Uniswap or SushiSwap, Curve, Balancer, things like that. Decentralized exchanges are built on top of blockchain networks that have smart contract functionality. Things like Ethereum, Solana, stuff like that. And what's special about decentralized exchanges is instead of them being a centralized counterparty executing trades for you, decentralized exchanges are entirely built with code, with smart contracts.

4:01And what makes them special is that you can interact with them permissionlessly. So what that ends up meaning often is that the long tail of crypto assets are far more readily accessible and found on decentralized exchanges, right? So we're talking about meme coins today, or meme coins have been kind of all the rage in the last few weeks with tokens like Pepe and Turbo kind of doing insane euphoric things. And those are the types of tokens that you'll often be only able to find on a decentralized exchange because someone just invented that token a few weeks ago and they can permissionlessly list it on one of these decentralized exchanges.

4:50And that's just a far faster kind of path to market than sort of going through these centralized parties like Coinbase, etc. Yeah, I think a good way for people to think about this is if we rewind all the way back to the beginning of 2021, I think that was when Doge first showed up on Coinbase. Even though it had been available on these decentralized exchanges for weeks, if not months prior. It just Coinbase does a little bit more due diligence because it's run by individuals, whereas decentralized exchanges are literally just a smart contract, as I understand it. Literally just a smart contract.

5:27You can create Niko coin today and put it on a decentralized exchange right now, and no one can stop you, right? So it's basically, yeah, the types of assets that are available to buy or sell on these decentralized exchanges are fairly endless. Yeah. Oh, I can imagine. I can imagine. So before we get into the screen share, I just want to remind our viewers to join us in the conversation. Put down your questions in the chat wherever you're watching. We'll ask the best ones on air. Remember, Real Vision members take priority. But the good news is Real Vision membership is free. Go to realvision.com backslash crypto to sign up.

6:06If you're watching on YouTube, tweet this link and follow Real Vision at Real Vision. All righty, Mike. I think it's that glorious time where we should get our screen share up and you can sort of show us how this all works. Let's go. So we're going to show you guys how to use Rainbow, which is a mobile Ethereum wallet. We're going to first, I think, we wanted to show how to connect to DApps. Yeah, I think absolutely. And we're going to be obviously connecting with Rainbow Wallet, but you'll show us that there's multiple ways to connect, either a hot wallet, a cold wallet, whatever you're looking and using yourself.

6:43Exactly. So I've got my rainbow in front of me and I've got some Ethereum on mainnet optimism and arbitrage. So I'm ready to go. I've got the ETH that I need. So next what I'm going to do is open up my web browser. And first we're going to go to sushi.com. And here on sushi.com, we're going to click enter app. Okay, cool. So far, very simple. So then now what we're going to do is we see here, you know, this is Sushi. And the first step you have to do is actually connect your wallet. Okay. So we're going to click Connect Wallet. And here you see a few options. Yep. Now, most wallets use what's called Wallet Connect to connect to them.

7:29Yep. So next step, click Wallet Connect. Sweet. And then we're going to click Rainbow in the top left. Hell yeah. Oh. So now we got booted over to Rainbow and it's asking, hey, can we connect your wallet to Sushi? I'm going to click yes, connect. Now, to stop you there, I just want to just because some people new to the space might be asking, okay, I'm clicking connect. What permissions have I given this decentralized exchange? Am I at risk now for my wallet to be drained? Can you address the safety concerns around that? Yeah, of course. So it's always really important to make sure that the websites that you're on, like the DAP that you're using, is the real DAP.

8:11And the way that you can always make sure that you're on the correct website is by typing it in yourself, the URL, right? So it's often bad practice, like just click links off of Twitter. But to address your specific question about what security risk exists simply for connecting your wallet, The answer is there is no risk in just connecting your wallet to a website. The only thing that that can do is send you a push notification asking you, hey, do you want to do something, right? But simply connecting to Adapt does not put your funds at risk. Okay. Okay. That makes sense. That makes a lot of sense.

8:48So we've connected our wallets. We've connected our wallet. I guess it's time to see about buying something. I mean, this has been very simple thus far. So, yeah, I'm sort of surprised because everybody gets so scared of DeFi and feels like they almost need to be a coder to interact. But what I'm seeing here is it's like within three clicks, we're ready to go buy some meme coins. We're ready to go. Hi, everyone. We're going to take another quick break and hear a word from our partners. We'll be right back with the Real Vision Crypto Daily Briefing.

9:23So on sushi, my favorite meme coin is called Dog. So I'm going to show you what it looks like to buy some dogs. So really quickly, I'm just going to punch in. I'm going to buy 0.02 ETH worth of dog. Okay. So cool. Got it punched in there. We're seeing - And that gives us 40 ,000? 40 ,000 dog token. And we're going to click swap. It shows me a confirmation screen here. And I can click swap. Boom. Now I get brought to rainbow. Okay. And on this screen here, basically here you're actually confirming this transaction. And whenever you see in rainbow a little face ID logo next to the confirm button, that basically means that you're about to sign something.

10:08So when you see that, that's basically when funds can leave your wallet. So here it's asking me, hey, do I want to confirm this swap? Answer, yes. Let's go. So I just face ID'd, bam. and I get sent back to Sushi. So now my swap is being, my transaction is pending. And I want to get into this because this is one of the things I found really interesting is, and I guess the way to just go here is just mention the man of the hour himself or the one everybody's been talking about, which is Jared from Subway.Eth. Yes. Can you tell our audience a bit about what sandwich trading is and how within the Rainbow app, you guys are creating flash bots as I understand them?

10:58Yeah. So over the last few weeks, with the rise of these meme coins, there's been this guy who's become popular or famous, I guess his name is Jared from subway.eth. And this person runs a bot out there that basically profits off of arbitrage in the markets. Honestly, I think it's a little bit of a long explanation to really to dive into how it works. Absolutely. But basically, whenever you're trading very illiquid tokens, you are exposed to like price impact or slippage from when you actually entered your trade to when it executes. And Rainbow very conveniently has built into it protections to basically protect your swap from that kind of aggressive slippage.

11:48Could you also, and this is a question from one of our YouTube audience members, Cosmos Blockchain. He was curious, what does slippage and front running actually mean? Yeah. So, let's see. So, yeah. So, basically, when you, the user, are about to make a trade, you are shown a price that you're being quoted. And what happens is that sometimes between the moment that you submit your swap trade and the time between when you submit it and when the transaction actually gets confirmed on the blockchain, the price could have moved significantly. And because of that, yeah, that's essentially what we mean here by slippage.

12:42Let's see. Okay. Fascinating. Well, thank you for that. Yeah. And this is sort of like the new version of what people and institutions like Citadel were dealing with long ago with basically getting the fastest possible internet to reduce latency. This is just sort of the contemporary version of that in the world of DeFi, correct? Yes, exactly. So yeah, Flashbots, its name is a little bit cheeky. It's named after the famous book Flash Boys. I was telling Mike when we were talking about this off camera, I, as someone with no technical or engineering background, was just imagining some galactic Star Wars battle between Flashbots and all sorts of other weird coding type of things.

13:31All right, yeah. So really quickly, let's show you guys how to use Flashbots to protect your trade from overly aggressive slippage. So first what we're going to do is we're going to click Swap. cool and then we're going to click eth because we want to swap eth for Raoul's favorite uh meme coin called turbo okay so so over here uh you know I clicked you know eth and then I click choose token and then uh you know I already have turbo here in my favorites but you could also just search for it cool so I select turbo and to enable the extra slippage protection uh what you do is on this screen, click settings.

14:09And then bam, there's this one in the middle that says use flashbots. Make sure that that's enabled. So that is enabled. Awesome. So now our swap here from ETH to Turbo is going to be protected from front running. So awesome. I'm going to buy $91 of Turbo because why not? Not financial advice. We're just showing you guys how to buy silly tokens. Awesome. So I can click review here and basically make sure that the swap I'm about to make is what I want to actually do. Looks good to me. Gas is a little aggressively high. We can talk about gas some other time though. Yeah, no, we'll definitely get into that.

14:53I love the fact that you guys use the rocket ship emoji for the selection of the gas fees you want to pay. You'll find that Rainbow is quite emoji, a very emoji-centric product. We have lots of emojis. You can even see emojis flying around the screen here on the dog. Yeah, we've got the little dog icon here. I feel like we've got to get you guys locked in with the emoji movie people. I feel like there's some sort of crossover for you to be had. I would love that if you can make that happen, Nico. So we've still got our swap here pending. You know, sometimes, you know, Ethereum transactions can take, you know, 10 seconds to a minute or so.

15:35But I'm sure that that's going to clear. But yeah, so. Other thing I was curious about just while we're in the Rainbow app is what if, you know, I'm on Twitter and I'm seeing some new meme coin pop up. Is there a way that I can just go and find that meme coin contract address and use that to, you know, go and buy it? Yes. So let's talk about that. So the website that I like to use the most to find a contract address is CoinGecko. So you can come to CoinGecko and you can just type in a ticker symbol like turbo, right? Select it from the search results. And here on this page, right above this little show more button, you're going to see it says contract and then it has some gibberish.

16:28It's going to always be something like 0x something. That's called the contract address. And that's essentially the unique identifier for this token. What you want to do is click copy. There's like a little button next to it for copying it. So once you've copied your contract address, you can come to rainbow and open swap. And you can just paste in here any contract address. And Rainbow has a built-in DEX aggregator. So what we'll do is basically, no matter whether this token is actually most liquid on Uniswap or Sushi or wherever it is, Rainbow is going to find for you basically the best execution price.

17:12You just see a token on Twitter. As long as you can find the contract address and paste it here into Rainbow, you can just go right ahead and swap. It's very convenient for, you know, well, like what we were talking about before, about being on the go, you see something on Twitter and you just want to play around. Yeah. Doing it from your phone is a really great option. Hey everyone, we're going to take another quick break and hear a word from our partners. We'll be right back to the Real Vision Crypto Daily Briefing.

17:44Mike, this is really blowing my mind that it can be this simple for everybody because, you know, I think a lot of people and we've seen it with Raoul, you know, they get a little intimidated by this DeFi thing, especially because years ago it was a lot harder to access and it took a lot more steps. But now in, you know, almost June of 2023, it's four clicks and you've traded. It's four clicks. And, you know, I think that people play with crypto at their own pace. And there's lots of options for sort of where to keep your crypto. Lots of people, for example, you know, I'm sure Raul has most of his crypto like custody data at a, you know, major financial institution.

18:27But I do think that more people should play with non-custodial wallets and to go around and actually try some of these apps and products out there, because it's really fun. And it's also the best way to actually learn how this stuff works. So I definitely encourage everybody out there to take even just a couple hundred bucks and to just go play around with some of these apps. It's just the best way to actually really learn how this stuff works, frankly, right? You don't need to read white papers. You don't need to be a PhD or understand code at all. You actually just need to play around a little bit and all of this will start making more sense.

19:07You know, Mike, that is so well put. Usually I ask for people's final thoughts, but I think you just nailed it right there. All I'll add to that is I remember when I was 13 and was bar mitzvahed and had some cash to open up a savings account. the amount of work it took to open up that savings account, balance the checkbook, feels far more intimidating even now in 2023 than what you've just shown us. So thank you so much. I definitely want to get you back to break down some other crazy DeFi stuff with us because I think— I'm your guy. Let's go. Absolutely. Well, thank you so much, Mike, for joining us today.

19:47It's been an absolute pleasure. Hell yeah, Nico. Thank you, Real Vision. And yeah, and everyone check out Rainbow, rainbow.me. Absolutely. Yes, well, I know I'm going to have a lot of fun exploring all sorts of decentralized exchanges this weekend. But that's it for today. Remember to sign up at Real Vision Crypto. It's free, of course. Go to realvision.com slash crypto. No show on Monday due to the Memorial Day holiday here in the United States. So get out there and touch some grass. We'll be back Tuesday to discuss Bitcoin-focused investment space. Make sure to join us live. See you Tuesday at 9 a.m.

20:24specific time, noon Eastern or 5 p.m. London time. Thanks for watching, everybody.

20:50The End