DeFi 201: Intermediate & Advanced Strategies

•

🧶 DeFi 201: Intermediate-Advanced Strategies for Earning Yield on #Crypto Last month, we wrote a #DeFi 101 primer, in which we covered some basic ways to earn yield on crypto. This 🧵 covers advanced (riskier) strategies, explanations of concepts and instruments 👇 [1/x]

1/ For reference, here is the DeFi 101 post: twitter.com/momentum_6/status/1500132001990410240?s=21&t=anPGgdjsMzb_UluktewhOg

2/ In this thread: 1. Leveraged LPs 2. Borrowing against Interest Bearing Tokens 3. Multi-token LPs 4. Single-sided staking 5. DeFi 2.0 6. DeFi 3.0 7. Pegged Assets 8. Autocompounders 9. Options 10. Liquidation strategies 11. Arbitrage

3/ Since we're talking about riskier strategies in this post, we might as well start with leverage. We explained leverage in this post: twitter.com/momentum_6/status/1492483277533368320?s=21&t=anPGgdjsMzb_UluktewhOg

4/ Leverage will amplify your risk and reward. Be careful with leverage. Don't risk getting liquidated. In #DeFi, you can leverage through: • Leveraged LP farming • Borrowing against assets, to farm elsewhere with borrowed funds • Instruments like Futures / Options +++

5/ 1. Leveraged LP farming You can use leverage to enter a liquidity pool. For example, if you want to enter the AVAX-MIM pool, a leveraged LP protocol like Alpha Homora will let you borrow $MIM or $AVAX against your $AVAX, so you can enter the pool with leverage.

6/ You risk getting liquidated if the price of the token pair goes up or down more than a certain amount. The protocols will tell you the levels at which you get liquidated. Crypto is volatile, so it's best to be conservative with the amount of leverage taken.

7/ If you do this, look for pairs with correlated prices to minimize chance of liquidation. And don't get greedy - always keep leverage low. Here are a couple of platforms that allow leveraged LP positions: • $FTM: @TarotFinance • $AVAX: Alpha Homora by @AlphaFinanceLab

8/ 2. Borrowing against Interest Bearing Tokens Here's an example: 1. Deposit $xBOO on market.xyz. $xBOO is a yield-bearing token representing staked $BOO. 2. Borrow $MAI. 3. Use borrowed funds to farm for yield elsewhere.

9/ Some tips to reduce risk when borrowing: • Keep LTV low. $BOO and $xBOO are volatile assets. • Borrowing an asset can be a way of shorting an asset. For example: borrow $BTC, and sell for $USDC. If $BTC dumps, your debt reduces. If $BTC pumps, your debt increases

10/ • Avoid liquidation at all costs. Liquidations will cost more than just the value of the debt - there is often a liquidation fee also. Here's a strategy to get high APR on "safer" coins like $BTC, $LINK, $ETH, etc that typically have lower yields. twitter.com/momentum_6/status/1491099191078440961?s=21&t=anPGgdjsMzb_UluktewhOg

11/ 3. Multi-token LPs Multi-token LPs allow you to participate in a liquidity pool with more than 2 tokens. A typically LP (as explained in past posts) has 2 assets split in a 50-50 ratio. A multi-token LP like @beethoven_x or @BalancerLabs splits many coins into a LP.

12/ For example, @beethoven_x has an LP "Battle of the Bands" which has the following constitution: • 20% $FTM • 16% $MATIC • 16% $SOL • 16% $AVAX • 16% $LUNA • 16% $BNB This means your funds will automatically rebalance into all of the L1s to maintain these percentages.

13/ This LP is currently paying 45% APR, (more if you go and deposit the tokens onto @beefyfinance) Another good LP is A Late Quartet, currently paying 40% APR on @beethoven_x with an equal allocation into $FTM / $ETH /$BTC and $USDC.

14/ Here are the steps to deposit into a multi-token LP on #Fantom: 1. Go to beets.fi (@beethoven_x) 2. Deposit into an LP you like 3. (Optional) Deposit LP tokens to other platforms like @beefyfinance, @Reaper_Farm, @LiquidDriver, etc for higher rewards.

15/ Keep in mind that all LPs, even multi-token LPs come with impermanent loss risk. twitter.com/momentum_6/status/1494376714063028225?s=21&t=anPGgdjsMzb_UluktewhOg

16/ 4. Single Sided Staking: Some platforms will offer great rewards for single sided staking (especially on new farms). These are safer than LPs as they don't have impermanent loss risk, but the yields are also usually lower. Check @beefyfinance for single asset vaults.

17/ Sometimes you can get high yields for brief periods (as with @0xDAO_fi) or genesis pools. Usually these drop quickly as the TVL of the protocol rises. Check the TVL before ape-ing. The high APR might only last a few days, which might not be worth it with tx costs.

18/ Speaking of transaction costs, here's a thread on how you can mitigate transaction costs: twitter.com/momentum_6/status/1493302008094375937?s=21&t=anPGgdjsMzb_UluktewhOg

19/ 5. DeFi 2.0 These are projects like $OHM and $TIME. Check out this tweet to understand the math and the risks behind them 👇 twitter.com/shivsakhuja/status/1466714473318662145?s=20&t=8KKrNc8bMSt3eSO72JEOGQ

20/ At this point, it seems #DeFi 2.0 was a failed experiment. I'm not recommending investing in them. (especially given the recent debacles, and failure of these projects) But it's worth learning about, because many other projects have borrowed ideas from their model.

21/ 6. DeFi 3.0: Farming as a Service (FaaS) projects. These projects aim to offer yield farming returns to people who don't have the technical know-how or time. Some notable names in the space include $ABC, $REFI, $CCF, $EXPO, $FFF & $MCC. Here's how they work 👇

22/ • Token buys and / or sells are "taxed". • The tax (some % of tx) is added to the treasury and / or distributed to token holders as "reflections". • The treasury is actively managed by yield farmers. • Farming returns from the treasury are distributed as dividends.

23/ These projects are too new to assess how they will do long run, but it's definitely an interesting concept I will be watching. There's a lot of value in having experienced yield farmers manage a treasury for the benefit of others who don't have the knowledge or time.

24/ 7. Pegged asset LPs: Pegged assets can be a great way to earn high yield interest without exposing your positions to impermanent loss risk. This would mean liquidity pools like: • $ETH - $WETH • $LUNA - $bLUNA • $TOMB - $FTM

25/ This is effectively like single sided staking, but can often offer significantly higher yields. For example, the $LUNA - $bLUNA LP is offering 18% APR on @loop_finance, whereas $LUNA staking offers only ~8%.

26/ The $LunaX - $LUNA LP on @staderlabs is another great one, paying ~30% APR. twitter.com/shivsakhuja/status/1487320083898765314?s=20&t=8KKrNc8bMSt3eSO72JEOGQ

27/ Even more lucrative (though higher risk) are assets that are pegged through a seignorage mechanism like $TOMB. I've explained @tombfinance before: twitter.com/shivsakhuja/status/1473991702926946304?s=20 The APR on these pegged LPs is very high (100%+), and there are many strategies.

28/ 8. Autocompounders aren't really a #DeFi strategy, but they are a way to boost your returns. Basically, these will take your staking rewards and automatically compound them at some optimal frequency. Examples: @beefyfinance, @autofarmnetwork, @Reaper_Farm

29/ Pros: • Automatically reduce exposure to shitty farm tokens (they are automatically sold and re-invested daily) • Reap the benefits of compounding passively • Potential tax benefits Cons: • Added layer of vulnerability (hacks, exploits, etc)

30/ • If you do the math, autocompounders don't actually help that much, unless it's a very high APR pool. You could just compound manually once / week and get similar results without the added risk. See the math below: twitter.com/momentum_6/status/1491547952267112448?s=21&t=anPGgdjsMzb_UluktewhOg

31/ 9. Options Strategies If you're familiar with Options in #TradFi, Options in #DeFi work pretty much the same way. Options are basically a way to make a high-risk, high-reward bet on the price of an asset by a specific date. Here's how they work 👇

32/ Let's take a call option as an example. When you buy a call option on an asset, you have the right to buy the underlying asset for the "strike price" on or before the expiration date. In exchange for this right, you pay the seller of the option a "premium".

33/ Let's say $BTC is currently at $45k. You believe $BTC will be above $50k by March 4th. • You buy a $BTC call option on @lyrafinance at $50k strike price expiring on Mar 4, and pay a premium of $800 for the option contract.

34/ • Suppose $BTC is at $55k by Mar 4. • You exercise your option to buy BTC for $50k, and sell it for $55k. • Your profit is $5k - $800 = $4,200 • If $BTC is below $50.8k, you lose money. The max you can lose when buying a call option is the premium you paid ($800).

35/ • Betting on asset going up = buy calls or sell puts • Betting on asset going down = sell calls or buy puts You can also combine these in various way for more advanced strategies. We recommend this YT channel to learn more about Options: youtube.com/channel/UCfMiRVQJuTj3NpZZP1tKShQ

36/ @phtevenstrong (The Calculator Guy) made a great video about using @lyrafinance to trade #DeFi options. twitter.com/phtevenstrong/status/1488742529029881861

37/ If you don't want to learn a ton about options, you can use automated option vault strategies through @ribbonfinance, @friktion_labs, @Katana_HQ, @DAOJonesOptions, @dopex_io. Though you probably shouldn't mess around with options without understanding them.

38/ @CryptoHarry_ wrote an awesome post about options strategies: twitter.com/CryptoHarry_/status/1478724805826203648

39/ 10. Liquidation strategies like @TeamKujira's Orca protocol are a great way to pick up some cheap crypto at discounts to the market price. We covered it here: twitter.com/momentum_6/status/1509555395802529797?s=21&t=anPGgdjsMzb_UluktewhOg

40/ @Route2FI covered it in more depth in his thread: twitter.com/Route2FI/status/1489643360298094597

41/ 11. Arbitrage Strategies With all the L1 chains, wrapped / synthetic assets, DEXes, etc, there are plenty of arbitrage opportunities in #DeFi.

42/ For example, you can use the $LUNA - $bLUNA Slow Burn strategy to earn 20 - 60% on $LUNA with minimal risk twitter.com/shivsakhuja/status/1472621429690494976

43/ Examples of arbitrage plays: • Buy a synthetic / wrapped asset for a discount and trade it in for the original asset elsewhere • Take advantage of pricing inefficiencies to buy on one DEX and sell on another. +++ Make sure to account for tx costs when arbitrage-ing.

44/ Here's another thread by @CryptoHarry_ explaining some $LUNA arbitrage strategies: twitter.com/CryptoHarry_/status/1469686840533815296?s=20&t=8KKrNc8bMSt3eSO72JEOGQ

45/ If you spot the right kinds of arbitrage, you can use flash loans to make huge returns with minimal risk. You can borrow millions of $ to profit from arbitrage opportunities. twitter.com/momentum_6/status/1500121517387968518?s=21&t=anPGgdjsMzb_UluktewhOg This is significantly trickier though - I haven't even tried this yet.

46/ 46 tweets later, there's still a ton more we could cover, but this covers a lot of #DeFi strategies, ideas, tools, and instruments. We'd love to know what strategies you want us to cover. Comment below 👇 #WAGMI

You can read the unrolled version of this thread here: typefully.com/Momentum_6/kcmMcUy