Investing in crypto w/ DeFi Knowledge
It depends what your investing strategy is. With the birth of Decentralized Finance, the strategies for investing in such a sector have become much more elaborate as time has gone on, with unique opportunities like gaining a negative % interest on a loan that’s paid back within 3 years, or leveraged yield farming, where you borrow funds and then place those funds in a liquidity pool, thus earning more on trading fees APY and Yield farming APY. But if we were to ignore all the complex strategies that exist, we are still left with 3 main crypto investment strategies.
- Buying and HODLing
- Buying with a plan to sell in the short — medium term
- Not buying, but still utilizing the underlying architecture to gain Yield
Note: the third option here is not yet widely known, but I hope it is in due time!
I want to discuss some different ways to Utilize the Decentralized Finance ecosystem to earn some extra interest APY on top of the above stated strategies.
Buying and HODLing
This seems pretty straight forward. Buy some token and then hold it. Why just stop there? There is most likely an investment opportunity within the DeFi ecosystem for this asset!
I just want to buy BTC.
Why not buy BTC, while also earning an interest % return / yr on top of it?
How to utilize the DeFi ecosystem?
At Harvest Finance you have the ability to earn up to 13.9% APY on top of just holding BTC. This APY is generated from CRV, BOR, and FARM rewards.
CRV:OBTC value placement
How do you get CRV:OBTC?
https://curve.fi/obtc “Buy and sell” tab
From Curve of course, utilizing the “Buy and sell” tab. You will need wBTC or some other asset to be able to buy oBTC. How to get wBTC? (1inch.exchange Dai / wBTC, or any other pair that makes you happy)
https://curve.fi/obtc/deposit “Deposit” tab
Once oBTC is bought, head to the “Deposit” tab and deposit your oBTC. This will supply you the needed CRV:OBTC LP token for use @ harvest.finance.
There you go, now you are earning an extra 13.9% APY on top of just holding BTC!
There are opportunities that exist like this all over for almost every token you wish to buy and HODL. The trick is trying to find them and positioning yourself into them. The pay off is the APY you gain!
Buying with a plan to sell in the short — medium term
This is also quite known. You can just use a service such as Binance, or Coinbase. You deposit some FIAT, buy some token, wait until the price goes up, sell. (Or sell at a loss if the price goes down!) Even if this is your investing approach, there is still a way to benefit from the infrastructure the DeFi ecosystem has to offer.
How to utilize the DeFi ecosystem?
Layer 2! If you are an active trader with > $30,000 to trade. Your best friend will be Layer 2.
Brief overview of Layer 2
Layer 2 is a collective term for solutions designed to help scale your application by handling transactions off the main Ethereum chain (layer 1). Transaction speed suffers when the network is busy which can make the user experience poor for certain types of dapps. And as the network gets busier, gas prices increase as transaction senders aim to outbid each other. This can make using Ethereum very expensive.
It’s not too important understand the specific solutions these side chains are implementing, such as zk-roll ups or optimistic rollups. What is important to know is that side chains exist and they can be up to 1000x cheaper for gas fees! Which essentially mean the gas fees are free and the only fee you will have to pay to access layer 2 would be the transferring fee. (From layer 1 to layer 2. This cost is usually around $15 — $20 to create a “Layer 2 account”) and swap / trading fees.
Introducing, Loopring
https://exchange.loopring.io/pool
Loopring offers a L2 solution utilizing zk-rollup. This is a DeFi product as it utilizes smart contracts to create liquidity pools of token pairs for the user to perform swaps.
Well I like using an orderbook instead of liquidity pools for my token swaps!
Loopring has you covered here too!
https://exchange.loopring.io/trade/LRC-ETH
Even if you are an active trader, you can still benefit by utilize the DeFi ecosystem.
Not buying, but still utilizing the underlying architecture to gain Yield
Perhaps you are uncomfortable with some of the rapid price fluctuations you can be exposed to with a crypto investment, but you still want to gain an interest return. You can still use DeFi! You are able to place your value into USDT, DAI, USDC, or some other stable coins. Once you do this, your can then place these into different yield-bearing positions earning < 30% APY just for holding a USD position.
How to utilize the DeFi ecosystem?
There are tons of opportunities that exist for stable coin investments.
4 different investments that come to mind are,
1. Alpha Homora v2 Yield Farming Curve 3pool (link)
2. Alpha Homora v2 ibDAIv2 (link)
3. Yearn stable coin vaults (link)
4. Alchemix negative interest rate loan vault (link)
What’s cool with all of these investments are that the initial value input is a USD. So you don’t need to worry about any price fluctuations and can purely reap the yield rewards!
When I see the plethora of attractive investment opportunities that exist within the DeFi ecosystem for stable coins I get quite taken back. The ability to attain financial freedom in a safe, stable manner can be done with much less capital when compared to the the current centralized financial ecosystem where a series of middlemen are scaping fees from such yield.
The future of Decentralized Finance is bright and I can’t wait to see what the next year brings with EIP 1559 and ETH 2.0 just around the corner. These positions will become even more attractive once users doesn’t have to pay such large gas fees to maneuver around the ecosystem.
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