How to Allocate Across Your TradFi CeFi DeFi Assets

How to Allocate Across Your TradFi CeFi DeFi Assets


Bienvenidos mis ositos, tu siempre eres mis queridos! (Welcome back little bears you are always my dears!)

So now that you’ve bought some crypto and maybe played around with some DeFi protocols what next?

Before I can help with that question you have to do some thinking <GASP!> and a little bit of work <DOUBLE GASP>. Don’t worry if a fat lazy panda like me can do it, you can do it too.

First you have to get a handle on your current situation. Then you have to estimate how much your future self will want to spend. Next you have to get an allocation plan to get you there.

Let’s take two fictional people on different ends of the risk spectrum

Terry the TradFi trader has a very risk averse mindset and she wants to stay 90% in TradFi and commit 10% to crypto. She’s 66 and getting ready for retirement. She’s mostly in dividend and interest paying mutual funds.

She barely understands this “newfangled bitcoin thing” but heard from her grandkids that it’ll be the future.

On the other side you have Dennis the DeFi degenerate; he likes throwing 90% of his money away on trashy yield farms and has 10% in meme stocks for “diversification”. He’s barely out of high school and willing to go for broke.

 Now I’m guessing most of my dear readers are somewhere in the middle of these extremes but have high hopes for the crypto space.

Some good retire on crypto videos from InvestAnswers (I have no affiliation with this gentleman but I like his approach)

https://www.youtube.com/watch?v=LgH3_3UQRe8&t=4s

https://www.youtube.com/watch?v=LASTN9MbOno&t=901s

https://www.youtube.com/watch?v=8ToydGBBoLQ

Pandas don’t have long lifespans so I don’t plan on having a long retirement. This means I can allocate more to frisky DeFi plays.

While I myself am a lazy oaf, I like making my capital work hard.

Every passing day makes it harder for me to keep a traditional bank account or brokerage. It’s sort of like having a landline after the proliferation of smartphones. However depending on where you live, your government and their banking buddies might make it difficult to escape the TradFi clutches.

For example, there probably aren’t many utilities and landlords that take crypto. So you will probably need to stick some fiat in a bank for immediate monthly needs. Then you may want to keep some TradFi assets like boring dividend paying stocks for emergency collateral purposes.

 

We’ve all heard the phrase “not your keys, not your crypto”. Which is true, that’s why I have a hardware wallet stashed in parts unknown. However what if something happens to the physical wallet? This is where a CeFi option can be handy to have around.

You can have the ability to move back and forth between crypto and fiat. A good CeFi option should also have the ability to earn interest on crypto. They should already be regulated and most likely carry some insurance. However they will probably not be able to match DeFi returns.

For me the ideal allocation would be 10% TradFi/ 10% CeFi/ 80% DeFi. However we are going through dangerous regulatory times. Every country has their own bureaucracy and clarity of crypto rules. As DeFi matures and regulators get more comfortable with the technology (I hope they don’t muck around too much) I will slowly bump up my DeFi allocation.

As of right now my allocation is roughly 25% TradFi/ 50% CeFi/ 25% DeFi This might be aggressive for some and is currently painful to go through. Earlier in the year I was about 50% TradFi/ 50% CeFi, after the mini drawdown in a lot of tech stocks I decided to shift some funds.

I wanted to get more practical hands on experience with DeFi. Unfortunately my timing was awful. As of today tech stocks have recovered while most cryptos have been hammered. Talk about impermanent loss.

However there’s still a few months left in 2021 so I expect (hope?!?) that cryptos will get a second wind and close the year at new all time highs. Then in early 2022 I will shift more allocation around again by raising more cash. I will probably have to sacrifice some gains from my CeFi/DeFi allocations to pay taxes.

My biggest fear would be that the country where I live bans crypto, Then I would need to put everything back into TradFi and find a friendlier place to live. I hope that never happens to any of my readers.

Of course this isn’t advice of any kind. This is just my current thought process and will change whenever opportunity pops up.

Be sharp, stay hungry let’s get that money!

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Suerte Panda
Suerte Panda

Fuzzy Defi Enthusiast


How to transition from TradFi to DeFi
How to transition from TradFi to DeFi

The easiest way to convert DeFi infidels is to show them modern versions of TradFi services that they already use.

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