Bienvenidos mis ositos, tu siempre eres mis queridos! (Welcome back little bears you are always my dears!)
After a nice start in the first quarter of the year, the crypto markets have flopped around during the second quarter.
The crypto markets remind me of an old man going through a midlife crisis. After toiling in some middle management corporate job for most of his life he now decides to embark on a life of adventure.
But after years of neglecting his fitness and overestimating his looks, he thinks that a cocktail of Red Bulls, ‘roids, and Viagra can help him get back in the game!
Maybe he thinks he can relive his glory days as a college athlete again! Cheerleaders and other babes will magically flock to him!
Then reality sets in. The young ladies at the bar politely decline his advances. The hotties at the club put up the dreaded “L” handsign on their foreheads.
There’s nothing sadder than an old man drinking alone at a bar. Perhaps he should’ve paid attention to the bald spot that keeps getting bigger. Or maybe work on that expanding gut.
And for goodness sake swap out those baggy “Dad” pants and white New Balance sneakers for some nice slacks and leather shoes!
As the night rolls on and the final call approaches the old man is about to give up…
Troll: Then what happened Panda???
Panda: I was about get to that part!
As I was about to say, just when all hope seemed lost the old man finishes his drink. Then he sees Troll’s Granny!
The old man hesitates but thinks to himself “Why the hell not”?
As they arrive to his place, they waste precious little time!
Then the problem that most men fear crops up (or not!)
No amount of little blue pills can hoist up his flag pole!
He’s not limp but not quite stiff enough!
Troll’s Granny licks her lips and wiggles the goods but it’s not enough.
Troll: This story is disgusting! What does this have to do with crypto?!?
Panda: The crypto market is like the sad old man in the story. They’re both in trouble of going limp and fading into obscurity! Maybe if he had a fluffer…
Troll’s Granny: I have some experience with that! <spits in hand>
Panda & Troll: AAGH!
Dear frens, I apologize for these vulgar posts but I need to fill these posts with words!
Let’s face it the crypto markets is in danger of growing old and stale.
I’ve sifted through the BRC-20, memes, and AI bandwagon hopping narratives. The only people getting rich are the influencers and the insiders.
Publsh0x Troll: But what about the poors?
Panda: Don’t be one of them!
The furus, and marketers have moved on!
Zero days to expiration options, Artificial Intelligence (AI), Crap GPT, and NVIDIA are the shiny new toys!
But maybe there’s some hope. At some point the marketers and scammers will need to park their money somewhere!
Maybe the crypto markets have one last trick up its sleeve!
Some of that pilfered money will probably go into good ol’ BTC AKA digital gold.
I would like to also make the case for ETH as digital crypto Treasuries.
Some crypto analyst have already compared the Ethereum’s staking yield to US Treasury bond yields.
Most ETH liquid staking tokens yields hover around 5%. Sometimes more depending on blockspace demand and incentives. This stacks up nicely to most Treasury based money market funds.
“Risk free” is a relative term of course. Global financial markets often use US Treasury yields as a benchmark to compare yields from other risky assets.
Crypto markets didn’t really have that until the recent Shapella upgrade.
Ethereum stakers can now freely unstake their ETH as they wish.
LIDO also recently allowed stETH holders to withdraw their ETH (there is a 24 – 48 hour queue).
Technically this isn’t “new” new.
Other proof of stake protocols have yield and they had their own borrowing and lending protocosl.
However Ethereum has size, “brand” recognition, and “sticky” capital.
After all the hacks, CeFi scams, and scumbaggery of 2022 I really don’t feel like messing around on other layer 1s. If I want something done cheap and fast I’ll use a layer 2. If I need to on ramp/ off ramp a large position I’ll bridge back to Ethereum mainnet.
Let’s imagine that you want to diversify your degen activities away from filthy crypto.
Maybe you want to start a respectable business like a brothel or drug den.
Your local bank will probably turn you away or even worse report you to the authorities!
You can also try your luck with brokerages or a mortgage lender (if you own a house).
BUT, TradFi lending like securities backed lines of credit (SBLOC), and home equity lines of credit (HELOC) put restrictions on ho you use your proceeds.
Let’s take a look at the Schwab Pledged Asset Line (PAL). They charge a rate of Secured Overnight Financing Rate (SOFR) + spread. That’s almost 10% at today’s rate!
What’s more each security will have a different loan to value to borrow against. You can check more here (not an affiliate link):
Pledged Asset Line® (schwab.com)
For example if you have US Treasury fund you could borrow up to 96% of the value whereas if you have meme stocks you won’t be able to borrow anything.
Don’t forget you also have fill out forms and go through an approval process.
What a hassle to borrow at 10%+
Let’s head back to crypto land or should I say crypto LEND?
Defi had Aave where you could borrow different stablecoins against “regular” ETH.
They offer over collateralized loans prevent or at least slow down bank run scenarios.
They are the current DeFi lending king but things move fast in crypto.
The rates and borrowing capacity have been all over the place this year but still offer a better deal than most TradFi alternatives.
Imagine that, DeFi can be competitive and useful!
Let’s inspect some underappreciated DeFi lending alternatives.
Liquity
Various liquity front ends offer a flat fixed fee upfront. You deposit “regular” ETH and can take out a loan UP TO 90% of the ETH value at the time.
They only offer LUSD loan proceeds so you will probably need to swap out for the stablecoin of your choice.
LUSD generally trades at a small premium to most dollar stablecoins.
FRAXLend offers more collateral types but their borrow rates are variable.
You can borrow against “wrapped” ETH (Frax also has a swap service). You could also put up WBTC, CRV, and CVX.
However I find the sfrxETH option to be the most interesting. You can continue earning frxETH while it’s being held as collateral.
You can only borrow the FRAX stablecoin so again you will probably need to swap it for another stablecoin.
https://app.frax.finance/fraxlend/available-pairs
You can borrow up to aloan to value (LTV) ratio of 70% against sfrxETH .
As long as the staking yield on sfrxETH is greater than the borrow rate of FRAX, you might be able to come out ahead on the deal!
Finally I’ve been battle testing crvUSD from Curve Finance
https://crvusd.curve.fi/#/ethereum/markets
crvUSD is the new stablecoin you can borrow. As usual you will probably need to swap it out for another stablecoin if you wish t do so. They have sfrxETH as the only accepted collateral to start but more to follow.
Like with Fraxlend you can come borrow at a net positive rate and come out ahead (for now).
Of course all this is assuming Ethereum maintains or improves its current value.
You may want to pay back your loan when it becomes unprofitable to do so.
With a crvUSD loan you can potentially avoid “hard” liquidations when the price of your collateral dips.
This is the power of using an appreciating, cash flow producing, liquid asset as collateral and borrowing a fiat based liability!
This ideas could attract retiring boomers and early retiring Gen Xers
looking for a clever liquidity boost.
This could also be useful for Millennials and broke Gen Zers that might need a temporary loan to meet expenses while they look for a new career.
Who knows what other use cases can crop up? Digital nomads, and expats practicing geographical arbitrage might be able to take advantage of this too!
One last use case before we say goodbye to this post. Borrowing against an Ethereum liquid staking derivative can be useful for larger traders. In the past timing your exit out of Ethereum was quite tricky.
Most traders get out too early or too late. Borrowing against your Ethereum based liquid staking derivative might be a better stop loss order replacement!
Think about it if Ethereum continues to appreciate in value Great! You can borrow more against ETH. If ETH goes into another crypto winter oh well your ETH collateral gets liquidated and taken by the protocol.
But at least you still had the stablecoins available to use!
Obviously none of this is formal financial or tax advice. You need to find qualified professionals in your jurisdiction.
Be sharp, stay hungry let’s get that money!
