Next Stop, Valhalla
*Disclaimer: this is not financial advice and should not be viewed as recommendations to buy or sell any asset, this is purely educational and the information below is solely my opinion, please do your own research and develop your own conviction*
To be honest, the last person I ever want to be in life is the one who constantly tries to pick tops and bottoms and hopes to be right. At some point, it’ll feel like exuberance, and I might think we need to see some profit taking to alleviate greed and excess, and at other times, it might feel like capitulation with selling pressure drying up and it might make sense to start hitting the ask and slamming what you like, but overall, to me, it’s just too much to try and make a point that something is going to tank or rocket anytime soon. Instead, I like to be ready to react to price action and have a logical timeline and set of actions set up to try and profit as much as possible while reducing risk and minimizing low conviction plays.
Everyone knows that we’re about to be in the midst of the final push for this crypto cycle that’s going to take us to new levels we have never seen before. The $250,000 level for bitcoin is often mentioned, the $20,000 level for Ethereum is essentially programmed into our lizard brains, but overall, none of us really know anything other than making educated guesses based on past experiences and where we think things can go based on fractals, cycles and overall supply and demand metrics.
Long term, we all think crypto can go much higher than it is today, short term, we’ll probably be right in thinking we hit those new highs, briefly touching down in Valhalla before resetting and fading back to the old all time high breakout points that we just cleared briefly. My goal here isn’t to get into those issues and ideas, about where we are going and what things will look like, but instead, I would like to focus on what we can do with our money during this final ride and where we can place it if and when volatility rears its head and we need to be more cautious and conservative moving forward.
Yield Farming Stablecoins
One of the best ways to create income in the world of crypto is through yield farming stablecoins. This can be anything from lending out stables on a centralized exchange, jumping into liquidity pools or depositing collateral into DeFi protocols. It's a great opportunity to beat the rate of inflation while decreasing your reliance on banks and leaving myself susceptible to the volatility of the crypto world.
If I don’t see myself willing to take on any more risk due to price increases or fear of cycles ending, making the shift towards farming stablecoins could be a great way to increase the value of my money while I wait for opportunities to come my way.
There are tons of different options, with rates that fluctuate due to supply and demand metrics, but these are some of the ideas I think are worth mentioning. I personally would like to spread my exposure across different exchanges and chains to avoid being too concentrated into one area and being susceptible to smart contract risks getting in the way of things (rug pulls and exploits are a thing that happen, I should never be using money I can’t afford to have stolen from me).
If I’m ok with KYC or I want to keep some money handy to buy a bitcoin dip or another coin that’s harder to buy on a DEX, I could take advantage of using exchanges like FTX and Gemini to lend out my coins and receive some interest in return. This is great for creating some yield while accumulating or if I’m starting off with a small amount of money that I’m looking to grow as much as possible without trading.
Centralized Exchange Lending
FTX currently gives 5-8% APY on most of its assets which include BTC, ETH and stables with up to $10,000 deposited getting the max rate. This is a solid alternative to leaving money in a bank account, but it’s not the purest form of going bankless by any means. FTX is able to distribute this yield by lending out the coins I deposit and rewarding me for the liquidity I’m providing. As a result, this does run the risk of running into solvency issues during a black swan event or having to wait for the money to be unlocked rather than used right away if I decided to redeem my deposit. So this should be considered when depositing money here.
If I’m blocked from using FTX because of regional restrictions, I could take advantage of the rates available on Gemini Earn. The same concept applies here where Gemini is taking my deposits and lending them out elsewhere with potential redemption times not being immediate, but again, if I don’t mind those risks, considering that these financial products, and DeFi overall, isn’t FDIC insured, I could create some solid income while waiting to deploy my money elsewhere.
Currently Gemini is paying 8.05% APY on GUSD deposits, which is there stablecoin that is back $1 for $1. If I wanted diversity, or, wanted to avoid the reliance on fiat, I could opt for more decentralized options like DAI and UST.
DAI is currently paying out 7.55% APY, but it should be noted that 62% of, as of September 1st, is backed by USDC, so if I’m worried about fiat all of a sudden becoming rendered useless, it might not be the best alternative for me.
Instead, if I wanted pure decentralization that is completely removed from any fiat backing, I could opt for buying wUST on Gemini and lending it out for 6.88% APY. The rate is a bit lower, but if I was one of those people that wanted zero reliance on a fiat currency that is being diluted daily, this would be my only option available on Gemini. This does come with risks, however, in the off case that UST could lose its peg and see itself become worth less than $1. This may not be likely, as UST weathered the May swoon very well and avoided any serious catastrophe, but it is something to keep in mind, risk wise.
If I didn’t care so much about the risks related to fiat’s dilution or depegging, depositing and lending out any of these (or all) would be phenomenal alternatives to keeping money in a bank account, which makes this a great option for someone looking to build a cash position while waiting for a drawdown, or a place to store profits that were taken while waiting to redeploy them lower.
DeFi Deposits
If I wanted to just deposit money decentrally without engaging in any real farming or LPing, I could spread my money across a few different networks and protocols to earn some yield for the time being.
It should be noted that if I’m planning on going cross chain in any way, it’s going to cost me a decent sum of money to bridge in and out of the Ethereum network, so one of the best ways to avoid this would be if I could buy native tokens on my centralized exchange and directly withdraw into their networks. This works for farming on Polygon, Solana and Avalanche, but doesn’t work as well if I’m looking to take advantage of interest rates on Fantom or LUNA as I would need to bridge to their mainnets since the erc20 versions are the only ones available on Coinbase and Gemini, or if I wanted to use any of the layer 2 protocols that Ethereum has available, like Optimism and Arbitrum.
So, keeping that in mind, let’s start with identifying some solid opportunities in the Ethereum network since it is the most secure and decentralized.
Right now DeFi 2.0 is incredibly popular, but that is a topic in of itself that I would rather talk about at length another time, instead, for now, I would like to focus on the easiest ways to understand how to utilize some of those protocols, in addition to the DeFi 1.0 projects that paved the way for them. The first one that I recently became intrigued by is Rari Capital. I can access Rari’s DeFi protocols through the App.Rari.Capital frontend.
Rari, or RGT as its also known as thanks to its governance token, is currently giving 11.71% and 11.99% on USDC and DAI deposits, respectively. These numbers started higher at the beginning of the week and have come down heavily as more liquidity has entered the network, so it should be noted that I might not get the same rewards tomorrow that I see available today. But if I’m ok with that risk and I just want to let a position gain interest, this is one of the higher yields for stablecoins available.
Another DeFi 2.0 option I love is Alchemix.fi which I’ve written about in the past. Alchemix enables depositors to unlock future yield through permissionless loans that cannot be liquidated. Users deposit their DAI or ETH into the contract which then utilizes Yearn vaults to earn interest in the meantime. Your coins are locked up for the agreed upon date determined by LTV ratios and current rates within Yearn vaults and users can either take their future yield and use it elsewhere as they wait for their coins to unlock, or buy their debt back at some point in the future if the unlock time is too long. At the moment a DAI loan for $1000 at max LTV would reward users with $500 of capital today while locking the deposited DAI until 2024. If I’m looking to just pull forward yield, or would like to raise some extra money for an expense or leverage a situation, this could be a reasonable way to handle things until markets become more favorable.
There is also an Ethereum strategy here that I plan to get into later on in this article, but before I do that, I would like to mention some other useful protocols that build off of the ETH mainnet.
If I’m ok with bridging some money into the Polygon network, I can earn 8.3% and 10.46% APYs on DAI and USDT using Aave’s Polygon market. This would also allow me to enter and exit more freely since gas costs are much cheaper in the case that I wanted to be a yield vampire and constantly search for the best opportunities.
Bridging comes with some initial costs, you have to pay gas on the Ethereum side to bridge over to the other chain, and if you wanted to bridge back to Ethereum, you would have to pay another fee as well, so it is something that only makes sense when the money I could earn outweighs the costs for bridging. Typically, if I wanted to use DeFi protocols on other networks, I would want to use the native token and swap for whichever stables I wanted to deposit once I was on the mainnet, but if I don’t have access, I’m not really at liberty to do much else. For the sake of convenience here, we’ll talk about bridging to the Terra ecosystem and then utilize the native coins for Solana and Avalanche to get a look at what’s available on their networks.
One of the best protocols to take advantage of here is Anchor Protocol on the Terra network. If I wanted to take advantage of their 19% interest rate, I would have to start off by going to bridge.terra.money and sending my wUST or wLUNA (both erc20 versions can be found on Gemini but you would want to do this from a web3 wallet) through the bridge and into the Terra network. To make this work, I’d need to download the Terra Station wallet.
Once I bridged my coins over, I’d go to the AnchorProtocol.com frontend and launch the app. From here I have two choices, I could simply deposit the UST I transferred over, leaving a few coins free to pay for any gas fees, and begin earning 19% or I could bond my LUNA and borrow UST against it, which I would then deposit to earn that yield. If I was looking to cash out of a LUNA position in anticipation of a pull back, or simply looking to just earn some interest while waiting for better entries, this would be one project I’d look to take advantage of.
If I wanted exposure to the Solana ecosystem, I could take the same approach, except using the native version of Solana that is on Coinbase, sending it to my Phantom wallet and swapping it for USDC inside of the wallet (make sure to leave a little behind for fees), depositing that money into Solend.fi and earning 12.90% interest.
Liquidity Pools
While we’re off the ETH mainnet, we might as well use this time to talk about liquidity pools that pose some interesting opportunities.
When it comes to hunting for yield through LPs there are a few things to consider, one is impermanent loss and the others are decreasing rates as liquidity pours into the pool and gas fees eat up one’s ability to hop around and search for the best yields available. Currently, the best opportunities to do this lie in other L1s and the side chains and roll ups available for Ethereum’s L2s. This doesn’t mean you can’t farm on the ETH mainnet, in fact we’ll touch on a few strategies by the end of this, but it’s harder to be a vampire sucking out yield from the best pools possible when you have to factor in gas costs.
The Avalanche network has some decent options, especially if you don’t care about exclusively farming stables. PenguinFinance.org has some of the best ponzis out there right now, with users able to generate 260% APY in AVAX-TIME pools. If I didn’t care about the underlying assets and just wanted the rewards, this would probably one of the best options out there for me, considering that AVAX and TIME are two of the biggest leaders in this ecosystem with one being the network’s native token and the other emerging as the cult obsessed DeFi 2.0 name. The only downside here is token values decreasing while farming which would cost you fiat in the short run. This would probably serve best as a pool I wanted to run on the way up into the final push, rather than one I held through any exuberance and overall weakness in the sector.
Aside from that, I could earn 20% yield in a DAI.e-USDC.e pool which isn’t a bad alternative if I had some money natively on Avalanche or wanted long term exposure at some point. All I would have to do if I wasn’t a holder already would be buy AVAX on Coinbase, set up the Avalanche C-Chain on MetaMask (learn about the differences between C and X chains before playing around), send my tokens over and swap them for DAI and USDC, making sure of course that I left a little AVAX in my wallet to cover any gas costs.
If I don’t like the PEFI token and prefer getting JOE for potential rewards, I could engage in the USDC.e-USDT.e farm on TraderJoeXYZ.com and earn 17.59% APY. JOE is emerging as one of the leading DEXes on Avalanche so this could be a good alternative for me as a way to passively build a free stake in a potential blue chip DEX if TVL continues to rise in the Avalanche ecosystem. And if I don’t want Tether exposure because of the existential risks, I could swap out USDT for DAI and earn 15% interest instead which is still pretty good.
And if I’m an AVAX-TIME junkie and just want to ape as much as possible into those pools, JOE is offering 193% APY on their version of the pool, which isn’t bad by any means for a bull market heading toward Valhalla.
Moving off of Avalanche, we have some interesting opportunities on the Fantom network where the only downside lies in the fact that bridging costs in and out of the network could be expensive, costing 30-50 FTM to enter and exit the mainnet. Since Gemini only uses the erc20 version of the FTM token, users have to bridge over. Users would have to set up the FTM network the same way they set up the Avalanche one in MetaMask, using the unique RPC information, and once they are ready, they could head to Spookyswap.Finance where they could bridge and engage in farming all in one location.
If I don’t care about impermanent loss, I could run a FTM-USDC and FTM-DAI pool and earn 88 and 89% APY while earning rewards in the BOO token which has held the $20-22 level fairly well lately. This is a good option for cheap farming with low risk IL wise since the FTM token isn’t crazy volatile and is trading in the $2-2.50 range currently. The worst case scenario is that as it rises I take in more stables, essentially locking in profits, and as it comes down during a bear market, I can build my position back up all while earning those BOO rewards which I could harvest at any time and sell for more stables or any other major erc20 asset on the FTM network for the low cost of less than .1 FTM.
Moving onto the Solana network, we have some good opportunities to farm while earning some DeFi tokens that are sought after. I personally would avoid farming on networks where the rewarded token has an insanely unfair inflation schedule or unlock, unless I was planning on actively trading the native token awarded to me for more SOL or an asset of my choice. As a result, I’m going to start with ORCA.so which has a max supply of 100M coins. Although the coin is expected to see supply increase from 10m to 100m in the future, at least we’re not looking at something insanely inflationary like some of the alternatives. In addition, ORCA has gotten some institutional support and could be a token worth holding in theory if you like the idea of DeFi on Solana.
Currently I can earn 13.8% on the USDT-USDC pool, but if I wanted to venture out or have a locking mechanism that slowly takes profits for me, I could engage in the mSOL or SOL - USDC pools and earn 23.7 or 32.6% APR, respectively.
If I wanted the same effect for my Solana position, I could head over to Raydium.io and lock up stSOL-USDC and earn 53% APR while receiving rewards in wLDO. This works if I like what Lido DAO is doing with liquid staking, or if I just want to take my current position, try to lock in profits on the way up while maximizing my yield which I could harvest and use to swap for more Solana, stables or any other asset I desired more. And as long as I like Solana as a long term investment, I could leave it in here and let the interest pile up as long as the rewards are worthwhile and let my position slowly build back up as the price of Solana corrects down.
Another option I have on Solana is to head over to Tulip.Garden. The benefit here is I would receive rewards in LP tokens instead of random governance tokens and can further compound my pool over time. The rates aren’t as great for stable pools here, the UST-USDC pool is only yielding 10% APY, but it’s a sufficient option if I just want to save my money and wait for other opportunities.
I could also head over to SynapseProtocol.com and provide some liquidity for their bridging pools earning between 32 and 44% APY by being exposed to USDC and nUSD, which isn’t a bad move if I wanted to try and get exposure to BSC, Polygon, Fantom, Avalanche and Arbitrum with as little work as possible to get it done.
I personally wouldn’t go crazy providing liquidity in the ETH mainnet as it could get expensive on the L1 to hop around and search for the best yields, but I would consider bonding some LP tokens with OlympusDAO to make some extra money that way if the market is seeing any weakness.
Hedging My Bets
Earlier on I mentioned Alchemix as a viable option to pull forward future yield using DAI, but one of the other use cases currently is the ability to unlock future yield on Ethereum deposits. The only problem here is the fact that Yearn vaults for Ether offer very little yield and would in theory lead to a pay back time that lasts into the early 2030s. An option instead that works is the ability to use an Alchemix loan to create a synthetic short and hedge my position with little risk short term.
Alchemix loans are derived entirely in crypto. 1 ETH = 1 ETH regardless of the price in fiat. If I decide to deposit 5 ETH in theory at $20,000, I could receive 2.5 ETH in debt that will naturally pay itself off over the next decade. If I’m ok with the risks associated with doing this, I could just borrow the ETH and go about my day but if I don’t want to carry that smart contract risk for a decade and instead want to unlock my Ether at some point, I could buy back my debt.
Let me explain, if ETH goes to $20,000 and I think that’s the top and it’ll tank from there, I can deposit my 5 ETH, receive 2.5 alETH back, swap that for a stable coin like DAI, and pocket $50,000 in fiat value. If Ether goes down to $5,000 a coin, I can now in theory convert some of my DAI back to alETH and buy back my debt, unlocking my collateral and pocketing the fiat difference after profiting from a short that is nearly zero risk and not vulnerable to a liquidation if the market ripped higher instead.
This isn’t a guarantee, but, if I’m looking to actively trade ETH or get exposure on the short side to hedge my position, this is a great alternative to using perps or shorting futures and risk losing everything.
If I’m wrong in this scenario and I’m net bullish ETH for the decade, I could just leave everything alone and let my debt be paid back naturally through the Yearn vaults. The only risk here being that Yearn rates change or Yearn ceases to exist and I have to interact with the Alchemix smart contract to buy my debt back. In theory, this could be much higher than the current day value which would make everything for naught, so it really should only be a strategy if I’m actively trading or I’m solely looking to get some protection/downside exposure while staying as long as possible. If I’m right, I could potentially double my collateral after buying back my debt much lower, but if I’m wrong, I at least know my max pain in a black swan event years from now .
Nodes-as-a-Service
Another option that isn’t frequently mentioned is buying up STRONG tokens to start running STRONG nodes.
Without going into too much detail, I would need to buy 10 STRONG to run a node and earn .1 STRONG a day. Currently the price of STRONG is $905 which means the cost to do this is a little heavy, but thematically this makes a lot of sense as running a node is a necessity and the maintenance costs and hardware costs here are minimal.
This would be a strategy that I’d consider during a bear market after everything came in and became more affordable, and it’s something I am keeping in mind and under close consideration for the near future.
I won’t spend too much time talking about it today, but I do think it’s something that is worth researching moving forward and becoming aware of as the STRONG project is a very well run one that is offering tremendous opportunity and passive income for people who are able to time their entries around major downturns.
Exit Plan
Right now it’s a fun journey with everyone making money regardless of what they’re doing, at some point, this cycle will end and opportunities will dry up and demand will slow down while we enter price discovery lower.
It might be a brutal correction, it might not, I can’t determine the answers there, but what I could do is prepare for this situation by creating a plan for the ride up and the ride down to try and maximize my value and opportunities during times of intense selling pressure and crazy volatility.
Using DeFi to weather the storm during a correction could be a very safe way to have money in the crypto ecosystem while waiting to deploy it at attractive levels. There are a lot of different options here, many that I didn’t even cover, but these were some of the projects that I thought were worth my time and what I might invest in at some point. I currently only have exposure to the two Fantom pools I mentioned, with my exposure being minimal at best in order to test out the network for research purposes.
I would be cautious using DeFi if I have large sums of money that I cannot afford to lose, it’s better for me to use less money or avoid the opportunities if I can’t stomach smart contract risk, exploits and rug pulls. There are no guarantees in life and fewer in the world of crypto. Things can change very quickly and I shouldn’t take anything for granted.
As always, this was not financial advice but a look at what I might be doing in the near future and the plan I am creating for myself moving forward. Please do what is best for you and do not view this as anything other than educational material and a journal entry that I am sharing with the world.