Crypto: Strategies Ranked Based on Risks Part I
Updated: Feb 24
-Edited on 25/2/2021- Added Gemini referral code
In this post, I discussed about a list of ways to invest in crypto.
I have been telling people close to me about crypto and how they should at least try a small amount to know more about it. However, all of them were uncomfortable with the idea of investing in digital assets "created out of thin air" which is completely understandable.
Still, the common misconception normies have about crypto is that they thought they need to buy these digital assets to invest. Actually, you don't... you can just utilize the services.
So I came up with a list of crypto strategies ranked based on my estimation of risk/reward and how much you need to know to before putting in your money to try simplifying things a little.
Here it goes, starting with the low risk:
Lend stablecoins on CeFi
Lend stablecoins / provide liquidity on DeFi
Buy majors (BTC, ETH)
Lend majors on CeFi
Lend majors / provide liquidity on DeFi
Buy blue DeFi coins and participate on protocol
Yield farm in tested smart contracts
Leveraged yield farming
Yield farm in un-tested smart contracts
Following a hype: XRP, DOGE etc. (Ape level)
This is what I currently know so far, I will edit if there's some new stuff released in the future.
1. Lend stablecoins on CeFi
Crypto is too volatile of an asset class?
Not looking to get a hardware wallet anytime soon?
Then, perhaps this strat might suit you... but it's not exactly investing since it only involves holding FIAT currency. All you need to do is to swap your cash for stablecoins (tokenized US dollars) and loan it on CeFi platform like Celsius Network, BlockFi etc. In return, you get rewarded with a nice interest (min. 10%~) that beats saving your money in any bank account.
To do so, you will need an account with Circles and Celsius Network. Circles is a FIAT-to-Token platform (on/off ramp) which allows the swap of USD to USDC (one of the tokenized US dollars) and vice versa. Wire transfer your cash (DBS for no fees!) to your Circles account, make the swap, transfer your USDC to Celsius phone wallet and wait for weekly payout. To cash out, just reverse the process.
Alternatively, you could swap your USD for DAI on Gemini.. whichever is fine.
The major downside with CeFi is that they have your personal info and it is custodial.
2.1 Lend stablecoins on DeFi
Okay, maybe you don't like CeFi but you know how to use web3 wallet (MetaMask etc.) to interact with DeFi platforms. At this point, it is highly recommended to get your own hardware wallet or minimally a phone app wallet to secure your coins.
Lending on DeFi is similar except that interest is dependent on current market demand. Sometimes APY can be less than 5% thus it would make more sense to lend on CeFi instead unless you are looking to leverage up. Other times, it can shoot up to 300% (depending on coins) when a promising new farm pops up, causing the demand for a particular coin to skyrocket.
Personally, AAVE is my go-to protocol. I did try CREAM Finance for a short while but they were recently involved in an exploit with ALPHA Finance so not recommended. Then, there is COMPOUND Finance which I haven't tried.
Some lending tips is to have an idea roughly how long you're gonna lend and transaction fees. For example, let's say I have 1000 USDC idling in my wallet so I deposit on AAVE to earn 5% APY for productivity. Suddenly, the market dips so I withdrew my USDC and bought some tokens. By doing so, I have incurred:
Fee to approve spending my USDC
Fee to deposit USDC into AAVE
Fee to withdraw USDC from AAVE
Based on current gas fees, total cost estimates about $100 which will put me at a slight loss. This happens to me so often lol.
Another tip is to use protocols that have been around for quite some time. Over the past few months, crypto exploits/hacks have gotten increasingly complex that even if their smart contracts were audited by top auditing firms doesn't mean it is completely safe. Hence, protocols that have been time-tested would be more recommended over new ones. Still, never put more money than you can afford to lose.
2.2 Provide liquidity to DeFi stablecoin pools
Quite similar in concept to lending assets, you can choose to become a Liquidity Provider (LP) to facilitate swaps from one token to another and earn fees. The catch is that there is an additional risk called Impermanent Loss (IL) on top of smart contract risk. More on impermanent loss in my later post.
For those who are concerned about IL, fear not as liquidity protocols are beginning to develop ways to implement some sort of IL protection!
APY can be quite high as well as some do reward native tokens for LP-ing on their protocol, usually to compensate for IL.
Some of the protocols I LP-ed were Curve Finance, 1INCH Exchange and Mooniswap Exchange (I was farming for 1inch tokens for abit). I do wanna try DODO's USDT/USDC pool soon. Other notable mentions are Uniswap, Sushiswap and Balancer.
To be continued in the next post...
Disclaimer: The information listed here is accurate at the point of writing. I am not endorsed by any of the platforms mentioned here. It is strictly my personal opinion and should not be regarded as investment advice. Please do your own due diligence.
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