Crypto: Strategies Ranked Based on Risks Part II
Updated: Jun 26, 2021
This is a continuation from part I.
Here is the list:
Lend stablecoins on CeFi
Lend stablecoins / provide liquidity on DeFi
Buy majors (BTC, ETH)
Lend majors on CeFi
Lend / stake majors or provide liquidity on DeFi
Buy DeFi blue chips and participate on protocols
LP or Yield farm in tested smart contracts
Leveraged yield farming
Yield farm in un-tested smart contracts
Following a hype: XRP, DOGE etc. (Ape level)
3. Buy majors
Sick of seeing your stablecoins numba no go up?
Tether is top 3 coin, why no go up?
Strongly feel that crypto will be the future after doing your research or "blv in the futur of france" in CT (Crypto Twitter) terms?
Ready for some actual volatility to spice up your boring life?
Enough of having fun staying poor?
Then, maybe you should get some Bitcoin and Ethereum.
The reason why I ranked majors lower on the risk scale is because they are slightly less volatile than altcoins and have a stronger narrative for buyers to hold. The downside is that majors usually underperform compared to altcoins. Possibly due to their high price tag that often gives the impression as expensive whereas altcoins can easily move from $0.05 to $5 (putting tokenomics aside) because it appeared cheap and still look cheap at $5.
I'm gonna leave to the readers to come up with their own investment thesis since there are already tons of articles on that topic. Most importantly, everyone must recognize that both tokens are fundamentally different and designed for different purposes. Yet, there are ongoing debates why one is better than the other.
TELL 'EM DORA!
How to buy BTC and ETH
Buying majors is so much simpler and we have much more choices compared to buying stablecoins. You will need an on/off ramp a.k.a. FIAT-to-Crypto exchange.
For amounts less than SGD $30,000:
An annual cap was introduced due to MAS regulation which you can read below:
or you can check out Gemini here, they recently launched their SGD trading pairs!
For amounts above SGD $30,000:
This is my preferred and the most cost effective method to buy. The downside is money can only be wired on working days and the balance will only be reflected in your Gemini account around 10pm. Make sure that you have the bank details correct and you're transferring from the bank account registered with Gemini. Don't be like me who transferred from the wrong account and had to wait for 10 working days to get my funds back.
Other than that, my experience with Gemini has been great so far!
Alternatively, you can use CoinHako which doesn't face any transfer limit. Likewise for them, deposits will only be processed during working days from 10am to 4pm. However, I think there has been huge amount of attention on crypto lately which CoinHako has been struggling with:
On top of that, fees are higher and the spread isn't that good so yeah...
What about others like LTC, BCH etc.?
I don't know much about LTC, BCH, BSV etc. besides the fact that these are forks of BTC and is supposed to be better technologically. BTC forks don't get much attention nor adoption. Maybe it is all psychological, people just prefer the original BTC rather than copies.
If you need another pet rock that is more pet rock than BTC now you know where to get some lol.
What about ETH "killers"?
The "problem" with Ethereum is that over the years, the number of participants and activities have increased exponentially which led to a significant increase in network usage. Bear markets in particular, transforms ETH network into a free-for-all fight arena where the highest bidder gets their transaction pushed through. Fees become so astronomically high that it was beyond economical sense for small bag holders to do anything.
A good example would be September 2020 where Chef Nomi rugged the SUSHI farmers, causing LPs to cash out asap and the crypto market crashed. Gas went up as high as 1000 that gas tracker wasn't even showing the correct value lol. Well on the bright side, the network didn't crash when operating at such high load!
As such, alternate chains were brought into existence which will not only be cheap to transact but are also looking to objectively replace ETH in the future. Hence, the term "ETH killers".
In my opinion, projects with some real traction are probably: Polkadot ($DOT), Cosmos ($ATOM), Solana ($SOL) and Binance Smart Chain (BSC). I'm not familiar with the first three except for BSC which is a copy of ETH, managed by Binance, fees largely subsidized by Binance and has like 10 bil value on it.
For now, I'm not too worried about ETH killers due to the following reasons:
ETH has first-mover advantage -ETH network has proven to be reliable, performing well under high load -The network effects that ETH has -Most dApps are on ETH -Developers have become proficient in Solidity over the years -Risks involved when migrating from one chain to another
Growing TVL (Total Value Locked)
Almost 40 bil is circulating on ETH.
Layer 2 solutions Many of the protocols are working to integrate L2 solutions which can reduce fees
ETH v2 in development Not too sure when it will be ready but at least they are working on it!
Multi-chain bridges Different networks will be able to co-exist together, maybe process the cost intensive process on another chain and then come back to ETH? This is something that THORchain will be releasing soon!
Considering how fast the crypto space innovates, I believe a solution to the fees should be available in the next few months! If you still wanna complain about the fees, then I have a message from our friendly neighbourhood, looking to dump his bags on you someday, DegenSpartan.
4. Lend majors on CeFi
Tired of seeing your pet rock not growing?
Jealous of people yielding on their tokens?
Then maybe you should lend your majors on CeFi. Right now, Celsius Network allows you to earn 4.74% on your BTC and 5.05% on your ETH. Some CEX (Centralized Exchange) like Binance do provide rewards for lending/staking too though I'm not too sure how they do it.
5. Lend / stake majors or provide liquidity on DeFi
Disgusted by the single digit yield?
Low APYs will not let you make it?
What is risk when you have high yield?
Come to the dark side... I mean DeFi where you will find yields beyond your wildest imagination.
Wrapped BTC and ETH
Since most DeFi protocols are on the ETH, BTC holders do not have access these juicy yields. As such, a solution was needed.
If you're not sure why digital assets can't cross chain, let's take humans for an instance. We are able to live on Earth because it has all the necessary conditions to ensure our survival but not space. So did that stop space travel? What did humans do then? They invented a space suit to wrap themselves with which shields them from the extreme temperatures and radiation.
Hence, Kyber, Ren and Bitgo teamed up and developed an ERC-20 version of Bitcoin, wrapped BTC. If you're interested to know how it works, check out WBTC.network for details.
What I'm trying to say here is instead of buying original BTC (aka shiny pet rock), you can buy wBTC which will open up yield opportunities on DeFi. For your info, there are other forms of wrapped bitcoin such as renBTC, synthetic BTC, Huobi BTC etc.
Funnily enough, there is also wETH (wrapped ETH) which "converts" ETH into an ERC-20 compliant token. Currently, you can't interact with dApps using ETH native token unless it is wrapped. Check out wETH.io for details.
A tip for anyone who is looking to save a little on fees, trade using wETH rather than ETH would save you some fees from wrapping!
You can lend out your majors on protocols like AAVE/COMPOUND. Perhaps Alpha Homora too, ETH lenders are earning about 24% APY at the point of writing. Be aware of the risks when using Alpha as it recently suffered from an exploit but funds deposited remain safe.
The not so great part... interest on DeFi tends to be lower than CeFi. Yet, there are holders who still do because they long majors and borrow stablecoins at the same time to yield farm like how this OG is demonstrating his full farming prowess here.
Stake majors or provide liquidity
Thankfully, CoinGecko has done a great job listing all the available yield opportunities so I don't have to haha. Check out their yield farms list here and of course farm at your risk.
Flip the "Degen" switch to see 4 digits yields ;)
Before getting down and dirty with farming, I suggest to take some time to understand where the yield is coming from. If not, you will most likely be the yield.
For example, let's assume that I wanna earn some yields on SushiSwap's BitCorn wBTC/wETH pool. All I have to do is to supply equal value of wBTC and wETH into the pool. In return, I get LP tokens which represents my stake in the pool. Next I take this LP token and stake it into the BitCorn smart contract. SushiSwap would then distribute their native token over time as rewards ($SUSHI tokens in this case). I know what you're probably thinking, nope most farms don't reward in wBTC/wETH. If they do, it should work like Harvest.Finance where they automatically compound for you (collect, sell farmed tokens and deposit back into the pool).
Disclaimer: Harvest.Finance had suffered an exploit once on their stablecoin pools.
Now calculate interest with some imaginary numbers:
Total liquidity: $1 mil
Pool rewards: 10000 SUSHI tokens
My stake: $10000 worth of wBTC and wETH
Price of SUSHI token: $20
Annual interest = stake in pool / total liquidity * pool rewards * token price
After LP-ing for a year, I should earn $10000 / $1 mil * 10000 SUSHI * $20 = $2000 which works out to be 20% apart from fees. If I were to sell my SUSHI rewards and put the proceeds into the pool every month, the compounded interest should be approximately 22%.
Based on the equation plus my limited farming experience, yield can be easily impacted by total pool liquidity and especially token price. So if the farmed token has no applications, it "forces" yield farmers to dump them (other than keeping for memes lol). As a result, the farm swiftly goes in a downward death spiral where the token price crashes greatly reduces the yield and becomes obsolete within 3 days.
By the way, I'm not talking about SUSHI token here, no one in the right mind would dump them now haha.
So yeah, farming tokens with zero use is a zero-sum game that isn't really worth participating and doesn't contribute any value to the crypto space. Even if tokens have strong tokenomics, you would be better off buying directly.
Click here to continue to part III.
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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