Crypto: Strategies Ranked Based on Risks Part III
Updated: Jun 21
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)
Alright, let's begin.
6. Buy DeFi blue chips and participate on protocol
Are you interested in retiring not just yourself but also for your children, your grandchildren and their children and their children and...?
Do you still sleep like a baby even when your coins go -90%?
Do you feel different from everyone else like you're cold... stone cold deep down?
If your answer to the last question is a definite yes then I think you might wanna seek counselling lol. Anyhow, if this interests you then yeah you might wanna look into investing in DeFi projects.
But firstly, what are DeFi blue chips?
Wait... did you buy them because they were blue in colour?
and no lol.
This goes back to 2017 when crypto was still fairly new, BTC and ETH both went up more 10x within a year. However, all gains were erased when market transitioned into bear, dropping -90% from ATH and nuked everyone's net worth.
If you think about it, chances of any average stock investor who does his/her homework yet experience a -90% loss is quite unlikely lol. Even I don't see >90 for my tests lol. So yeah, this bear definitely left many with PTSD.
Despite the doom and gloom, some teams still believed DeFi being the "futur of france" and continued to build protocols. Sure enough, they were rewarded for their hard work, gaining massive success in protocol and user growth. Due to their impressive track record over the years, these protocols' tokens were recognized by CT as blue chips.
Blue chips are also referred as "productive assets" because some can be staked to earn some yield.
So which tokens are considered blue chips?
I'm not gonna name any as it is very subjective topic and dependent on personal investment thesis. I mean maybe dog coins are blue chips for some, you'll never know lol.
But I will try to list out what are some of my consideration points here in no particular order:
Tokenomics/pumpamentals - How does it entice more people to participate? - Is staking available? Reduces selling pressure - Are there any rewards for staking and how are the yields derived? - What are the risks? - Are there similar projects and how are they doing? - Does it allow for composability? A good long time example involving two protocols would be stake SNX > mint sUSD > deposit sUSD and stake into Curve > rewarded with CRV and SNX tokens.
How are the metrics looking? - Percentage token staked vs total circulating supply - Who are the largest token holders and what % of the protocol do they own? - Revenue - Total Value Locked (TVL), has it been increasing over time? - Token price, up only? - Liquidity, CEX listing
Track record - How long have the team been operating in this space? - What success did they achieve? Revenue/user growth/token price? - Have they faced any setbacks/exploits? - How did they deal with setbacks and recover from it? - How well are they achieving their goals/roadmap? Has it been timely? Were there delays and why?
Plans for the future - Does it sound feasible? - Does it complement their protocol/tokenomics and how well?
Feedback channel - Is the team responsive? - How do they deal with criticism? - How is the community like? - Is there any unaddressed community concerns? - Great memes? Don't laugh, it's a great digital marketing technique lol
So yeah, it is quite a long list of things to assess but depending on the market phase the research may/may not need to be done in such detail. For example, during a bull run anyone can probably get away with buying tokens without much homework done yet still make a profit. This is especially true for projects with some kinda hype going on, when it's up 15%.. high chance it will be up another 15% when another time zone awakens lol. So, reading whitepapers actually becomes an opportunity cost.
As the market approaches euphoria/mania, then it is probably best to risk off and do proper evaluations of the tokens by going through the list to see if fundamentals still exist lol.
"Wait you guys are not in for the tech?"
Or you can start reading the docs after token goes -50% to tell yourself this is a good bag and you're in for the fundamentals. Works well too, speaking from personal experience LOL.
Every bear we encountered so far, alt coins tend to sell down by 90%. This is a clear indication (there are many other signs too but I digress) that participants are mostly speculative, likely in it to get rich fast and not here for "futur of france". Hence, crypto is still very far from maturity.
Deriving a token's valuation using metrics such as Price/Sales, Price/Earnings is not useful for speculative assets. Besides, these blue chips have more similarities as a mini central bank rather than a business organization.
Instead, I think it is more reliable to decide your entry/exit point by gauging risk/reward ratio based on token price. If a token had a great run, up 10x this year, what's the probability that the momentum will carry on for next year? If yes, how many more multiples? If you're wrong, are you able to hold on with -90% paper loss?
7. LP or Yield farm in tested smart contracts
Decided on what blue chips to hold?
Wondering how to further maximize gains?
Consider utilizing your favourite coins to LP/yield farm on battle tested protocols like Uniswap, SushiSwap, 1inch, Bancor, Thorchain etc. Just note that there are additional risks involved such as smart contract risks and chances of impermanent losses should token price fluctuates.
Ideally, the token pair LP-ed should either be both stable in price or they have the tendency to move in tandem to minimize impermanent losses. Alternatively, you can pray that the farmed rewards is sufficient to make up the losses lol.
If you're unfamiliar with being a LP, read up on my post on essentials of providing liquidity here. If you're an ape or lazy to read then I'll let Wojak explain below on what kinda situation will incur IL below lol.
Saw a similar one on CT but I couldn't find it... had to replicate it myself lol.
8. Leveraged yield farming
Basically it's a yield farming strategy but on steroids lol. As shown above, the yield isn't that fantastic even with leverage so it's probably suited for people with long time horizon, large capital and want to maximize capital efficiency.
Apart from the risks that comes with yield farming, there is an additional liquidation risk slapped onto it.
Those who are interested to know more, check out Alpha Finance which currently has about $1b TVL. Leveraged yield farming is something that I haven't tried but I'll look more into it to understand what's the demand like.
To be continued in the next post which will be the last part of this strategies series.
Hopefully this post is useful during these bearish times.
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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