After a roller coaster ride for veteran crypto investors and a love affair for newcomers, we are in a position where no one really knows what will happen to the crypto market. Some analysts such as Willy Woo, Plan B still think that the bull market is intact and others fear the worst crash ever.
But one thing is clear — Hodling has been, historically (for whatever little history we have), the easiest strategy for highest gains.
So you probably don’t want to sell all of your cryptos and be a legendary holder, but still wanna make up for over 50% dumpage. You are not alone.
I had the same thing in mind. So, I looked at every nook and corner of the internet to find the best ways to make my crypto work for me, and here, I am going to let you pick my brain — not literally though.
Disclaimer — Please do not consider this article as a financial advice. This market is everchainging so please do your own research before doing anything.
In traditional finance, you usually deposit your money in the bank for which you receive some interest. This interest can vary anywhere from 0.06% to — in the best case — 0.7%. I know, it’s not enough.
Platforms such as AAVE give you 1.88% APY + 3.65% APR (MATIC) just to deposit your MATIC in the platform. You can deposit wrapped versions of BTC, ETH, and many other cryptos to earn interest in them. Some platforms also provide temporary incentives in the form of their native token to promote their platform such as compound.
Lending platforms allow you to lock your cryptocurrencies into smart contracts. These funds can then be borrowed by borrowers who pay interest, part of which is given to lenders. Since borrowing in most DeFi protocols is over-collateralized and locked in smart contracts, it is almost risk-free — Make sure the platform and smart contract is safe and there are no backdoors.
over-collateralization means that borrowers must put more funds in collateral than they want to borrow. For example, if the collaterl factor is 70% and you have 1ETH ($1800), you need to put all of it as collateral to borrow $1260 (DAI)
You can use compound finance to lend UNI tokens and earn 1.49% UNI + 0.62% COMP APY and you can also use it as collateral to borrow something else.
At this point, you might think- as these platforms are over-collateralized there is no point in borrowing, I mean you are getting less money. So let’s clear this point first.
If you are a long-term holder, you don’t want to sell your crypto but you also want to use the money. Borrowing makes this possible. You can put your crypto as collateral and borrow USDC, you can use this USDC as you like and you can pay the initial amount plus interest when you want your crypto back. During this time, if your crypto gained in value you would only have to pay the initial USDC you borrowed, and it gets better.
It might seem weird but you can actually make money by borrowing money.
So let's say you want to borrow 1 BTC. First, you would have to deposit some assets as collateral then you can borrow BTC at some interest which you would have to pay. In AAVE, you can currently borrow BTC at 0.3% APY interest, and you can receive 1.17% APR on MATIC. Yes! You would receive MATIC to borrow BTC. It gets even crazier.
You can now use the borrowed amount to do whatever you like. You can buy or trade another crypto in some other platform, or just deposit it back to borrow more endlessly! You just need to keep track of your health factor otherwise you can lose everything! Is Decentralized Finance (DeFi) Really a Game-Changer No hype analysis based on factsmedium.com
In staking, you lock your funds in a certain blockchain platform for a certain amount of time which gives you some superpowers.
These superpowers differ for each platform but usually, you receive a certain percentage of interest of the same token and gain voting rights for the governance of the platform. The stake is used as an incentive/penality mechanism to run the blockchain network and keep it safe.
For example, Cardano (ADA) allows you to stake as little as 10 ADA to a staking pool of your choice. The current staking reward according to Cardano's website is 4.6083% and your fund will not be slashed if the staking pool malpractices. You can use this video guide to learn more.
If you wish to learn more about Cardano, you can read my previous post Why I am Betting on Cardano (ADA) The crypto of the futurelevelup.gitconnected.com
A liquidity pool is a basket of assets on a decentralized exchange. Usually, there are two assets in the basket in a 50:50 ratio ex USDC/ETH. Liquidity providers provide both the assets in some ratio to the pool and in exchange receive a portion of the trade fee proportional to their provided liquidity.
An LP token gets issued when you provide liquidity, it is the same as an ERC-20 token and you can use it to redeem your collected rewards. This means that instead of owning those two tokens, you now own a certain percentage of the pool.
When investing in a liquidity pool, keep in mind that the price fluctuations of both the assets can result in an impermanent loss. Although this loss is not permanent, and you can get 100% of your funds back if the price of both the assets return to the price you provided liquidity, it is a rare occurrence.
The best way to make money in a liquidity pool is to invest in stable assets or during calm times. Currently, you can provide liquidity to a USDC/ETH pool in Uniswap and any trade that occurs will have a 0.3% fee which will be collected and distributed amongst the liquidity providers.
When you receive LP tokens by participating in a liquidity pool, you can lock these tokens in yield farms to earn more tokens. This is called farming.
Farmers look for the best liquidity pools and sometimes are even willing to take a loss to receive good LP tokens. They lock these tokens in other DeFi protocols to earn interest.
One thing to look out for while farming is the DeFi protocol you are locking your funds in. A lot of times, developers of these DeFi protocols steal LP tokens and withdraw the funds from liquidity pools.
At this point, a lot of you might be thinking ‘I have heard people talking about 1000% APY and more on DeFi, but here you only discussed a fraction of it’
It is true that you can use the methods mentioned above to make lucrative gains on DeFi, but they are usually on newer DeFi platforms which may not be safe. This is why I only mentioned the safest and most trusted platforms in the DeFi space.
If you wish to learn more about crypto, you can check out my free curated list of resources on Gumroad. If you have doubts, suggestions, or want me to make a more lucrative post on DeFi, let me know through my socials.