Poker players have always been interested in the crypto market. Analyzing information, managing risks, calculating EV, adjusting to opponents, and an academic approach is familiar to grinders and speculators.
We remember the 2017-2018 bull run for the ICO bubble, billion-dollar fees for white papers (business plans), and almost complete absence of working products. The only use case of smart contracts was the sale and distribution of tokens.
Today, the picture of the crypto world has changed: everyone has heard about DeFi and NFT, thanks to which the market has become more accessible to a wide range of people.
In this article, we will dissect DeFi only (NFT is a different subject): what is it, why is it popular, and how players can benefit from it.
What is DeFi?
DeFi stands for decentralized finance. The acronym describes a wide range of financial instruments; transactions executed not by centralized intermediary bodies — exchanges, banks, brokers, hedge funds, but by smart contracts (code that participants trust and can verify).
With the help of DeFi applications (Dapps), you can open a credit or deposit account without a bank, buy insurance without an insurance company, earn money on the stock market, commodities and ETFs without a broker. Transactions will be processed with other network participants.
Main advantages of Dapps:
- Available to everyone worldwide
- KYC (Know Your Customer) is not required
- They offer a much higher percentage of return (APR or Annual Percentage Rate) than the traditional sector. For example, the average deposit rate in US banks is around 0.5% APR, which does not even "beat" inflation. In cryptos you can get from 2% (superconservative) to 100%+ (degenerate style). With a balanced strategy: 5%-15% in a bear market and 20%-50% in a bull market.
DeFi also has a dark side:
- Hacking risks
- Scam risks
- Personal responsibility for storing private keys
At the of writing this article, more than 50 billion USD is blocked (i.e., stored) in the DeFi ecosystem of Tether. The total TVL (Total Value Locked) across all blockchains is over 100 billion.
And although the figures now look "a bit more modest" than a few months ago, we can undoubtedly say that DeFi is not a seasonal hype.
What types of earnings does DeFi offer?
In DeFi ecosystems, there are all the usual tools we are familiar with from traditional finance but without intermediaries. Let's take a look at the use cases available to us who want to earn passively using our existing bankroll.
Types of activities:
- Lending — we loan money at an interest rate.
- Yield-Farming — in our language, it stands for bonus / rakeback hunting. We provide liquidity (that is, money) to decentralized exchanges to get a part of the commission from transactions on their platform + bonuses. To attract users to their protocols, many projects distribute additional rewards in the form of their tokens. Basically, it's a promotion to drive traffic like deposit bonuses and rake races in poker rooms.
- Staking — we block tokens in PoS (Proof of Stake) blockchains and get rewards for maintaining security in the network. In a broader sense, the lock of any token on which rewards are awarded.
- When choosing sites other than maximum reliability and ease of use, an important aspect of poker players was taken into account — the liquidity of the bankroll. In other words, without long locks and money can be withdrawn at any time. Products and strategies are described only for stablecoins.
- Both DeFi solutions and CeFi analogs (managed by centralized exchanges) will be listed. Sometimes it will be a mix called CeDeFi (centralized DeFi). In certain phases of the CeFi/DeFi market, companies can offer highly competitive conditions and sufficient reliability, so I also include them in the text.
- To work with Ether and Polygon networks, you will need to install a MetaMask wallet. Nothing supercomplicated, and there are excellent video tutorials.
- For beginners, I suggest starting with CeFi investing and practice with strategies on CEXs (centralized exchanges) like Binance, FTX, Nexo before moving into the wild west of DeFi.
- It's always wise to diversify — not to keep your eggs in one poker room.
The simplest and most reliable tool. Why? Almost all loans in crypto protocols are over-secured. This means that to get a USDC1,000 loan, the participant must block ETH or BTC in it for at least $1,500 as collateral.
The borrower gets liquid "cash" without having to sell his holder coins, and a participant with free USDC can lend his stables, earning a percentage on them and not risking being left without the borrowed amount.
Suppose the rate of the collateral coin (BTC or ETH) falls to the threshold values. In that case, all or part of the lender's collateral will be automatically sold by a smart contract for stablecoins to preserve the integrity and return the loan to us. This is called liquidation.
We will list only top protocols tested by time and large amounts of money; however, the risks of vulnerabilities in smart contracts are always present.
Aave: main money market with 3%-10% APR
Aave is an old proven DeFi bank. The total TVL is more than 15 billion. At the moment, the APY (Annual Percentage Yield) in the Polygon network (the sidechain of Ether) for stablecoins is from 3.65% to 5%. Part of the profit (Deposit APY) will go directly to loans and part in additional rewards in tokens (in the screenshot, we can see the Matic coin).
Link >> https://app.aave.com/markets
Another very old protocol, forked from Uniswap. It has never been attacked, 7+ billion locked funds. Everything is Aave-alike. The current interest rates are pretty attractive, although it is unknown how long they will last. If you want to get acquainted with DeFi, this is a good spot.
- Lending on the Ether network — https://app.sushi.com/lend
- Polygon network (cheaper transactions, slightly less %, for more modest deposits) — https://docs.sushi.com/how-to-multichain-polygon
FTX — margin landing page for 4%-100% APR
FTX is one of the Top-5 crypto exchanges in terms of trading volume and is the main competitor of Binance. In short, the maximum reliability. By clicking on the "Lend" button, your stables (and not only those) will automatically go into margin lending for leveraged trading. At the same time, the bankroll will be as liquid as possible. Withdrawing money from borrowing takes 60 minutes.
According to the exchange, lenders do not bear risks from rate drops, and the exchange guarantees their $$. The percentages are getting better, rounding 9%; however, it's essential to understand that in the active phases of the market, when traders are looking for leverage for long and short positions, these values frow many times over.
In April and May, the rate on USD floated between 20%-100%.
Nexo — custodian landing page for 10% APR fixed
Nexo has been operating since 2017 and is one of the largest credit organizations. Our stables are lent to institutional borrowers and ordinary retailers. Registered as a financial company regulated in Europe. They work all the way flawlessly, and that's the reason for their reliability.
The percentages for stables at the basic VIP level (you don't need to hold their NEXO token) is 8%, but if we agree to receive our profit, not in the base currency (USDC, DAI, USDT), but in their token, then 8% turns into 10%.
Conclusion: go every day/3 days/week, and sell their token for USDC. 2% are not lying on the road.
You can take insurance from Nexus Mutual (a centralized insurer) for 2.6% per annum for NEXO. If Nexo is hacked or in some other trouble, it will be possible to request a deposit refund. It's crucial to study the insurance conditions yourself https://nexusmutual.io/pages/CustodyCoverWordingv1.0.pdf
Total net balance is 10%-2.6% = 7.4% per annum in a strong currency. Other good news — they should start sending their credit cards, and there is a stock exchange.
- Direct link - https://nexo.io/
- How to buy insurance on Nexus Mutual - https://thedefiant.io/defi-insurance-and-how-nexus-mutual-works/
Liquidity Provision and Yield Farming
The second in terms of simplicity and safety of the invested assets will be LP (Liquidity Provision), providing "liquid" to exchanges in pairs of stablecoins. A short tour of the history for a basic understanding of how LP works.
Somewhere in 2020, the Uniswap exchange offered a new liquidity model called AMM. Before it, decentralized exchanges, or DEXs, worked on the principle of an order book. This is when traders, as on a regular exchange, such as Binance, place their orders to buy or sell coins, and then these orders are fulfilled (matched, connected, combined).
Considering not the most vigorous speeds of Ether, this led to a poor user experience and lack of liquidity.
AMM stands for Automatic Market Maker and offers a new approach. According to it, a pool is created for the exchange of two tokens. 2 coins are added to this pool in an equal proportion (50-50). For example, 50% BTC and 50% ETH. When making an exchange, the 50/50 balance in the pool is violated, and the smart contract automatically balances it so that the value of the coins on both sides becomes equal again.
This is not the most trivial topic to understand, in addition, LP in pairs of two volatile coins is associated with a possible impermanent loss, but this is not important for us.
What is really important for us to understand about AMM:
- This model is much more convenient than an order book (this is just for general development).
- It has become a standard in the crypto market.
- We can add liquidity to such pools on an equal basis with other participants and earn part of the commissions from the pool exchanges + sometimes additional bonuses that are distributed by the sites.
- Providing liquidity in a pair of two stablecoins is practically risk-free since their rate is almost always 1:1 to USD. We don't care about rebalances, and we are ready to take liquidity in any stablecoin later.
Binance Liquid Swap — 5%-20%
Let's start with a custodian solution. Binance is a centralized exchange; moreover, when writing this article, a wave of regulatory claims has fallen on them. Nevertheless, after assessing the risks of working with the TOP1 exchange as extremely low, I added it to the review.
By the way, you can take insurance for the safety of the funds in Binance. The current premium is only 0.3% per annum for a restful night and about 5% APR.
In the Liquid Swap tab, you can add pairs of stablecoins to the liquidity pool. The safest, in my opinion, is the BUSD/DAI pair — both stables can be maintained independently. USDT is still a little more risky stablecoin.
If you have only one stable out of a pair, Binance will exchange part of the deposit for another and add it to the pool. Given the convenience of Binance, the current percentage is quite good. At the peak of the bull market, the same pairs were paid 10%-20%.
In fact, here we only face the risk that Binance loses money and that one of the stablecoins will lose its binding to the dollar. If it happens, the pool is automatically rebalanced in a coin worth >$1, and as a result, we can take out more cheap coins than expensive ones.
- Top 1 Exchange default insurance: https://app.unslashed.finance/cover
Curve Finance: 7% - 20%
Curve is the first AMM designed for stablecoin exchanges. Don't get scared by Windows 3.1 style — eight bit in crypto is fashion. The total TVL is more than 9 billion USD.
Here you can download any of the available DAI, USDC, USDT stables using the Metamask wallet. The protocol itself will rebalance it into other coins and load it with liquidity.
Currently, 3.09% for exchanges + 5% in rewards in CRV and WMATIC tokens — a total of 8% on the most reliable platform.
- Curve Polygon - https://polygon.curve.fi/
End of part 1.
In the next one, I will tell you about more advanced and profitable strategies, smoothly moving towards high-risk and degenerate style-farms.
https://defillama.com/protocols/lending - all lending protocols
https://app.nexusmutual.io/cover - buy insurance for all popular DeFi farms + CeFi exchanges like Binance