🚀 Surviving (and Thriving!) in a Bear Market With Stablecoins
How to generate over 30% returns in a bear market with stablecoin yield farming
June 12th, 2021 | Sign up
Happy Saturday. This week’s guide is on staying alive during a bear market by using stablecoins to grow our portfolio 📈
A big difference between this crypto bull run and those of the past is that if investors wanted to take profits, they had to sell their crypto holdings on a centralized exchange and then buy back in when they thought the market was going up again. Nowadays, thanks to the rise of decentralized finance, we are able to sit on the sidelines without having to sell our precious tokens for fiat. And even use our crypto assets to passively generate income!
What we’ll be going over ✏️
What are stablecoins and how they can be used to generate passive income?
The risks of stablecoins and using DeFi platforms
Step-by-step guide on how to earn yield with your stablecoins
How to monitor your growing portfolio
Disclaimer: This guide is not financial advice. This is an educational resource that should never be interpreted as an endorsement to buy any digital assets mentioned. Please do your own research and understand the risks involved before investing.
Stablecoins 101 📝
What Are They?
Let’s say you’re not very confident about where the near-term price is going for your favorite crypto, but you don’t want to exit the market completely. You also want to be ready to enter again when the market turns around. That’s where stablecoins come in!
A “stablecoin” is a type of cryptocurrency whose value is tied to an outside asset, such as the U.S. dollar, to stabilize the price.
Stablecoins enjoy the benefits of being a cryptocurrency, without the extreme volatility of traditional cryptocurrencies.
There are several reasons why crypto investors are swapping to stablecoins instead of their native currency when they want to cash out.
Protection from volatility and risk exposure without cashing out to their native currency
Moving assets across centralized exchanges without holding risk
Collateral for borrowing
For generating yield in a bear market
Different Types of Stablecoins
Fiat-backed stablecoins (centralized) are backed by dollars. So for each stablecoin that exists, there is (supposedly, this is up for debate) real fiat currency in a bank account to back it up. Examples include USDT, USDC, and GUSD.
Crypto-backed stablecoins (decentralized) are backed by other cryptocurrencies. They are decentralized, allowing processes to be even more trustless, secure, and transparent. With no single entity controlling your funds. These are the newest, and riskiest type of stablecoins.
The most popular example of a decentralized crypto-backed stablecoin is DAI created by MakerDAO, DAI is a stablecoin that has a face value pegged to the U.S. dollar but is actually backed by a combination of ETH and other stablecoins that are locked up in smart contracts.
The State of Stablecoins
Back in 2017, stablecoins were called “The Holy Grail of Crypto” because the idea of a legally compliant decentralized cryptocurrency tied to a fiat currency backed by its government was mostly considered impossible.
And while they’ve had their trials and tribulations, stablecoins have come a long way. Today there are many different stablecoins, and each has a different strategy in the competition for the most stable or most decentralized dollar. There is still a long way to go.
While sitting idle in your wallet or exchange, stablecoins are no different from the dollar when it comes to inflation. To counter these effects, crypto investors can choose to put their stablecoin stack to work by providing liquidity or lending out their crypto in exchange for yield (more money!). This is the practice known as “Yield Farming”
Summary of the Steps
Purchase stablecoin of choice on your exchange
Send your stables from your exchange to your Ethereum wallet
Use stables to provide liquidity to Curve Finance pool of choice, receive Curve liquidity provider (LP) tokens
Deposit Curve LP tokens into yield-robo-advisor Convex Finance
Risks and Fees ✋
These yields don’t come without risks. Never put in more money than you can afford to lose and understand that most DeFi protocols are in beta stage and you are participating in an experiment!
In this guide we use two platforms, Curve and Convex Finance. There are no fees for using Curve other than the Ethereum network (gas fees) which are the cheapest they’ve been all year. However, Convex has fees that are accounted for in the projected annual percentage return. Here is a breakdown of the Convex Finance fees.
10% performance fees distributed to cvxCRV stakers
5% operations fees distributed to CVX stakers
1% platform fees distributed to harvesters
Putting Stablecoins to Work
Adding liquidity to a Curve Finance Pool 🏊♀️
The first step to putting our stable stack to work is becoming liquidity provider on Curve Finance. If you haven’t, check out last weeks guide to read up on Curve and becoming a liquidty provider.
Steps for depositing into Curve
Step 1: Head on over and connect your wallet to Curve.fi
Step 3: Enter how many tokens you wish to use and click “deposit”. Entering this pool doesn’t require you to have alUSD, you can use DAI, USDC, or USDT to enter this pool as well, Curve will automatically divide your tokens up equally. (make sure you click the “deposit” tab on the top after you select your pool and your not on the “buy and sell” tab).
If you chose the alUSD pool, you’ll receive alUSD3CRV liquidity provider (LP) tokens after you confirm the deposit transaction in your wallet. These tokens can be thought of like a deposit receipt that represent your contribution to the liquidity pool.
Once you’ve added your stablecoins to this Curve pool you will immediately begin accruing a share of the fees paid by traders in Curve!
Earn Extra Yield by Staking Curve LP Tokens 🚜
Now that we have provided liquidity on Curve and are earning fees from that platform, the next step is depositing our Curve liquidity provider tokens into a community-driven robo-adviser for yield like Convex finance. After this step we will be earning Curve (CRV), Alchemix (ALCX), and Convex (CVX) tokens.
Staking Curve LP Tokens in Convex Finance
The last step to begin earning these 3 reward tokens is to stake our alUSD3CRV LP tokens that we got from Curve into Convex Finance. Connect your wallet to the Convex website, click “Stake”
Find the alusd tab at the bottom and enter how many Curve LP tokens you wish to stake. Then click Approve, and then Deposit & Stake. Confirm these transactions in your wallet and now you’re earning over 30% apy (at the time of writing) on your stablecoin stack!
To collect our rewards, head over to the Convex Finance Claim tab with your connected wallet, expand Curve Pools, and scroll down to the alusd pool we just entered. Click claim to send accrued reward tokens wallet.
You can use the Curve + Convex combo with other crypto assets and not just stablecoins!
Here is an example to use your Chainlink(LINK) to earn over 17% APR on your LINK bag
Step 1: Deposit LINK into the Curve Link pool to get crvLINK tokens
Step 2: Stake crvLINK tokens into the Link pool on Convex Finance
Monitoring Your Portfolio 🔍
Just head on over to Zapper or Zerion’s website(Zerion also has a mobile app), connect your Ethereum wallet, and keep up with all of your portfolio stats!
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