Increase your trading with DeFi
The US banking system and its regulators are panicking over DeFi (decentralized finance), because after going through decades of scandals and new rules, new blockchain and crypto technology has suddenly spawned an alternative to traditional finance. It’s clear to most that DeFi has the potential to sweep the whole scene in the same way the internet has flattened the print media industry. The main concern will be stablecoins, a technology in which a token tracks a currency, in this case the dollar, but is created and distributed by the private sector. For the government, especially the one on the path of depreciation, having an agile private sector that nibbles away its monetary monopoly is a very unfortunate development.
The gimp and the dominatrix of established financial services are in a panic because their comfortable world of fraud and fines is threatened, and they are working hard together to try to stop crypto’s rampant advance in mainstream finance.
There is of course a lot of need for regulation when it comes to crypto, but you can’t believe all the tears about customer risk when every day we all receive a handful of attempted thefts through our emails and our emails. social networks without the authorities seeming to lift a finger to stop this. Imagine if you were the victim of so many assault attempts while walking down the street?
However, apparently BlockFi offering 5% to 8% on deposits from a stablecoin is worth trying to block with lawsuits rather than going after the criminal gangs that are trying to hack you into your own home. You don’t have to be a genius to figure out where the priorities lie.
That aside, DeFi is a fantastic development and offers all kinds of positive financial possibilities.
As a starting point, take a stablecoin holder. One of my favorites is USDCoin (USDC), a well-funded Ethereum token backed by the US dollar at 1: 1. You can file this with Aave, BlockFi, Celsius, or Compound to name four of the major players, and get between 4% and 8% APY interest.
This is a very good rate, which is why the established finance 0% interest rate financial crackdown squad is less than happy.
Compound and Aave have bonus programs that distribute their tokens to users, but this is not an article about the interest you can get, but what else these systems can allow you to do.
All of these sites have borrowing functionality, so you can house, say, USDC and borrow ethereum or dai. Aave and Compound, for example, actually offer an APY bonus in their tokens, which can make borrowing very cheap. It’s also almost instantaneous, although there are ETH gas fees to pay which can be steep.
So for example you want to buy Ethereum and you have USDC to do it. You can trade the tokens using a site like Uniswap or Sushiswap, or do it on a Dex like Binance. Better yet, you can also leave your USDC on deposit at Aave and, with today’s numbers, earn 11.8%, borrow 2.6% Dai and then trade the dai for Ethereum.
The Dai and USDC are pegged 1: 1 to the dollar and the net positive interest on the loan and deposit is 9.2%, you earn a big interest rate and can still buy the ethereum. Obviously if Ethereum goes down you lose and vice versa, but you still have your Ethereum position while keeping your coins stable which earn interest.
To add that extra twist, you could sell that ethereum and now you’re running out. You can then withdraw the proceeds in USDC and deposit it for more return.
Obviously this is a somewhat spicy trade as short selling is always risky when the asset can go up a lot but it is the game a shorter game so why not earn interest while you’re at it? When you close the shorts, you simply pay off the loan and count your profit or loss which will be increased or decreased by the APY on deposits.
So if you like to earn interest on your crypto while still having the ability to trade, these sites give a hodler the ability to use your interest earning capital as collateral to trade.
Then there’s staking with borrowed tokens, which is a whole other area of potential profit that I’ll cover in my next article.