Investing Ideas
Possible strategies for investing in DeFiChain
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Disclosure!
Disclosure!
The ideas in this site are not financial advice and should only be seen as an opinion. Do not make investments solely based on the information here, which can also become outdated quickly. The site and its contributors cannot be held liable for any losses that are incurred. Readers should do their own research and/or consult a professional when investing.
Step 1 - Ideas
Step 1 - Ideas
Before reading the rest of this page,
read the disclosure above.
Color Chart
Color Chart
Strategies have been assigned a subjective rating in four categories: their simplicity, the amount of maintenance they need, their risk/reward, and the cashflow they provide.
Terms
Terms
Bullish/Long: This strategy prefers the price of the tokens to go up.
Neutral: This strategy has no preference, it works if prices go up, down, or stay the same.
Strong Neutral: This strategy prefers the price to stay the same. If the price sharply increases or decreases, it is not profitable for the investor.
Bearish/Short: This strategy prefers the price of the tokens to go down.
Strategy 1 - The DFI Buy and Hold
Strategy 1 - The DFI Buy and Hold
The DFI Buy and Hold Strategy is a classic. An investor simply needs to purchase DFI (DFI Exchanges is a good place to start), download a wallet, and withdraw their DFI to their wallet.
Tags: crypto (DFI) bullish
Benefits:
Very easy to use - just buy DFI and withdraw to a wallet
Profit and loss is easy to calculate for taxes
Disadvantages:
Provides no cashflow
Undiversified DeFiChain portfolio
Add a twist to this strategy by setting up recurring buys of DFI and withdrawing them after a set amount of DFI bought.
Simplicity: In comparison to other strategies, the Buy and Hold is the easiest as it only requires buying and withdrawing.
Maintenance: Once DFI is withdrawn to a wallet, it's not necessary to follow the market and news more than a user currently follows it. They only need to keep their secret phrase and passcode private. For the recurring buy twist, it would only need a little more maintenance of withdrawing the DFI regularly.
Risk/Reward: Investments are subject to high volatility based on what is happening with DeFiChain and the general market. Going all-in at one point in time without diversification is not generally recommended, but spreading out buys could also help spread out risks of fluctuations in the market.
Cashflow: Buying and holding does not provide any cashflow for the investor.
Strategy 2 - DFI Staking
Strategy 2 - DFI Staking
DFI Staking provides a way for investors to earn cashflow while holding DFI. An investor can purchase their DFI from the market and transfer it to a third-party staking service such as LOCK or CakeDeFi. (2a) If a user wants to stake more than 20,000 DFI, they have the opportunity to run the masternode themselves and will not have to delegate their DFI to a third-party. (2b)
Tags: crypto (DFI) bullish
Benefits:
Great way to earn cashflow on DFI that is sitting in a wallet
Profit and loss is relatively easy to calculate for taxes
If the investor runs their own masternode, they contribute to decentralization
Disadvantages:
Subject to high maintenance or third-party risk (and in the latter, also centralizes DeFiChain as well)
Undiversified DeFiChain portfolio
Simplicity: This strategy is similar to the Buy and Hold, but it requires the additional step of staking. If a user runs the masternode completely on their own, it will require some technical knowledge to start.
Maintenance: If using a third-party to stake, no/little maintenance is required from the investor. If running a masternode but using a third-party to operate the masternode itself (this does not require DFI to be transferred to the third-party), there is also very little maintenance required. If the user runs the masternode completely on their own, they will need to make sure their masternode is working properly to gain rewards.
Risk/Reward: Investments are subject to the risks as noted in the Buy and Hold as well as third-party risks if they choose to delegate their DFI to reduce required maintenance.
Cashflow: Staking provides moderately high returns for investors using third-parties, but by staking directly, a user can earn even more rewards.
Strategy 3 - DFI and dCrypto LM
Strategy 3 - DFI and dCrypto LM
LM helps users hedge against small and medium price changes. In this strategy, investors take an amount of DFI with an equivalent amount of another dCrypto (in terms of value) and add it to a liquidity pool. It exposes the capital to gain more of a token declining in value and lose tokens increasing in value, but investors are compensating with rewards and commissions for providing liquidity.
Tags: crypto bullish
Benefits:
Hedges against DeFiChain while providing cashflow
Low maintenance and LP tokens can stay in a wallet
Reduces slippage for other investors swapping through pools
Disadvantages:
Subject to the risk of impermanent loss
Calculating profits/losses and/or taxes may be difficult with constant block rewards and/or commissions, as well as the impermanent loss
Simplicity: The ideas behind liquidity mining can be more difficult to understand, but DFITutorials has a page on it here. However, the actual process of liquidity mining is very simple.
Maintenance: Once a position is created, it simply generates rewards and does not require maintenance unless the investor wants to check on their profit or loss.
Risk/Reward: By taking a liquidity mining position an investor exposes them to possibly significant opportunity losses. If the relative prices of the two assets change before they exit their position, they would have had a better return staying out of the pool. However, this can be offset through the cashflow provided.
Cashflow: As a liquidity miner, investors are entitled to commissions earned through the pool as well as any DFI rewards allocated to the pool (if any).
Strategy 4 - DUSD and dToken Investment (LM)
Strategy 4 - DUSD and dToken Investment (LM)
[This strategy depends on the current state of DUSD. The color chart will assume DUSD is at a price of $0.50 with the stabilization fee of 30%.]
For a generally less risky strategy, you can invest in DUSD and a tokenized DeFiChain asset.
In this strategy, an investor purchases DUSD or uses already owned DUSD and allocates half to buy a tokenized stock or ETF and put their holdings into the corresponding liquidity pool like in strategy 3. They will also benefit from DUSD increasing in value to around $1, but they will incur a fee of 30% if they would like to sell their DUSD to any crypto.
Tags: stock/ETF bullish, DUSD bullish, crypto (DFI) neutral
Benefits:
Ability for wide diversification of DeFiChain portfolio - choose assets from dGME to dGLD to dSPY
Hedge risk with a stablecoin
Earn cashflow that might not otherwise be earned with traditional stock/ETF investing
Benefit from a possible discount on a token
Disadvantages:
To sell DUSD and dTokens, investors are subject to a 30% fee.
Certain token pools are smaller, meaning that an investor incurs more slippage.
Simplicity: If an investor can understand the ideas behind strategy 3, they will be able to understand those behind this strategy.
Maintenance: This strategy has the same maintenance level as strategy 3.
Risk/Reward: An investor must keep in mind the possible issues with DUSD as well as the currency fluctuations between their currency and USD. Barring these issues, an investor can profit on DUSD's return to $1, and opening a liquidity position in DUSD and a dToken is generally seen as less risky than a liquidity position in two crypto assets.
Cashflow: It is similar to that of strategy 3, liquidity pool incentives are generally balanced across all pools.
Strategy 5 - DFI and DUSD Vault - LM
Strategy 5 - DFI and DUSD Vault - LM
[This strategy depends on the current state of DUSD and the negative interest. The color chart will assume DUSD is at a price of $0.50 and a negative interest rate of 25% with the stabilization fee of 30%.]
For this strategy, an investor purchases DFI and places it in a vault to create DUSD for use with LM. The user will benefit from a negative interest rate on DUSD, the cashflow earned through liquidity mining, and they are not forced to pay a 30% fee when closing their position because they simply pay back the DUSD they borrowed. Additionally, they make full profit (or loss) on their original crypto position without sacrificing possible opportunity gains swapping to DUSD.
Tags: crypto (DFI) bullish, stock/ETF bullish, DUSD neutral
Benefits:
Offers an investor a way to invest in dTokens without having to worry about a 30% stabilization fee
Benefits from negative interest on the DUSD loan, rewards and commissions from liquidity mining, as well as discounts on the tokenized asset
Reduce the algorithmic DUSD ratio
Support dToken pools
Disadvantages:
Risk of liquidation
Requires some maintenance to prevent liquidation, and even more so if an investor keeps their vault close to the minimum collateralization ratio
Profit/loss and taxes is not easy to calculate.
Simplicity: Investors must be aware they are using leverage. Investors should proceed with caution using this strategy.
Maintenance: This strategy will require investors to maintain their vault regularly, even if they are using a vault manager such as Vault-Maxi or a vault watcher such as DeFiChain Dobby.
Risk/Reward: An investor who understands what they are doing may benefit from a better risk-to-reward ratio. With three factors in the investor's favor (DUSD negative interest rate, cashflow on LM, and a discount on stock token)
Cashflow: May provide similar or even more cashflow to simply swapping crypto to stocks/ETFs (i.e., an investor may not be sacrificing some cashflow using the vault compared to swapping the original crypto to stocks/ETFs). For example, an investor swapping their funds to dSPY and DUSD will be earning 4-5% APR (as of July 2023) on their dTokens, whereas if they borrowed the DUSD instead at a 175% ratio, they would earn 20% APR (only on 4/7 of what they would have originally invested), but also the 4-5% APR on the same 4/7 part. Overall, the investor earns 24-25% APR on 4/7 of their original balance, or about 14% APR, which is significantly more than what they would have earned simply swapping and opening a position. Also, if the user is bullish on their crypto, they can earn profits on all of their crypto as well.
Strategy 6 - DFI and DUSD+dToken Vault - LM
Strategy 6 - DFI and DUSD+dToken Vault - LM
[This strategy depends on the current state of DUSD and the negative interest. The color chart will assume DUSD is at a price of $0.60 and a negative interest rate of 15% with the stabilization fee of 30%.]
For this strategy, an investor purchases DFI and places it in a vault to create DUSD and a dToken and use them for liquidity mining. The investor becomes strongly neutral. Severe price changes in either direction can lead to losses for the investor, due to impermanent loss. For example, if a stock/ETF drops sharply, the user will need to buy back DUSD, perhaps needing some DFI. On the other hand, if it rises sharply, the investor will need to buy more of the token to pay back their loan.
Tags: crypto (DFI) bullish, stock/ETF strong neutral, DUSD neutral
Benefits:
Offers an investor a way to invest in dTokens without having to worry about a 30% stabilization fee
Benefits from negative interest on the DUSD loan, rewards and commissions from liquidity mining, as well as discounts on the tokenized asset
Reduce the algorithmic DUSD ratio
Support dToken pools
Disadvantages:
Risk of liquidation
Requires some maintenance to prevent liquidation, and even more so if an investor keeps their vault close to the minimum collateralization ratio
Profit/loss and taxes is difficult to calculate.
Severe price changes are problematic, but this can be mitigated by using a less volatile token.
Simplicity: Like strategy 5, an investor should understand the implications of using leverage, and there are many factors involved in an investor's profit and loss here.
Maintenance: This strategy will require investors to maintain their vault regularly, even if they are using a vault manager such as Vault-Maxi or a vault watcher such as DeFiChain Dobby. The maintenance is even higher because not only are collateral prices changing, but stock prices can fluctuate a lot if a user chooses a volatile token.
Risk/Reward: With a low volatility pair, this is a great way for smaller investors to invest and earn passive income in DeFiChain. They don't need to rely on third-parties in staking, risk severe impermanent loss in crypto liquidity pools, but can take full advantage of DFI price changes while staying neutral on the market.
Cashflow: This strategy provides a less risky method of gaining cashflow. In contrast to the other strategies, investors had to have an undiversified portfolio or be bullish on other tokens. Even though investors will pay some interest due to borrowing stock tokens, this will be offset through DUSD negative interest and LM cashflow.
Strategy 7 - DUSD and dToken Vault - LM (Strong Neutral)
Strategy 7 - DUSD and dToken Vault - LM (Strong Neutral)
This strategy is designed for users who have DUSD and do not want to sell at a loss.
In this strategy, a DUSD owner puts a certain amount of DUSD in their vault to mint dTokens, then use the remaining DUSD combined with the minted tokens to use in liquidity mining. This strategy is strong neutral.
To maintain a 175% ratio: Put 7/11 (63.64%) of DUSD into vault. 4/11 (36.36%) of DUSD and equivalent amount in dToken go to LM.
To maintain a 200% ratio: Put 2/3 (66.67%) of DUSD into vault. 1/3 (33.33%) of DUSD and equivalent amount in dToken go to LM.
To maintain a 225% ratio: Put 9/13 (69.23%) of DUSD into vault. 4/13 (30.77%) of DUSD and equivalent amount in dToken go to LM.
Tags: stock/ETF strong neutral, DUSD neutral, crypto (DFI) neutral
Benefits:
Earn cashflow on DUSD
Support dToken pools
Disadvantages:
Risk of liquidation (manage the vault!)
Profit/loss and taxes are difficult to calculate.
Simplicity: Investors should still acknowledge the risk of leverage and vaults, but there are less moving factors compared to strategy 6 or strategy 5.
Maintenance: This strategy is generally seen to have less risk, because collateral is in DUSD (fixed price) and by borrowing a more diversified ETF like dSPY, it makes managing the vault less stressful.
Risk/Reward: Risk is quite low with this strategy. For a constant amount of cashflow that would not otherwise be realized simply holding DUSD, there is a good possible reward.
Cashflow: This strategy will not provide as much cashflow as other strategies like no. 4, but investors who don't want to go bullish or want to hedge their long positions on stocks can use this strategy to continue earning cashflow.
Strategy 8 - DUSD and dToken Vault - LM (Short)
Strategy 8 - DUSD and dToken Vault - LM (Short)
This strategy is a similar one to that of strategy 7, but it allows a user to go short instead of strong neutral. In strategy 7 the investor kept a certain amount of funds outside the vault to liquidity mine with funds borrowed through the vault. In this strategy, all DUSD goes in the vault, and half of the borrowed stock/ETF tokens are sold and complement the other half to create a liquidity position.
Tags: stock/ETF bearish, DUSD neutral, crypto (DFI) neutral
Benefits:
Earn cashflow on DUSD
Support dToken pools
Go short on a stock/ETF, this strategy can be combined with a strategy like 4 to hedge the risk of the tokenized asset
Disadvantages:
Risk of liquidation (manage the vault!)
Profit/loss and taxes are difficult to calculate.
Simplicity: Investors should still acknowledge the risk of leverage and vaults, but there are less moving factors compared to strategy 6 or strategy 5.
Maintenance: This strategy is generally seen to have less risk, because collateral is in DUSD (fixed price) and by borrowing a more diversified ETF like dSPY, it makes managing the vault less stressful.
Risk/Reward: Risk is also quite low with this strategy. For a constant amount of cashflow that would not otherwise be realized simply holding DUSD, there is a good possible reward.
Cashflow: This strategy doesn't provide as much cashflow as simply swapping half the original DUSD to the tokenized asset. (It just allows you to go short instead of long the asset!)
Strategy 9 - Stablecoin LM
Strategy 9 - Stablecoin LM
This strategy, like strategies 4, 7, and 8, can be used by investors who don't want to exit DUSD for a 30% fee.
In this strategy, an investor combines dUSDT or dUSDC stablecoins (that are already owned, or purchase some new ones) with existing DUSD to create a liquidity position in the stablecoin pools.
Tags: DUSD bullish, stablecoin bullish
Benefits:
Earn cashflow on DUSD
Only bullish on DUSD itself, but it offers the opportunity to capitalize on DUSD doubling back to peg (from $0.50 in July 2023)
As of July 2023, the stablecoin pools have the highest APRs in the ecosystem
Disadvantages:
Investors have to make additional investments to use this strategy
Liquidity position can decrease in value (USDT or USDC-wise) if DUSD falls against them (investor's total position can still have a near 100% loss if DUSD falls to $0)
Simplicity: Sufficient understanding of liquidity mining and how price changes between DUSD and stablecoins could affect profit and loss is enough. This strategy is more complex then simply buying DUSD, but less complex compared to the vault strategies above.
Maintenance: An investor can leave their position open indefinitely; it will continue accruing rewards.
Risk/Reward: Of the DUSD strategies listed this strategy is often considered safer because stablecoins are the only component to this position. Additionally, there is a potential for a 100% return on the DUSD portion of the funds before impermanent loss, considering that 1 DUSD is worth about 50 cents (in July 2023).
Cashflow: Cashflow with this strategy is one of the highest in the DeFiChain ecosystem.
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