No one is safe from the new “crypto winter” (a bear market, by Wall Street standards), including the sexy DeFi tokens like Uniswap and Aave, which blew Bitcoin out of the water these last 12 months.
But today, Uniswap is doing as poorly as Bitcoin, deep into bear territory at -40% over the last four weeks and Aave is better, down 27.3% as of this writing.
DeFi investors in those coins were buying for yield payments, not much different than the way a traditional stock pays dividends. But now that those “crypto stocks” are getting hammered, who needs 6% APY?
Aave was up a ridiculous 63,532% in the last 12 months. That’s not a typo. I wanted to buy it. I would have lost a third of my principal had I done so. Better to watch, wait, and learn.
And in the DeFi universe, there is a lot to learn. These are new companies disrupting traditional finance but are using cryptocurrencies most people never heard of. Regardless, there is profit to be made. Investors are buying DeFi startups’ tokens like casino chips and penny stocks.
I asked industry players to think as an investor in DeFi; where do you go for yield that allows you to sleep at night?
“I think the best cryptocurrency to own and stake is definitely Ethereum 2 , but it’s still in development and you can only use Coinbase if you are not a developer, or if you are a developer you need to own 32 ETH and you risk losing all your coins,” says Josh Wallis, CEO of Sigmax.io in the UK.
When it comes to earning passive income with your crypto assets, staking and yield farming are the way to go. Staking requires investors hold their position for longer in order to earn interest, or yield, or “rewards”, or whatever the project calls it.
“In the mid-term ETH 2.0 staking is expected to be the best choice by November 2021 after the update, then DAI and USDC are the next best choices,” he says.
DAI is a decentralized stable coin running on the Ethereum blockchain. It is tradable on Coinbase. USDC is the equivalent of the digital dollar; the crypto dollar.
DAI and USDC offer a lower rate (2% and 0.15% annually, respectively) but it’s the “best choice for the users that do not want to risk the volatility,” says Wallis.
Sigmax.io created an arbitrage trading platform with the yield seeker in mind. It’s powered by a yield hunting bot. (Sort of like a quant fund’s algo-driven trading system.)
Their APY is between 1% to 6% depending on market volatility, but the concept of arbitrage trading — nothing new for Wall Street types — guarantees that any trade executed by the Sigmax automated bot will make a profit as it it designed to find trading discrepancies across exchanges.
Sigmax’s website updates how well its bot is doing. It shows the profit that was made by the bot versus the number of users. By the looks of it, it’s not going to make retail investors rich. But the yield looks to be around 1.84% today, which is somewhere between DAI and USDC, with the potential to make more.
When investors start digging deeper into these decentralized finance firms, most of them less than five years old, they see that a parallel universe of finance is being built. If crypto held its own, and wasn’t so volatile, it is easy to see how DeFi would give traditional finance a run for its money. Especially for the traditional dividend and passive income investors. Entire ecosystems are being built for this.
Like traditional finance, most DeFi yield paying instruments will simply pay you directly into your crypto wallet. Or if you do not have a wallet, then directly into your Coinbase account, for example. In that case, though, Coinbase takes some of that yield for themselves. So it is better having your own wallet or working with the protocol directly via their app or website.
“We offer this at PSI too as a function but try to support that with additional income streams that come from blockchain products like our PSI DEX,” says Bjorn Mattens, CEO and Founder of PSI in Malaga, Spain.
PSI is a DeFi blockchain token that focuses on yield generation for passive income investors in the crypto space.
The above APR is based on the amount of volume on their network and gets divided over to the holders. It also changes daily. These numbers are deceiving and are not exactly what holders are earning in interest each year.
“You could just buy our coin and hold it and earn dividend,” says Mattens. PSI Passive Income is not tradable on Coinbase. Their token is down 66% over the last four weeks after rising 409% over the last year, nearly twice that of Bitcoin, but not as good as Uniswap and Aave.
PSI Passive Income also gives investor a chance to earn enhanced dividends by locking their tokens into the project at a specific amount of time. The longer the better. “This results in more then just holding a DeFi investment, because it means you cannot withdraw your tokens until the lock time is over,” Mattens says.
At first blush, that’s almost like a limited partnership arrangement, or a private equity position.
If stable coins are too boring, there are always the crypto derivatives — synthetics. These derivatives could be anything like options, futures, or swaps.
“Just join the synthetic movement and earn passive and active income,” says Keith Moon, chief product officer at Beyond Finance. Beyond Finance would let investors use their Beyond Finance token (BYN) by swapping Ethereum (ETH) from your MetaMask wallet and stake BYN to get USDb, a stable token backed by BYN. “By doing that, your BYN will be staked at our Beyond Platform and you get the yield from the platform, which is passive income,” Moon says in an email correspondence.
Beyond Finance is a decentralized exchange (DEX) for synthetic assets. It allows investors to trade various synthetic assets such as stocks, commodities, forex, or crypto.
Like many others in the DeFi world, Beyond Finance is mimicking Wall Street investment banks and devising new financial products for generating active income as well as passive income.
BYN is down 65% over the last four weeks and is now down 86% over the last year.
It’s been a rough two weeks for crypto. DeFi, the new darling sector of the “alt-coins”, has fallen in tandem with the heavy weights — Bitcoin and Ethereum. There is no end in sight.
No one believes crypto investors will pack in their tents, though. As Forbes contributor Billy Bambrough noted this weekend, even Elon Musk is not yet breaking up with Bitcoin.
DeFi investors are still looking for the new startup to be the next big thing in fintech. They are also looking for yield as a way to diversity their portfolios, of which crypto is now a part.
“I still like earning APY from stable coins. They keep their dollar value,” says Wallis. “Sigmax is not a coin that has value, it’s just an automated arbitrage trading bot. But that means your holdings in crypto are the same, only you have a a bot trading on different exchanges for yield, and your profit is kept in dollars.”
If crypto keeps tanking like this, more of us retail crypto traders are going to prefer “hodling” in dollars. DeFi isn’t Bitcoin. Investors might never bail on Bitcoin. But they will bail on Aave, Uniswap and Beyond Finance if this keeps up.
This news is originally posted here