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Getting serious about crypto yields

I’m a degen now.

I finally took the plunge, after a couple of test runs with Yearn, Sushi, and Harvest, and finally dumped a significant amount of capital into yield farming. Bankless published an excellent guide that I read this morning, and since the yETH pool is still closed, I decided to dump my stash of USDC tokens into Curve’s sBTC pool, and then staked it on Yearn where it’s now gaining upwards of forty percent ROI. We shall see.

The entire process was relatively painless considering the stress I went through with my previous forays. Zapper made the process even more so. It did most of the heavy lifting to get my Curve tokens, then I just had to stake them on Yearn, which was another step. And the gas used was only about half of what I was expecting, so yay.

Time will tell how long this DeFi madness can go on. I’ll probably take a breather for a bit and watch what happens. This feels like a pretty big step but I don’t want to go crazy right off the bat. I’m still reading through Mastering Ethereum, and it’s obvious that I’ve got a long ways to go toward understanding how all this stuff works, so I’ll just take it easy and get into it the same way I did with crypto: slowly.

There’s a first mover/early bird advantage to these markets, but I shouldn’t expect to keep getting lucky. Capital preservation is the name of the game. I’ve been so focused on it lately, and have been very aggressive with my equities positions. In addition to Overstock last week, I also had Tesla and NVidia stop out on me this week, so I’ve got a lot of cash available in my retirement account that I can deploy on more speculative bets. (Like I haven’t dumped enough on mining companies already…)

I’m continuing my value average program, but have also put stops on some of the ones that are running hot. Take profits. Hopefully that won’t come back to bite me if we actually get inflation. I’m just waiting for a broader pullback.

I’m keeping an eye on the ETHE premium. I’ve opened a small position, set some stink bids, and will scale in as I can while protecting my capital. The last week or has seen some crazy runs, I swear I must have gone up thirty percent and down fifteen in the last month. It’s insane.

If I’m going to make a living out of this then I need to keep calm and remember how to protect my positions. My equities trades are tax-exempt, but my crypto gains are going to be taxed like hell if I make any big moves. So far I’ve avoided liability, since my trades have been at a loss, and I haven’t opened any positions that have required stops yet. We’ll just wait for the market, buy low and ride it high.

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Black Thursday

Today was a good day, unless you count what happened in the markets.

This morning actually started out pretty good. My four-year old slept in her bed for the first time ever, and both my wife and I had the best night’s sleep in a long time. Everything was pretty calm around here and I managed to get a lot done.

Bitcoin took a huge dump today, but so did most of my equities positions as well. I was actually pretty calm about it, as I had some stops trigger over the last couple days, so I’ve got my bigger positions protected. I even picked up some more Grayscale Ethereum Trust, $ETHE, as the premium held, and DeFi isn’t going away anytime soon. I was actually pretty calm about it. Staircase up, elevator down.

I had a couple stops set on $ICX and $LISK from last week, it looks like both of them triggered, but neither of my recent buys hit my stops, so that’s good. I picked up some $ALGO today as well, and Cosmos, $ATOM, just hit a nine on the TD Sequential, so I’m probably going to market buy some of that as soon as I get done writing.

I did spend some time fretting about my USDC holdings which are currently just sitting in my wallet. I’m half tempted to dump them in Yearn, but with the gas costs I’m probably just better off dumping it back in BlockFi. I am however, at total risk of becoming a degen and dumping my entire ETH holdings in the new yETH vault, with it’s shiny 99% APR. Thankfully I missed the withdrawal window to get my funds out of BlockFi until Tuesday at the earliest. Waiting is probably a good thing right now, so I’ll do nothing.

I spent some time reading over the Ethereum yellow paper today, and I plan on spending the rest of the evening Mastering Ethereum as it were. I want to be able to read these contracts and understand exactly what they’re doing before I go and do anything stupid.

And I’m really feeling the urge to do something stupid. I got a notification from my student loan issuer yesterday. The debt forgiveness has been extended until January 2021, so I don’t have any debt or interest to worry about till then. But I have an extra $600 a month that will be coming due then, and that is going to be a real big problem for me unless I take another job — or choose one of the other payment plans. The possibility of raking in some of that sweet, sweet, yield farming money is looking really, really good right now. If I was willing to dump all of my BTC into ETH and stake it, I could pretty much retire right now.

I know it won’t last for long, and I would rue the day I was born if I did something like that and lost everything to something like a contract failure or exit scam. I’m taking it real easy right now, and trying not to get caught up in some stupidity.

At least for now.

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Slow day

Markets were down all day, so today was a chance to catch a breather.

So the Yearn.Finance ETH vault went live earlier today, and I managed to stake a small position plus another twenty dollars in gas fees. Apparently they’re depositing the funds in Maker, using it as collateral for a DAI loan, then depositing that on Curve, earning CRV tokens, selling those which goes back to the ETH pool.

I’m comfortable with these little 2% experiments and consider it as a sort of tution. Unchained covered why DEXs are taking off in this latest episode, and they really break things down quite well. It’s worth a listen.

I’ll admit I didn’t get a lot done today, I stayed up too late last night and got woken up too early by the kids. They were quite a handful today and it was tough trying to get some work done while nursing the lack of sleep.

About the only thing I did do was re-opened a position in $ZRX.

This isn’t ideal, considering that I just stopped out this position less than a week ago, but I want to explore picking up positions on the TD #9, before it closes. I’m still trying to flesh out the “rules” about how I’m going to set stops on these positions. Damn Binance and the lack of decent trailing mechanisms. I’ve got a lot of work to do to code these things up.

Using my Google Sheet trade calculators has become very cumbersome given that the CryptoFinance module that I had been using for price feeds no longer works. I had built custom API lookup scripts for some of the smaller markets in my mining portfolio, but it’s just too cumbersome keeping those together between various sheets. So I think the time is nigh to convert those over to some sort of Python program, maybe with a web front end.

I’m not sure how much work that’s going to be, of course.

All of this DeFi madness did get me to pick up Mastering Ethereum, which I started reading through today. Things seem to have come quite a ways since I tried experimenting with things a while back, now they have a online IDE that lets you compile, deploy and test smart contracts on a local JS node. It’s pretty handy, and the whole thing is pretty damn handy.

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SushiSwap FOMO

More DeFi madness.

Well I learned quite a bit about DeFi today, and things really escalated quickly after I succumbed to a bit of FOMO. Thankfully I didn’t go too crazy.

I’d been seeing news earlier in the day that Uniswap, a ERC-20 DEX had broken $500 million in volume, and then read some info about SushiSwap, which is basically going directly after Uniswap. Uniswap operates by providing fees back to liquidity providers. Then this tweet happened:

And that’s exactly what SushiSwap is.

The developer behind SushiSwap, the anon Chef Noni, describes it as Uniswap with Sushi tokenomics. LPs are provided with rewards in Sushi tokens, but the main difference with UniSwap is that LPs can withdraw their capital and still earn rewards by holding Sushi later on. Right now, they’re just stealing liquidity directly from Uniswap, but the plan is to launch their own native pool in the coming weeks. In the meantime, as an early mover advantage, they are providing 10x staking bonuses to LPs, and another 5x to those that stake the SUSHI-ETH Uniswap pool.

The project launched just 72 hours ago, and already has $57m in liquidity with over $99m in volume. The SUSHI itself has gone from $0.90 to $6.00 in that time. The context here of course is YFI and other DeFi tokens that have had 10,000% gains in the last month. Could SUSHI see a run like this?

Obviously, the risk/reward here for a small stake seems immense, so I decided to give it a shot and see what is going on. SUSHI was trading around five or six dollars earlier, so I decided to throw some ETH at it. I made a bit of a mess at it, but I eventually got it figured out.

In order to be an LP on Uniswap, one has to provide equal amounts of assets on all sides of the pools. In most cases, it’s just two tokens, like ETH and DAI, but in others it might be three or even four tokens. After pooling your assets you’ll be provided with the relevant Uniswap token for the pool.

Of course the point to these pools in the first place is to facilitate swapping between the pool currencies in the first place, so the first thing I did was use Uniswap to purchase SUSHI. I wanted to stake in the highest paying pool, which is the SUSHI-ETH one. You can follow along with this guide here, but please check the contract addresses before sending any funds. The SUSHI token contract address can be verified here.

From there it was just a matter of adding my newly acquired SUSHI to the pool along with an equivalent amount of ETH. And this is where I messed up. Uniswap attempts to calculate the exchange rate between the two currencies before sending the transactions, but the volatility of SUSHI was too much for Uniswap’s default slippage percentage of one percent. My first two attempts at the conversion failed, wasting about ten dollars in ETH, before I raised the slippage to ten percent and it went through, giving me SUSHI-ETH Uniswap tokens.

I now was an LP in the same pool that I had just used minutes earlier to exchange my ETH for SUSHI in the first place. The conversion was not one-to-one; five SUSHI and equivalent ETH netted me 0.540 LP tokens.

The next step was to stake my SUSHI-ETH LP tokens in SushiSwap. This also took a fair amount of gas, but managed to go through at a fairly low rate. All in all I staked sixty dollars between ETH and SUSHI, and over twenty dollars in gas.

I’ll admit I got really wrapped up into a severe case of FOMO while setting all this up. Thankfully I’ve calmed down and managed to refrain from any additional buy-ins. DeFi is moving very, very fast, and I found myself in bit of a mania today. Thankfully I’ve managed to limit my exposure to just a hundred dollars.

Still the urge to go and swap a couple hundred dollars of stable coin or ETH is still there at the back of my mind. I just have to keep telling myself: risk management risk management risk management. I might wake up tomorrow and find SUSHI up 10x, or down to pennies. Either way, things are moving so fast right now that I’m sure there will be plenty of opportunities to deploy more capital in other projects. The last thing I want is to run out of dry powder this early in the game.

I’ve been so obsessed with the price of BTC the last few weeks. DeFi is the only thing that’s managed to keep my attention off of it for half a day or more, but it’s fueled a whole other obsession. We’ve still got four whole months left in 2020 and it seems like it’s going to be a doozy.

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Yearning DeFi

High contract fees on optimized lending platforms may be roadblocks for casual retail investors

I spent a good deal of time researching DeFi yesterday, mainly trying to figure out what the hell Curve and YFI are.

I’ve spent several months with deposits on BlockFI, where my crypto and stable coin assets are making between six and eight percent interest. It’s decent, compared to bank deposits right now, but I keep coming across these insane valuations on certain lending protocols, upwards of twenty five, sometimes as high as one hundred percent APY. What is going on, how risky is it, and how do I get in on the action?

Most of the lending protocols, take Compound for example allow users to deposit certain tokens, such as DAI or ETH, and receive interest on these deposits. Alternatively, users use these deposits as collateral for loans with which they can receive other tokens. BlockFI offers USD loans as well, at rates around nine percent.

I’ve never found a reason to participate on the borrowing side of these platforms. Apparently people use them to make short-term trades, possibly staking them on other platforms, but that’s been a bit risky and complicated for my tastes. I’ve stuck to the lending side of these platforms, becoming what is known as a liquidity provider, or LP. (I think it’s interesting that this acronym mirrors one from venture capital, for limited partner. The comparison is quite apt.)

One of the reasons that I settled on BlockFi for my deposits is that they are more aligned with traditional finance, and I feel a bit safer keeping my funds there than with a smart contract that could be susceptible to the usual risks such as code vulnerability. (See the DAO hack for an example of this.) The other is that they had higher rates than Compound and some of the other competitors. At least, they did.

And that’s where these newer DeFi protocols come into play. Curve is one smart contract platform that automatically maintains users’ funds in whatever system is offering the highest interest rate. This is done automatically whenever someone interacts with the contract by depositing or withdrawing funds. The advantage here is that LPs don’t have to deal with it manually and also save gas in the process.

The downside is that it is relatively expensive to interact with these contracts. I did a small test transaction today, exchanging LINK for Aave’s aLINK token, which I then deposited in a Yearn Vault. I paid almost $90 in gas between the two. Since the fee is flat and not based on the amount of funds, these types of systems are geared toward larger liquidity providers. (As of this writing, Curve had over $800 million in funds in its stablecoin liquidity pool.

Platforms like Aave, Curve, and Yearn are some of the most cutting edge in the DeFi space right now, and I’m just getting familiar with them. There is a lot of risk here, as we are talking about some uncharted space. Not only is there risk of contract failure and security audits that need to be done on these contracts, one tutorial described some of these governance token staking as the “derivative of a derivative of a derivative”. And I remember what happened in The Big Short.

I’m going to pause before I send any more funds into one of these platforms, until I can do some more research and weigh the options. This is clearly a space for large liquidity providers, and may be more than I am willing to risk at the moment.

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Morning pages

Yesterday I spent most of my time trying to migrate a production WordPress site to my development environment. Normally, I’ve used Infinite WordPress’s site migration tools to move them, which does the trick of moving all the files and updating the database references to the site URL, but I don’t think it works when the site’s not public. I’m doing a lot of hacks with my Docker setup, importing databases, messing with file permissions, and duplicating a lot of my work since I like to sit downstairs at my desk during the day, and upstairs at night. So part of my challenge is trying to find a setup that works well for me.

I might have to make some sacrifices. JetBrains IDEs don’t like to work over the network, so I’ve got to add a directory sync if I want to keep the files on my network server and work from both workstations. At least I can run Docker from the remote machine, but it’s not supported by the IDE, so I’ll have to figure out how to fit that into my workflow.

The girls were good. Elder did everything I asked her, and got her extra screen time. She did Typing, piano, and two sessions of math in Khan’s, and we managed to keep the house tidy. So that’s a big parenting win. She’s already up and on her laptop right now, ostensibly doing typing, but I don’t hear too much of it going on over there. Maybe she’s doing math.

We had a bit of excitement yesterday when bitcoin went on a little bit of a tear. I noticed it shot up to touch ten thousand and got excited. Elder came over and said “it went UP,” excitedly. We watched the fight for a few minutes, before it dumped, and then went on a bike ride.

I moved my entire Ethereum stash over to BlockFi. There’s always a moment of horror after publishing a large transaction to the blockchain when the doubt sets in. Wondering whether the address was copied correctly or if my opsec failed and some hacker changed the receiving address while it was in my clipboard. Did I check the address. I usually do a small test transaction before sending over the big one, but it still makes me nervous. Especially after reading about the mining firm that said someone sent a $144 Eth transaction with $131 million in gas fees.

So now I have a fair chunk of my assets up on BlockFi. I haven’t touched but a fraction of my BTC; it’s just too much risk for me to do that. I’ve got a roughly even spit on there between BTC, ETH, and USD stablecoins, and I’m considering whether to put more USD there. I’ve still got the girl’s BTC accounts, but I don’t want to mix them with mine, and I’m not yet sure if I can open an account in their name or if I’ll have to do like I did for lending club and make multiple ones in my name.

Due to the coronavirus, the IRS is allowing 2019 IRA contributions up until July 1. I’m considering whether I want to do this, or throw some more cash into BlockFi. My IRA is on fire right now, I calculated 70% realized gains off of this market rally, and my unrealized gains for the year are much higher than when I calculated them a couple of weeks ago. I’ve still got active value average positions that are in play, and I’m probably going to be short on cash before they complete, so I need some powder. I just doing know whether I should sell some of my other positions, or put more cash into play. All of my current plays are under risk-adjusted position sizes, but my long term holdings are just sitting without any stops on them. With everyone going crazy on RobinHood these days, I should probably put some protections in place in case there’s another lockdown related pullback.

Yesterday, a client’s laptop failed, and I’m waiting on a vendor to go out there and swap a motherboard or something. The drive is encrypted, and while I’m certain I have the keys, I felt a shot of adrenaline course through my body when I remembered that I neglected to reinstall a backup program on her machine after replacing it. So I know what I’m doing today. What I don’t know is what I’m posting tomorrow for my newsletter. This post has been the type of rambling morning pages post that’s of no use to anyone but myself, and which is not the type of quality content that I want to be sending out to my LinkedIn network, or to the email list which I just salvaged from an old CSV file.

I’m going to let that one mull in my head today, and let it stew.

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Stablecoin lending interest with DeFi

So there’s been a bit of life in the crypto markets the past day or two. Bitcoin has been trending in a range. Cryptotwitter is debating whether it’s a descending triangle or a wedge, trying to predict whether a breakout up or down is coming. It looks to me that it’s in a consolidation zone. I have been holding off on purchasing much fiat to BTC, since I have other financial responsibilities that are taking precedence. Plus I have too much exposure, in general.

I have begun plans to phase out my use of Lending Club for investment purposes. I had started separate accounts for both of my kids, and was happy with the $25-50/month that I had been setting in there for them, with three to five percent interest. But around the time of the bull run, October 2017, I decided to start putting those funds into BTC, giving both of them their own wallets. I let Lending Club continue to reinvest the returned payments. Until recently.

The big talk in the cryptoasset space right now is in decentralized finance, or DeFi. Most of the major apps in the space rely on Ethereum smart contracts, stable coins like Dai being the most prominent. I became aware of platforms like Compound, which allow lending and borrowing of several assets, like Dai, Ether, and others. The basic premise behind Compound is that people deposit their assets with the smart contract, and can then use those assets as collateral to which they can borrow other assets. The reasons why is something I really can’t explain. I assume most of it is speculative trading; a bit to risky for me given the borrrower APR.

Now with Dai, which tries to maintain a 1:1 parity with USD, has had a 20% stability fee assessed against it. Which is why it had a nearly twelve percent lending interest rate on Compound a few weeks ago. I had to try it out. I had some change on Coinbase, so I bought twenty bucks worth of Dai, transferred it to a Metamask wallet, and had it deposited at Compound in no time.

Supply (lending) interest rates on Compound for Dai and USD coin are much higher than traditional finance (for now).

Now, this is not financial advice, and there is a risk with DeFi and smart contracts. There is the possibility that there is a flaw in either the Compound or Dai contracts, and something could go horribly wrong. But I’ve decided to stop reinvesting the kid’s funds on Lending Club, and will start moving their funds over to Compound as the loans are paid out. There’s no sense in lending USD at less than three percent, given that it’s hardly better than inflation. Now the rates on Compound and other DeFi applications can fluctuate daily as well, so I’ll need to keep an eye on things and make sure nothing crazy happens.

Given that I want to take advantage of this new opportunity, without increasing exposure to BTC directly, gaining high interest on stablecoins pegged to USD seems like a no brainer.