3 Permission-less Trading Strategies in a Bear or Flat Market
Before Getting Started…
… understand the RISKS!
We describe ways multiple, independent permission-less dApps can be used in combination to capture value in falling markets. We are software engineers and former bankers, but we are not financial advisors, traders or experts on making money in any market condition. Please keep in mind our lack of expertise as you consider using these tools as described. If you follow the steps in this article you can lose value and there is significant risk throughout crypto industry that is not considered in this article, including but not limited to regulatory risk and technology risk.
This article is for folks who use Metamask, Wallet Connect or other wallet applications where the user holds the keys. If you swap, stake, lend or borrow from places like Compound, AAVE, ReserveLending, Maker or Curve, then this article is for you.
The reality of permissionless, self-custodial crypto finance is that tools can be combined to generate passive income, tie actions to observed market data independent of user actions, and be just as safe as holding the assets in your own wallet (earning nothing, lol). The challenge is finding the set of providers whose tools can be used together to:
Increase your purchasing power
Protect against price movements while you are away from your keys, and
Maximize your preference-based return.
Using a Metamask wallet, follow these recipes below to start generating yield on your dormant #USDC, #USDT, alt-stablecoin or other Tier 1 crypto asset on the Ethereum network.
Best Method to Effectively Use this Information
The following ‘recipes’ were crafted by product professionals at Dexible and unFederalReserve.
Dexible and unFederalReserve empower wallet users with the options the large exchange houses provide, but without the need to relinquish control of the assets involved. There are myriad risks in investing, and we highly recommend you speak with a financial advisor before beginning any trading or investment program. We are software providers, and cannot give advice on markets or guarantee returns. If you have any questions, either community’s telegram channels (e.g. unFed’s and Dex’s) are replete with knowledgeable folks that can help with connecting wallets, seeing positions, etc.
We have structured the recipes as follows; first, we describe the strategy in the title, and then identify the persona of the individual based on their goals. The steps are fairly generic and do not consider the current price of any asset or APY on supplied or borrowed assets. We included a little table here that one might use with these elements to determine whether the market conditions are right for these steps to produce the desired outcome.
The good news is that you can do this today, right in front of your computer, and start monetizing those holdings regardless of market conditions.
Follow These Simple Steps To Change Your Life (At Your Own Risk) …
Strategy 1 — Bearish Short-Term — Monetizing the Bear
Persona: You do not hold the asset that you think is going to drop in value, and you wish to make money if the price of that asset drops. For this example, you think Ethereum ($ETH) will drop in value and you are holding $USDC:
- You are holding $USDC
- On ReserveLending — supply $USDC (note: you will earn an APY%)
- On ReserveLending — borrow $ETH (note: you will pay an APY%)
- On Dexible — swap ETH for USDC (or other stable)
- On Dexible — set up an order to buy ETH when the price hits X (presumably lower)
- PRICE DROPS
- On Dexible — order is executed and you acquire ETH at the lower price
- On ReserveLending — payoff ETH loan
If the price drops, you will have made money on paying back a much cheaper loan than what you originally borrowed. You will have earned (paid) interest income (expense) on the ReserveLending net supply/borrow.
Here is an example of one possible economic outcome. A list of the assumptions are as follows:
- Interest rates for borrowing and supplying are fixed (in reality, they float based on utilization)
- Gas fees are fixed at 50bps and we assume 5 transaction steps to fully enter and exit position
- The target price for the short is reached on the last day of the 6th month
You can play with the spreadsheet here, but please copy a version down before changing anything (leave no trace!):
Strategy 2 — Bearish Long-Term — Protecting an Existing Position
Persona: You are a hodler of an asset and wish to protect your gains or not lose more
- You are holding ETH currently (wrap to wETH). The goal is to short this position.
- On Dexible — set a stop limit order swap from wETH to USDC (ex: 5–10% stop trigger price with a limit price set at the current wETH to USDC price rate
- On ReserveLending — deposit USDC into supply pool and earn 9%
- FURTHER PRICE DROPS
- On ReserveLending — withdraw your supply (or lever-up)
- On Dexible, buy more wETH
Strategy 3 — Bearish Long-term — Crazy Bear (ETH)
Persona — You wish to go “all in” that a currency will drop in value
- You are holding USDC, DAI, USDT, LINK, etc.
- On ReserveLending — supply all your assets of the above
- On ReserveLending — borrow ETH against the cumulative value of your supply
- On Dexible — set up a trailing stop loss of wETH for USDC 5% beneath spot price peak (or other stable)
- PRICE DROPS
- On Dexible — set up a take profit order for USDC for wETH 5–10% above wETH. Unwrap wETH.
- On ReserveLending — payoff ETH on each of the borrowed positions
Strategy 4 — Flat Long-term (Lever Up and Go Long!)
- On Dexible: Stop order for TokenX on the way up to lock in gains
- On Dexible: Swap gains for USDC
- On ReserveLending: Deposit USDC and borrow ETH
- On Dexible: Swap ETH for TokenX
Conclusion — Do Your Own Research (Not Financial Advice)
We cannot overstate that the procedures above are based on functionality currently available, and not a recommendation or financial advice. There is risk of losing everything even if you follow the recipe above and the market reacts in an expected manner due to myriad forces within and beyond our control.
We spoke about bear strategies, but prices can rise, and in some cases sudden rises or falls in price might trigger actions that result in losses.
Dexible is a dex aggregator focused on automated trading for institutions. The platform’s goal is to become the DeFi Execution Management System for translating strategy into results across different blockchain networks.
Web3 is evangelizing Financial Literacy for young adults across the world. History held that creating, participating, and investing were intangible; but today these are tangible Value Streams.
ReserveLending (https://unfederalreserve.com/product) is a pool-to-peer savings and lending platform that is:
- Self-custodial — never give up control of your possessions,
- Permissionless — connect via Metamask or Wallet Connect to start earning,
- Real APYs — savers get compensated by over-collateralized borrowers.
The platform abides by U.S. regulations and was built by veterans of the financial services and technology field with over 200 years combined experience. With over $700 million dollars in volume over the past 18 mos and 30,000+ transactions, ReserveLending offers the best way to save, earn and borrow.
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