Would You Take 50% APY Passive Income on Your Ethereum? You Can With This Delta Neutral Strategy
What you'll learn 👉
Introduction
In the ever-evolving world of cryptocurrencies, it’s crucial to make the most of your assets and explore opportunities to generate passive yields. One such strategy that has proven to be effective is the delta-neutral approach applied to Ethereum (ETH). By utilizing two protocols, SmartCredit.io and Conic Finance, investors can achieve an impressive 50% Annual Percentage Yield (APY) on their ETH holdings. In this article, we will delve into the intricacies of this strategy and shed light on its potential risks and rewards.
Unveiling SmartCredit.io and Conic Finance
To embark on this delta-neutral journey, let’s first familiarize ourselves with the platforms involved. SmartCredit.io is an AI-driven self-custodial neobank that provides fixed-term and fixed-rate loans for borrowers, as well as fixed income funds for lenders. It offers a seamless fiat on/off ramp and boasts the added advantage of being free from the risk of bank runs. On the other hand, Conic Finance serves as a platform catering to liquidity providers looking to diversify their exposure across multiple pools. By allowing users to provide liquidity into a Conic Omnipool, the platform intelligently allocates funds to Curve, adhering to protocol-controlled pool weights.
The Delta-Neutral Strategy Explained
The delta-neutral strategy on ETH involves three simple steps that collectively contribute to the impressive APY of 50%. Let’s explore each step in detail:
Step 1: Lending ETH on SmartCredit.io
By lending ETH on SmartCredit.io, investors can earn a Supply APY of 13%. This serves as a foundational component of the strategy and sets the stage for further yield generation.
Step 2: Borrowing USDC Against ETH Collateral
The next step involves borrowing USDC against the collateral of your ETH holdings. Surprisingly, this borrowing process offers a borrow APY of 34%. In essence, investors are paid to borrow, presenting an enticing opportunity for those looking to maximize their returns.
Step 3: Farming with USDC on Conic Finance
To further enhance the yield, the borrowed USDC is then utilized on Conic Finance for farming. By participating in this process, investors can earn an additional 12% APY on their USDC holdings, effectively diversifying their income streams.
Calculating the Strategy APY
Combining the individual APYs from each step, we can calculate the overall APY of the delta-neutral strategy. Considering the current rates, the calculation is as follows:
Strategy APY = 13% + 34% * 0.85 + 12% * 0.85 = 52%
With a substantial APY of 52%, this delta-neutral strategy has demonstrated remarkable stability since early March. It stands as a long-term solution rather than a short-lived tactic, making it a proven approach for sustainable gains.
Risk Considerations
It is important to note that no strategy is without its risks. Before proceeding with this delta-neutral approach, investors must be aware of the potential pitfalls involved. Some of the risks associated with this strategy include:
- Liquidation in the event of ETH’s decline against USDC.
- Risks pertaining to the smart contracts employed by SmartCredit.io and Conic Finance.
- Availability of 90,000 USDC for borrowing purposes (subject to change).
When determining the amount to invest, it is crucial to carefully consider these risks and assess your risk tolerance accordingly.
Personal Experience and Conclusion
As a seasoned investor who has extensively utilized this strategy, I can confidently say that the gains achieved have been nothing short of satisfying. While the majority of my ETH holdings remain outside of the decentralized finance (DeFi) realm, I allocate only 20% of my ETH to this particular delta-neutral approach. With a stable track record and considerable potential for long-term success, this strategy has proven to be a valuable addition to my investment portfolio.
In conclusion, DeFi opens up a world of possibilities for generating passive yields, and the delta-neutral strategy on ETH stands out as an excellent avenue for investors. By leveraging the capabilities of SmartCredit.io and Conic Finance, individuals can capitalize on the potential offered by lending, borrowing, and farming, resulting in an impressive 50% APY. Remember to perform thorough due diligence and evaluate your risk appetite before implementing any investment strategy. With careful planning and informed decision-making, you too can embark on a profitable journey in the exciting realm of cryptocurrencies.
