To farm the Ethena tokens, I needed to stake FDUSD, BNB tokens, or both. I did not have either of the tokens but I wanted to participate. This would be my first time participating in something like this and I wanted to explore.

I had five options:

• Buy FDUSD

• Borrow FDUSD

• Buy BNB

• Borrow BNB

• Any combination of the above

I will work through all the options one by one to see how I arrived at my final decision.

Buy FDUSD

As at the time I wanted to execute the transaction, FDUSD was trading at $1.0035. This was supposed to be a stablecoin. The price moved because everybody was buying the token to stake for Ethena. There was no way to tell how high FDUSD could go. Also at the end of the farming period, people who rushed to buy the token would likely rush to sell. This could put pressure on the token and bring it down to less than the $1.0000 mark, and I would have traded it at a loss. I also do not have any interest in holding it for the long term, so I abandoned this option.

Borrow FDUSD

I searched the markets and discovered that I could only borrow FDUSD on the Venus Protocol on BNB Chain. The yield was at 75%. Nah, I am not going to do that. Although there was the added benefit of the price coming down after the farming, which could neutralize the effects of the high yield. However, this means that I would have to move fast, to sell into USDT and then buy back into FDUSD if the price drops below $1.0000, and there was no way I was going to be as fast as bots that are going to be unleashed on both Venus and Binance. That move was too complicated and I do not believe the risks are worth it. I don’t usually do trades like this and never considered using bots, but the idea looks enticing now.

Buy BNB

I have no interest in holding BNB over the long term, and I do not want to be exposed to the price movements. And even if I were to buy the token, I just feel icky committing my own funds to buy it. I have nothing against BNB, but if you recall in my earlier post, I am only loyal to BTC & ETH. Also I expect some volatility on the token when the pool closes.

Borrow BNB

The last option was to borrow BNB from Venus Protocol. And what do I see? The yields are upwards of 35%. Haha. It looks like everyone is thinking like me and the yield on the token has crashed upwards. Borrowing a token I do not want to hold, and then to pay interest that may not even be enough from the Ethena tokens I would receive is a no no.

So what do we do?

I saw on the Venus Protocol that I could borrow BTC. And here is the kicker, it had negative borrowing rates, meaning I would get paid for borrowing BTC! Interesting. But then I needed to post some collateral. 

Now, I needed to work out the kind of collateral to post that would go with my overarching strategy. If I borrowed 1 BTC, which was worth approximately $70,000, I would need to post collateral worth about $100,000. Then I decided to do a mixed basket. I brought in $40,000 worth of BTC, $20,000 worth of ETH, and $40,000 worth of FDUSD.

“Wait,” you might ask. “What the heck is FDUSD doing there? I thought we had no business dealing with it.”

Let’s just say that I wanted to help the ecosystem because of the goodness of my heart. Not really. We are in the market, and the market does not care about your feelings. Walk with me.

I needed to mix and match different tokens to dampen the volatility of the collateral while taking advantage of the negative borrowing yield on BTC. So I went to the market to purchase FDUSD, and instead of staking it to earn, I moved it to Venus Protocol as collateral where it would yield 65%+. (The yields from lending are usually lower than the yields from borrowing because the protocols earn a spread.) By combining different assets as collateral, I would be largely protected if BTC decided to pump within the farming period. If I held too much collateral outside BTC, I might get liquidated in the middle of the night if BTC decided to spike upwards while I am sleeping. If BTC goes bullish, ETH is likely to follow, and since it has a higher beta than BTC, it will likely move faster and protect the collateral portfolio. And if BTC dumps, FDUSD will dampen the downside move while earning 65%.

At the end, even if FDUSD drops in value, the extra interest I would have earned should compensate for the drop. This is a much better proposition than staking FDUSD to farm Ethena tokens while yielding nothing. It is also preferable to borrowing at 75% to stake at 0%.

Now, we have done the first leg of the transaction. I have borrowed BTC. What next?

I needed to stake FDUSD, BNB or a combination of both. Given that there is no two-way market for FDUSD, I chose to stake BNB instead. I will explain that later. Now we go to the next leg of the transactions.

Executing a multi-layered arbitrage system

1. I sold BTC into USDT first: I did not sell directly into BNB because the liquidity between BTC and BNB was too thin to handle my transactions without causing unnecessary slippage. Immediately I sold BTC, I was already exposed. If BTC moved suddenly, I will need more USDT to repay the BTC I borrowed. I needed to find a solution to that first.

2. I went to Deribit to purchase 1 BTC futures. I did not execute it on Binance because I could lower collateral on Deribit. Immediately I did that, my open short BTC position (from borrowing from Venus) was covered.

3. I used the USDT to buy BNB token on Binance. At this point I am now long BNB. And like I said, I do not want to hold BNB. If BNB went up, it would benefit me since I would sell BNB to receive more USDT. But what if BNB crashed? That means I would end up in a loss. How do I protect this?

4. I sold BNB futures on Binance to cover the exact amount of BNB I purchased. That means regardless of which direction BNB goes, I will be net-neutral. I have now flattened my entire positions.

5. I now staked BNB token to receive Ethena tokens on Binance Launchpool. 

By executing the series of steps above, I neutralized my entire positions and I am now receiving Ethena tokens risk free. But there is an icing on the cake.

Remember that the BTC borrowing rate on Venus was negative, which meant that I was paid to hold a short position on BTC. With these transactions, I was getting paid free money to get free Ethena tokens. Win-win in every direction.

Final notes:

1. This is why I do not participate so much in memecoins or degenerate moves in crypto. Opportunities like this abound in crypto-land that make you money risk-free regardless of which direction the market moves. However, if you do not understand derivatives instruments, you can blow up your portfolio within a very short time. Thread with caution.

2. As at the time of posting this, market had dumped. The gained I would have made from buying the BTC I borrowed at a lower price was offset by the losses in BTC long futures. The losses I would have encountered from staking naked BNB were also offset by the gains made by BNB short futures.

3. The net gain on the transaction was almost 5% over three days. Probably won't make sense from a memecoin perspective, but if you scale it up into hundreds of thousands, and possibly millions of dollars, it starts making sense.