With the dip that happened on the 4th of December I knew I had to “buy the dip”, but since I’m not a good trader, I decided to create a DeFi yield farming strategy. This article serves to explain my thought process behind every step.
The wETH was a position I accumulated over the past years. This represents my long-term holdings, which I do not plan to sell no matter what the market does. I never borrowed heavily against it out of fear of liquidation. But after the recent dip, I decided to up my leverage and borrow 60% of the value in USDC. This nets me a 5.5% APR in MATIC with an extra 0.3% in wETH.
When I created this strategy I wanted to be able to adapt it to the rapidly changing market conditions. I chose to invest in 2 liquidity pools, rebalancing them according to the market. These pools are as follows:
wCRO-MATIC Pool: I chose this pool because of its high APR as well as solid underlying projects. I believe MATIC and CRO are two very solid (and at the time undervalued) projects, which I did not mind holding. Since then a lot more money has flowed into the pool, halving the APR. Nonetheless, I will keep my money in it since I can tolerate the risk of the underlying assets. However, this pool does open me to impermanent loss as well as losing a lot of money due to the change in the underlying assets.
USDC-DAI Pool: This stablecoin pool has a decent APR (17% at the time of this writing) and will mainly be used to take profits from the recovery of the markets. I chose those two particular stables due to either their high regulatory compliance or decentralization. I want to keep my exposure to stables like USDT to a minimum, in case of regulatory actions taken against Tether.
Both LP-tokens are staked on Quickswap to be able to earn dQUICK. Whenever the market dips I will transfer money from the USDC-DAI pool into wCRO-MATIC. If the markets start to recover I will take profits from the wCRO-MATIC pool back into the USDC-DAI one.
There are 2 reasons why I chose not to take profits from my pools and instead put them into a QiDAO vault instead:
Increasing leverage: Although I do not like over-leveraging myself against assets I want to hold long-term, my risk tolerance on gains already made is much higher. By locking my dQUICK I can earn about 40% APR as well as borrow against it in MAI, swapping it into Qi to boost the yields. The worst-case scenario is that I get margin called, meaning I will be technically exchanging all of my dQUICK for QI (since I swapped MAi into QI), which I am comfortable with.
Benefitting my other vaults: I do have one other big vault on QiDAO containing a lot of MATIC, which means that boosting my yields using Qi from the other strategy also benefits my more long-term holdings.
Since implementing this strategy I have benefitted greatly from the first signs of the recovery. As the markets inch higher I will be taking money out of the wCRO-MATIC pool and putting it into USDC-DAI. In the future, I might also switch to USDC-MAI and stake it on QiDAO to earn more QI to boost my vaults.