How to Make Money with Crypto DeFi for Beginners!
https://www.youtube.com/watch?v=eo5227bMuh4
Transcript:
This video is a mini crypto DeFi course for beginners. We’re going to go deep into what DeFi is and how people use it to earn extra yield on their investments. I’ve got many sections in this course, so I’ll link them all as timestamps in the description below. We’re going to go step by step through the three main pillars of DeFi.
I’m going to explain what they are, how people actually use them, and then some of the risks and yields that you can expect on these platforms as well. To keep this course as simple and understandable as possible I’ve got many other specific guides for platforms and tutorials that I’m going to reference throughout this video so everything that I mention in this video it will be linked in the description so you can get some more specific step-by-step guides on how to do that.
Everything will be laid out for you and I’ll reference those throughout the video. Also we have an investor course as well. As you can see here there’s over 200 videos on crypto step-by-step from the beginning. You know I’m a previous financial advisor so I put all of my experience with you know the real financial world into crypto and how to relate that to cryptocurrency in terms of trading short term, investing long term, how to use DeFi. My strategies and my portfolio are in the community as well.
And we’ve got thousands of people in there that talk about their strategies and investing. So if you do want to check that out, I’ll link that in the description as well. So with using DeFi, we can split the crypto world up into three layers that we need to know about. The first one is blockchains.
There are many different blockchains, but they aim to do more or less the same thing. And we’re looking at smart contract blockchains here. Smart contracts are what enable decentralized finance because DeFi is literally just using code to enshrine a contract. So when you go into a contract with someone else, whether you’re lending or exchanging something or trying to get fees from other people’s trading, then that contract between you and them has to be enshrined in code because both of you don’t know each other.
In any case, smart contract chains are what we want to use for decentralized finance. And there are many chains and each of them potentially have different assets on their different platforms and different applications and different types of yields and risk profiles as well these are the main ones you’ve got aetherium polygon matic BNB coin right here avalanche cardano that’s the theorem that’s matic so I’ll go through some of these throughout the video there are different chains some of them have better yields than others
and higher fees than others, but they’re the blockchains that we’re gonna use. Now built on top of those blockchains, you have applications. Applications are the thing that let me link up with some random person that I don’t know across the world and enter into a financial contract with assets, right? And so those applications are built with code, so we can’t dupe each other and, you know, kind of mug the other guy, right? So there’s two main types of applications that exist on blockchains right now.
The first one is an exchange, and the second one is lending. In finance, literally 90% of what you do, maybe even 100 100 is literally exchanging something or lending something to someone else so with lending there’s two types there’s two sides of that you can borrow money because you need that to buy something and then you pay an interest or you can actually lend assets out to earn interest from borrowers. And DeFi lets us be both of those things.
On exchanges, and this is the really great thing as well, you can be both sides as well. So usually in TradFi, if you wanna exchange something like a currency, you have to use an application and they will charge you a fee. Well, with decentralized finance, you can put your assets onto the exchange and actually earn trading fees from other people. This is a massive benefit and advance in finance in general.
And it’s really amazing that we can now earn fees from other people by providing our assets. Then the third layer obviously is assets. Smart contract chains can put pretty much any asset on top. So you have something like USDC or USDT that is a dollar stable coin.
So that is exactly the same as trading or lending dollars and you can do that on many different chains. Now Bitcoin isn’t a smart contract chain but you can actually create wrapped versions of Bitcoin which is here, and put it on these smart contract chains. Therefore, you have your exposure to Bitcoin, but you can use it in decentralized finance in different ways.
And then of course, each blockchain has its own token, like this one, which is BNB coin. And each blockchain will have their specific token that you can use and invest in if you want, if you feel it’s a good investment, and then use DeFi on top of that chain to maybe get some extra yields.
There are three areas of DeFi that I’m going to cover in this video, staking, exchanging, and lending. That’s really the majority of what you can do with financial products. For each of these, there are stages where you can potentially take more risk to earn a higher reward, but there are also things you can do to earn a higher reward but there are also things you can do to earn a higher reward without taking too much more risk just because of the way the market works right you want to take advantage of the yields and the trading that’s happening in the markets so firstly with staking
you can just do a standard staking smart contracts and proof of stake chains pay staking rewards so you can just do that in a standard way and earn the staking. There’s liquid staking, which is a step above that. And that enables you to use DeFi and do things like yield farming.
As you can see, yield farming is a common theme for every single type of thing you can do in DeFi because yield farming is really the peak where you are taking advantage of assets and yields that you can get from around the market. Now on exchanges, you can do something called providing liquidity or being an LP or an LP-ing.
And this is something where you put your assets onto an exchange and earn trading fees. And then obviously advantage from that is you can yield farm as well to get the most. From lending, you can do standard lending, which is just taking an asset that you have, letting someone else borrow it and charging them an interest rate. And some platforms will pay you incentives as well.
And so you can yield farm those. If you wanna interact with DeFi and applications, you’re gonna need a wallet to do this. You need to take self custody of your assets, that is take them off of an exchange and put them in your own wallet that can interact with those applications.
people use metamask that is the most used this is an evm compatible wallet evm chains include ethereum binance smart chain avalanche polygon matic and a few others as well so you can use them all within the same wallet and you just add those in again if you need tutorials for all of these wallets and everything, everything linked in the description.
Coinbase wallet is also a very popular choice. You just go to the websites here, you download the wallet. They’re completely free, they don’t cost anything, but you do have to get assets onto them, obviously, to begin with. Each chain has different fees as well. So Ethereum is way more expensive as a chain, but it’s got many different scaling solutions that essentially you can use ethereum applications on cheaper chains there are other chains that are competitors that have cheaper fees as well but they may not have
the same security and so it’s always a trade-off each blockchain is siloed meaning ethereum has specific liquidity on there a specific amount of people use it they have assets on ethereum and the yields that you get and the liquidity that you get the amount of trading that you get on ethereum is going to be different than matic different than binance smart chain and so on so each crypto blockchain is siloed in terms of its trading volumes and everything like that although of course they are competing and you can move assets around from one chain to the other using a bridge.
Although I don’t recommend that, I actually just use exchanges. Exchanges are centralized, but they provide the absolute best service in terms of, you know, putting actual fiat currency onto those lowest trading fees. And I use them as bridges to put crypto in one and then get it from a different chain.
So as I said, Coinbase Wallet and Metamask, we actually have some deposit bonuses as well. Check the links in the description for this. You can get deposit bonuses if you’re new on these exchanges. They’re really good exchanges. I use these and the deposit bonuses are just a bonus anyway. If you don’t know how to use exchanges, links in description to free tutorials.
We also have a trading guide in the investor course, which has scores of videos about how to specifically trade, enter into trades and get the best prices for your trades as well. So link in description if you wanna check that out. Step one then to earning yield is staking. Staking is something that proof of stake blockchains pay out in terms of an incentive.
It’s actually a disincentive as well if you don’t do it and I explain why that is the case. Proof of stake blockchains pay rewards to stakers. If you have a proof of stake asset then there are yields that you should be getting by staking and if you’re not doing that you are falling behind other people that are getting those rewards.
Staking rewards should come from fees paid on the chain, right? So think of a smart contract blockchain as a platform like Apple or Microsoft, and they have applications that charge fees to users. Every time a transaction goes through, people pay a small fee. And as an investor, those fees can get paid back to you via staking rewards. The problem is though is that we have to look at real yield right and real yield is something that is quite rare in crypto right now and I’ll explain why that is but staking rewards are something that’s definitely important. We need to come on to inflation and what this is in terms of its relation to staking
rewards. So as an example we’ve got Cardano ADA here which is in terms of its relation to staking rewards so as an example we’ve got cardano ada here which is a proof of stake blockchain and it pays a few percent in staking rewards i’ve just got it as three percent here um just to show you so let’s say you have cardano ada and it’s paying you three percent in staking rewards that means every year you’re getting three percent more tokens in your wallet which is great and that seems like a bonus and that seems like an incentive right so you are a person here and you get three
percent more in your wallet every year so you feel like you’re three percent better off the problem is is that kadano the blockchain is paying out all of those tokens to everyone else in the chain as well right and everyone else is getting 3%. So are you actually better off? Well, it depends where the staking rewards are coming from.
As you can see down here, the piggy bank, let’s say you have $1,000 and there’s two people that own one share each of the piggy bank. They both have $500 in terms of that share. Each of these shares is worth $500, right? And the piggy bank is worth $1,000. Well, what happens if you just give everyone one more share each, right? So I’ve now got two shares and he’s got two shares as well.
We’ve now got more shares or more tokens. And so we feel better off. We’ve got more. But the piggy bank hasn’t changed. So actually what’s happened is that each of these shares is halved in value. tokens and so we feel better off we’ve got more but the piggy bank hasn’t changed so actually what’s happened is that each of these shares is halved in value now each share is 250 and your total uh your total value is still 500 so handing out tokens for free is not a yield it is not a yield you’re just you have the same size pie you’ve just got more smaller slices of it right
so you’ve just increased the amount of slices so the way that real yield is paid is if a token doesn’t have any what’s known as inflation inflation is when the protocol creates new tokens out of nowhere to give to people as an incentive as as you can see here. It’s actually not an incentive, it’s a disincentive.
It actually punishes people for not staking. The reason is, is because stake is really important with blockchains in terms of validating transactions and making sure it’s decentralized. So this is a cost for the blockchain and your stake is getting diluted if you are not staking. What you really wanna see with any crypto, Cardano was an example, and I’ve got the emission schedule here for Cardano.
Look at your crypto, whether it’s Binance Chain or anything or Ethereum. What you really want is real yield. So you don’t want the creation of new coins to pay staking rewards because that is not an actual yield. What you want want as you can see here with kadano and every blockchain is different at the beginning the inflation was very high but over time the inflation has tailed off now as of making this video kadano inflation is like a few percent it’s like two percent maybe something like that and Cardano has a hard cap on its supply of 45 billion coins. After that,
no more coins will be issued and all staking rewards will come from blockchain profits. That’s very good. So don’t get your head turned by a crypto that has like 50% staking rewards, because guess what? They’ll be paying that out of the creation of new coins and that’s not real yield. You’re not getting any benefit from that whatsoever.
Some considerations then when staking, these things you definitely want to keep in mind. Staking provides rewards for blockchain participants, but it also is detrimental if you don’t do it. That’s the whole point of staking. It’s supposed to be a detriment if you don’t do it, because they want you to stake to secure their blockchain. detriment if you don’t do it because they want you to stake to secure their blockchain. Staking is paid via remissions initially.
All new chains have to pay via remissions because no one’s using them and they have to incentivize or actually, you know, disincentivize people to go somewhere else. Staking yields in the future should all come via transactions and smart contract fees. Otherwise, it’s not real yield. Staking rewards only pay when the token emissions are under the staking yield right so the only time you actually are making real yield is when the staking yield from fees is above the token emissions ideally token emissions will be zero or negative there can be negative because you can actually use fees to burn tokens as well so look for real yield it’s
a very simple calculation. How many tokens are in existence? How many are getting issued over time? You can check this out on sites like CoinGecko as well. Think of staking as like getting paid dividends from the business that is the blockchain, right? So you want very low issuance of coins and some staking rewards from actual profits.
If you want specific guides on staking, how to get coins in wallets and staking on the blockchain, all of those I’ll link in the description for you. We also have a tokenomics section that goes through what tokenomics are, what are good and bad versions of it and what I think of them as well. So check that out if you want. Now we want to get onto liquid staking. Liquid staking is the next stage of staking. Now we want to get onto liquid staking.
Liquid staking is the next stage of staking. This is when you use providers, decentralized providers and smart contracts to up the staking game and get some benefits to yourself. So I explained some of the pros and cons and what that is now. Liquid staking is when you use a provider and they give you a separate coin that represents your stake that accrues staking rewards and that has some benefits.
The downside of staking is that most of the time you get locked up anywhere from around three days, maybe nine days or 21 days. That means that your capital is tied up. That’s really not good because the capital that is tied up is dead capital. You can’t use it for anything else. That’s not great.
You also are tied up, which means if you want to sell for some reason, you have to wait 21 days for the thing to unlock. Now that is not good, right? So that’s just something that we need to get around in some way. Staking downside also is that it has a fairly low yield and you can’t do anything to increase that yield the yield is paid out by the blockchain um you know and that is the the normal way but you can’t do anything you can’t use them in any way and you can’t use them on defy now it is not the case for every blockchain for example with kadano they actually don’t have this
this is because the way they design their staking protocol, you can have ADA, the token in your wallet, and you can use it across DeFi. There’s no lockups or anything like that. And so that’s great for that chain. But for EVM chains, most of them have this issue where there’s a lockup and your capital is dead sitting on the chain.
So that’s why we, or that’s why the DeFi world has created a solution for this known as liquid staking. A liquid staking provider is a project and a team that creates a product where you use them and their smart contracts. You can stake your coin and they give you the staking rewards and another coin that you can use.
There’s no lockup and you can trade it. LSD providers take a percent fee for this usually around 10 percent right so they will do this for you you get some benefits they take 10 percent of the staking rewards overall though you might still be better off doing this because you can use it across DeFi.
These rely on smart contracts to stake your tokens and there are some risks with that of course you have to trust this liquid staking provider whereas with direct staking you’re only trusting the blockchain how do liquid staking derivatives work sounds complex but it’s actually really simple right if you think about it you’re an investor and you have a coin and you want to stake it what you could do initially is just take your coin get it into the wallet and then stake it on the blockchain, choose a validator, and they’ll pay you 5%, right? Whatever it is.
So that’s really simple. No one’s in the middle. It’s pretty much as secure as you’re gonna get within the blockchain world, right? But it’s locked up for nine days in the case of Polygonmatic, I think, right? So there’s some downside here. So we’re gonna use a liquid staking provider like Lido. They’re definitely the number one. You there’s some downside here.
So we’re going to use a liquid staking provider like Lido. They’re definitely the number one. You can actually see them here and you can stake a few assets on here. Ethereum, Solana, Polygon, Polkadot, right? So what we do is we say, we’re going to give Lido our token and we’re going to let you stake it for us. They go ahead and stake it on the blockchain.
They’re locked up for nine days, right? They get the 5% rewards. So good for them. Now they take 10% of that 5% as a fee for their, you know, for their work. But what they do is they give you this token, which is this staked Matic. It also works for staked Ethereum, staked Solana, right? It’s all the same. You get this token that accrues the rest of those rewards. So everything that’s left over, 4.
5% or 7% or whatever it may be on the chain, you get all that into your wallet, but you get this kind of new token called Stakedmatic, which is not the same thing and it’s totally liquid it accrues staking rewards so your rewards are paid to you but you have this new token in your wallet that you can trade immediately online right so i’ve got some tutorials on using lido and staking so again linked in description if you want more specific guides so what you do is you go on to stake now you need to use a wallet put your
ethereum or your matic in there stake it and then you get this liquid staking token a competitor to lido is called stada they do it with all of these coins as you can see here the most popular is polygon and bnb it’s the same thing you get something called x an x token right so it’s a it’s a matic x it’s a bnb X and so that accrues staking rewards to you but you have that token in your wallet right there that you can trade instantly so instead of going right onto Polygon this would be the normal way you stake so you log in you choose a validator
you don’t do any of that you just go onto these profiles right here and stake through them and they send you the staking token into your wallet right away. Why that’s important is because you can trade it instantly on the market. So you get instant liquidity, which is why they’re known as liquid staking derivatives.
So for example, you don’t even have to use Stata or Lido because the liquid staking derivative tokens are out in the market and so you can just buy them directly you don’t even need to use these protocols so as you can see here you have matic let’s say you have matic you want to swap that into matic x so you’ve gone from a token that is matic that is not getting any rewards from staking now you’ve got matic x which accrues those staking rewards in your wallet but as you can see you can trade it directly on a decentralized exchange in and out as you want and getting those rewards if you have
the token. If you want to know how to use decentralized exchanges and how they actually work under the hood all of those videos are in the crypto investor course. We go really into how DEXs operate and some of the ways that you can earn extra on them. I’ll cover some of that in this video as well.
But with liquid staking, there are strategies that you can use now because you have a token that is completely free to use across DeFi and accrues rewards. And so there’s many other ways you can earn yield on that. So using liquid staking, you can use it on DeFi apps, which we’re going to go through in this video. You can earn staking rewards and other fees on DeFi.
For example, if you use exchanges to earn other people’s fees, so you’re upping your yield here. Now there’s upped risk as well, because the more smart contracts to use, the more platforms to use, you’re just entering more and more trust into it at that time. So people can make decisions on if they want to do that and earn extra yield or not. trust into it at that time. So people can make decisions on if they want to do that and earn extra yield or not.
Yield farming platforms, and you can use exchanges as well to boost your yield, right? So we’re actually right into DeFi right now. We’ll cover this in the LPN strategies. So the next strategy is liquid staking strategies or yield farming. We’re actually going to cover that in the next section, which is using exchanges because it fits in really well so let’s get on to exchanges then how people use them and how you can use these to actually increase your yield and earn passive income from the assets you hold exchanges are on every platform so like i said you have the blockchain then you have applications on each
blockchain some applications are cross-chain meaning that it’s the same app but you can use many different chains some are native to each you know blockchain for now but they may be cross-chain, meaning that it’s the same app, but you can use many different chains. Some are native to each blockchain for now, but they may be cross-chain in the future.
So trusted decentralized exchanges we can use on different chains. So Avalanche has Trader Joe, that’s kind of the native DEX on there. BNB chain has PancakeSwap, that’s the biggest DEX. Matic or Polygon Network has QuickSwap right here and on Ethereum you have Curve but you also have some other exchanges like Uniswap as well. So we can look at all of these exchanges.
Now each chain has you know the best exchange and there are obviously leading exchanges out there. It’s pretty easy to find them. Decentralized Exchange, Uniswap, Curve and these ones right here. And you can use these to trade but you can also use these to provide your coins up as liquidity to earn extra fees so this is how LPN works very simply I’ve got extra guides on this that I’ll link in the description that go through it if you want kind of a more in-depth overview here is what LPN is or providing liquidity you have tokens that you want to earn a
yield from so you have BNB coin and you have US dollar tether and you want to earn a yield from. So you have BNB coin and you have US dollar tether, and you want to earn fees on these from traders so that you can actually earn extra income. So what you do is you put both of these coins onto PancakeSwap.
From there, PancakeSwap is a decentralized exchange. So if someone has BNB and they want to sell it for US dollar tether because they want to sell out and get some dollars, they’ll put this coin onto PancakeSwap. They’ll put it. So you put yours in with many other people. So there’s a big pool of assets right here that’s all slumping around. Right.
And so this person on the right hand side, they’ll put their BNB in and they’ll get some US dollar tether out, right? USDT. And they pay a fee for that. That is a transaction. That’s a trade, right? They put one coin in, they take one coin out. Because they traded, they pay a fee, right? Whatever that may be, let’s call it half a percent, right? Now on a centralized exchange like Binance or Bybit, they take all of that and that’s their profits.
On a decentralized exchange, some of it goes towards the token and you can invest in the token of the exchange if you want, but some of it actually goes back to you because you provided liquidity. So you’ve got tokens on the exchange and when people pay fees, those fees are passed back to you some of them anyway and so that’s how you earn extra yield on tokens that you have by providing liquidity i’ve got specific guides on each of these exchanges about how to provide liquidity and everything like that so i won’t go through
that in this video but it’s something you can do and provide liquidity to earn staking rewards there’s a lot to do there’s definitely a lot to discuss here. There’s risks to this, especially if two of the assets are not the same price. So I’ll go through that in a second. But what we want is impermanent loss. We want to discuss this.
Impermanent loss is something that happens on decentralized exchanges because of the way that the algorithms are made. And so I’ve got specific guides on this that i go through in much more detail but here’s what you need to know the when you uh deposit two assets especially if they are not of the same price so bnb coin is a risk asset and it’s going to change in price over time compared to us dollar tether because it that, you might suffer from something called impermanent loss. If there’s a change in price from when you deposit those two tokens
to when you take them out of the pool, which there might be if they’re two risk assets that move in price, you will lose money if you withdraw the assets in comparison to what you would have made if you didn’t provide the liquidity. So that may kind of you know not make sense but hopefully this graph shows you that if you put two assets on at a specific price between them so let’s say BNB coin is 300 US dollar tether.
If you put them in at that ratio and take them out of that ratio there’s no impermanent loss as you can see here 100 if the ratio of those assets in the pool changes over time so that maybe the ratio is different now because one bnb is 500 us dollars and not 300 when those prices move you start making impermanent loss now impermanent loss is something you have to deal with with risk assets.
So what we have to say is the total profit that we make is all the money that we make from trading fees which can definitely rack up minus any potential impermanent loss if we withdraw our assets from the pool and that is ultimately our profit. Now what can happen is the price can change a lot and then maybe come back to the same ratio as that when you put them in. If you take them out there’s no impermanent loss.
That’s why it’s called impermanent loss because the price can change and you only make it permanent when you withdraw the assets from the pool. So that might be quite a complex topic. I’ll have a specific video guide linked in the description there on terms of how that works. But it’s something to be aware of.
Now, the way to get round impermanent loss is to not put any risk assets that have different potential prices into a pool. So if you want to provide liquidity on something like PancakeSwap, you can also do it on Trader Joe. You can see pools right here and you can put these assets in. Like I said, I’ve got specific guides on actually doing that.
But let’s say you want to provide liquidity, go over to liquidity here and you can choose any assets that you put in the pool, right? You can choose any assets that you want. Well, impermanent loss only happens when assets change in price. What happens if both of these assets are actually just the same price? So’ll choose busd and then we’ll choose usdt now these are two stable coins right they’re both pegged at one dollar each and so they’re not going to change in price they might change like 0.
011 you know zero zero one percent or something right but they’re not going to change a lot and so there is no impermanent loss because BUSD is a stable coin that’s pegged at a dollar and so is USDT. So they’re both a dollar and there’s no impermanent loss but people trade these assets all the time and you can earn your fees and not worry about impermanent loss.
So impermanent loss is something that only happens with risk assets and as you can see here the LP reward APR is 1.22% so that’s better than you’re getting in a bank right now, just providing these assets on here and earning trading fees. So that is something that you can do, especially with assets that don’t change in the price that they have to each other, right? So that’s very good.
Also on exchanges as well, you have something called LP incentives. These platforms are very new right now. And so all of them mostly pay an incentive for you to use them versus their competitor. The way that they do that is giving you some of the platform token. PancakeSwap has the cake tokens worth about a billion dollars in general.
The token, you know, this one, Trader Joe has a token, Curve has a token, they all have a token, and they pay out that token as a incentive for you to use them. So you get extra rewards on top. On PancakeSwap, what you do is go to earn and then farms. So if you’re a liquidity provider, you can get extra yield in the form of cake tokens to boost your yield, to incentivize you to use this as you can see here as you can see here the apr changes per pool and everything like that but you can do that here’s how incentive tokens work again we have busd and usdt so we’re providing
liquidity there and we’re getting getting 0.5 percent you know from fees or whatever it is so that’s really good and on the right hand side you’re now getting extra rewards for farming so what pancakes what will do is take uh your the amount that you have on the platform it knows this because of the smart contracts they give you what’s known as an lp token this is an lp token right here liquidity provider token that represents it’s like a receipt for what you put on the decks. So they know exactly how much you have and knowing how much you have,
they’ll give you this as a reward, right? So this is extra tokens. Let’s say you get 25% more from what you’ve put on the platform. And as you can see here, the APR is 27%. It’s actually boosted up to 44% now, right? And so that is a way to earn extra yield by providing liquidity.
It’s not just getting these staking or these LP rewards, but you earn extra from LP incentives as well. And this is what is known as yield farming. Before we get into yield farming, like I said, when you put two assets into a liquidity pool on a DEX like this one, and both of them have a very similar price that doesn’t change, you don’t suffer impermanent loss or the impermanent loss is so low that it’s not worth worrying about.
You can do that with stable coins, but you can also do it with liquid staking derivatives. Remember, an LSD or a liquid staking derivative is a token that represents your stake and accrues staking rewards over time. So what happens when you have a liquid staking derivative that’s going to be valued at, we’ll do this at, you know, 45 cents, and then you have the actual token which is also valued at 45 cents.
There’s no impermanent loss there because they both are essentially the same token with one accruing staking rewards they have the same price and so you can provide liquidity onto the native decks when people change from one to the other they pay a fee that fee goes back to you so you’re earning staking rewards from this one you’re earning fees from this one and you’re earning staking rewards from this one, you’re earning fees from this one, and you’re earning LP rewards as well from this token if they pay it to you.
That is layering yields on top of each other. One thing to note here is that doing this increases risk because you’ve got this smart contract, you’ve got this smart contract, you’ve got this smart contract. So smart contracts and platforms, every time you you know you layer that on there are more potential risks you have to be really sure about um you know smart contracts they have to be audited and everything like that but there is extra risk one other thing to note is that you’re wondering if this is occurring staking rewards why is the price not going up
yes it does actually go up this goes up by about 5% per year because that’s the staking rewards on that token. So over time, this token will actually move away from the normal token here by 5% a year because it’s accruing rewards. And so the way that Stakesmatic accrues rewards is by actually just becoming more expensive as a token, right? So they just put the new tokens in the pool and then that actually goes up in value.
So that 5% though is not going to give you hardly any impermanent loss whatsoever. And it’s more than paid for by using, you know, these yield farming strategies. Now, some other tokens like staked Ethereum don’t accrue value to the token. And so the price doesn’t change at all. What they do is rebase the token which is actually just give you more tokens and so each token is the same price but if you accrue staking rewards you have more of those tokens and the balance updates in your wallet. Each token is a little different so definitely understand if your token is a rebase
token or a non-rebase token, you have to understand the intricacies of each of these tokens before getting involved. And hopefully that explains why staking and then liquid staking, earning yield on DeFi can up the yields that you’re getting from the same tokens. Let’s go on to yield farming then. And you may think, wow, all of this is really complex.
I’m gonna have to add tokens in get tokens out i’m gonna have to then reinvest the liquidity provider token incentives because that’s in a token that i don’t want because i don’t want cake tokens because i actually want to be earning some matic tokens or whatever it is yes that’s true so obviously with defy there’s products and services that do this automatically through the use of smart contracts.
And so I’ll explain that right now. Yield farming platforms do all of this automatically through smart contracts. So I’m going to use Beefy Finance as an example. They’re multi-chain, Binance Smart Chain, all of the EVM chains, as you can see here. There’s another one as well, which I look at how do they work let’s say you have staked matic and matic and you want to earn the most amount of yield by providing liquidity on quick swap earning the platform reward tokens to ins to you know up your yield
but you don’t really want to invest this by the way this is the the LP token. And this LP token accrues incentives in the Matic, the quick swap token. So you may think to yourself, that’s great. My yield is boosted, but I’ve just got loads of this random exchange token that I kind of don’t want because I’m invested in Matic.
And that’s the one I want to accrue more of. Yes, this is what smart contract chains do. Sorry, this is what smart contract chains do. Sorry, this is what yield farming platforms do. So what they attempt to do is automate this entire strategy and boost the yield in the underlying token that you’re invested in.
So you can do that or not. I actually provide liquidity on some exchanges where I earn the exchange token and actually just keep it because I quite like the exchange and I think it’s a good product and it’s a profitable business. And so I’m happy to get those tokens from what I’m doing and keep them as an investment.
But if you don’t want to, you don’t have to. You could do all of this manually and go through with the transactions, get the quick swap token, sell it on the DEX for dollars or MATIC and reinvest it yourself. But obviously, people don’t have the time or inclination to do that. It’s a waste of time, right? So let’s see how Beefy Finance works.
We go onto something like Matic chain, link your wallet up. Then you can see all of the pools that it has here. Like I said, pools with high APR with two risk assets are probably risky. That’s why the APR is high, right? So you have to understand the risks there.
It’s not just choosing the highest APY and saying, well, that’s the best, because as you can see here, we’ve got ETHMATIC, Ethereum and MATIC tokens. Now they may change in value, giving you a massive impermanent loss, which completely wipes away the apy apy is usually high for a reason you don’t get high apy with low risk high apy means oh that’s risky so just ignore it essentially that’s that would what being what i would do anyway so what you want to see here is i’ve got let’s say for example staked matic and i can see this is staked matic and matic this is a liquidity pool and you can
see here that the exchange is called Dystopia. And there’s actually a boost going on now as well. So even more yield farming. Right. So what they do on this strategy, I’m going to use the Curve one here for an example, Curve, which runs on Polygon. What they do, and they explain the strategy.
This is not an advert for beefy or anything like that. I’m not saying this is good to go into i’m just you know explaining how these work definitely do your own research here but what they do is they take stakesmatic and matic they put it into the curve pools to earn trading fees and they take curve incentives sell the curve incentives put it back into the strategy and you get a full 14.
44 yield um overall so it breaks down the yield right here you’re getting 8.75 from that strategy which as i said matic yields about five percent so you’re getting more yield right right here and for now there’s a boost as well which is lido is actually giving you a boost because they’re the staking provider and they want you to use them rather than their competitor and so they’re going to give you some of their LDO tokens as well.
So that’s how that works right so smart contracts automate this entire process and you get the full amount of yield back in the token that you want to be invested in if you want to do that. There are other platforms as well, for example, Yearn Finance, which is mostly on Ethereum. And a lot of people use the staked Ethereum pool here. And as you can see, it’s yielding around 4.8% right now. So it breaks down all of the way it gets yield. So it’s actually earning 3.16% from the pool on the exchange.
There’s a bonus APR that Curve are paying out. So that’s yield farming that. You also have a boost, I think, from Curve as well. They use Convex as well, which is another way to actually boost yields from incentive tokens. And the net APY overall is 4.81%. This may or may not be better than you can get elsewhere. Of course, I’m not saying this platform is good or bad or whatever.
A lot of people use these. So this is the way you go from having one token that’s that’s being staked on the blockchain or that if you buy the gas token you’re getting zero percent you then go and stake it for maybe five percent you then go and put it into a liquidity pool in a dex you may be getting another one percent to bring up to six you’re be getting another 1% to bring up to 6%.
You’re then farming incentive tokens to bring that up to something like 7% or more. In the case of MATIC, the actual incentive now is anywhere from 14% to 20%. So that’s a big difference in terms of passive income and yield that you’re getting from your investments that’s reinvested back in. I don’t want to also, what I want to do also is really hammer home that higher yields are there for a reason because it’s more risky always, always and forever.
So for example, I would not use Dystopia as a liquidity exchange or a DEX. It’s too new for me. I always go for DEXs that I trust and have been around for a while. finance and quick swap are definitely too trusted for me that i would gravitate towards so as with everything in d5 and crypto you have to consider risk first and yields after that because with high yields is high risk and if you do lose tokens from a hack or something no amount of yield is going to make up for losing all of your tokens and hack which does happen so i always want to hammer home do your own research and make your own decision in terms of how much risk you really want
to be taking the reason why i use defy and try and get yields on my coins is because i understand the power the very real power of compounding compounding is something that really supercharges and turbocharges your portfolio i’ve got a specific video in the investor course called Compounding the Key to Building Wealth.
Compounding is vital for building wealth over the long term if you’re invested. And obviously we wanna make sure that we have the most safety and the best yield. So that mix at all times. Now though, we’re gonna get onto lending, some of the lending protocols, how they work and how people use them. So with lending, it’s very simple.
In the past, you had two people. One was a lender that had assets to lend out that wanted a yield. One was a borrower that wanted to have assets to buy something or to invest and they pay an interest rate. In the middle, you have a bank which takes 100% of everything. They give the lender or the saver basically nothing.
And then they charge tons of fees, you know, 7% on a mortgage or something, whatever, or 25% on a credit card. They take all of those fees for themselves, give you nothing. Lending on DeFi is different. You have two people who, as you can see, they get onto a protocol and they have a direct relationship with each other. Something like Aave, without a doubt, the leading lending protocol.
What Aave does is they sit in the middle and they provide a venue, big liquid venue for Bob and Alice to lend and borrow. Now, if Alice is paying 5% in a fee as an interest rate to borrow US dollars from Bob, Aave only takes 10% of the interest that they’re paying. Aave don’t control the interest rate. This is an open market.
This is an open money market, Aave don’t control the interest rate. This is an open market. This is an open money market, an open lending market where Alice pays interest based on the supply and demand of that asset. And Aave’s just sitting in the middle saying, if you do borrow and you’re paying interest, we’ll take 10% of that.
That’s it, 10%. They’re not charging interest or putting prices up. It’s supply and demand in the market. Now you can invest in Aave if you think it’s a good lending protocol. And the Aave token accrues value because it’s earning 10% in fees. But for users, for us, you can borrow at a lower rate and you can save at a higher rate.
So that’s amazing. And we don’t have banks in the middle. So here’s how Aave works. Because you might be thinking hold on a second I’m lending money to someone online that I don’t know never heard of don’t know who they are you know don’t know if they’re trustworthy don’t know if they’re going to pay anything back how on earth am I going to lend money to that person well very simply for right now at least and it is changing over time with different products, but for right now, all lending on DeFi is what’s known as over collateralized lending.
A collateral is an asset that you put on the platform that has thousand dollars on here the loan value can only be 700 bucks if you want to loan dollars against it okay so it’s over collateralized meaning that you don’t have to trust them because they have a thousand dollars of aetherium on the platform to back their loan and if the price of aetherium drops to800, they’re going to start to get a margin call.
Now, remember, actually, I’ve just got it down here with the tokens, which is probably easier. Let’s say you have $1,000 of ETH and they take a loan of $700, right? Now, are they sitting in the middle? And remember, these are smart contracts and you can’t change them if the value of ethereum falls down to 800 bucks this account whoever owns it doesn’t matter this account because it’s on the blockchain and this ethereum is locked up in ave and they have the value this account is going to start to get a margin call where the platform says, you don’t have much value left to pay this $700 loan. And so what will happen is the platform will start
selling down their Ethereum, right? And so what it will do is it will sell down some of this Ethereum because it’s now only 800. So you may sell a little bit of Ethereum. And what they do, they sell the Ethereum for dollars and pay back some of this loan. So they bring the loan down to 600 bucks.
Why is that good? Well, now you have a buffer, right? So, you know, maybe the Ethereum is that you have in the account is 700. And, you know, you have 600 left of the loan. If the price falls further down to like 650 you’re going to have to pay more of this loan but the reason why you can trust this is because the platform has value that backs the loan and if the value of this asset falls in any way the platform is going to sell out straight away and pay back the loan and so you don’t have to trust the other person, but that’s how that works.
And here are all the markets on Aave. Aave is by far the leading provider. You have different markets here that you can use it on. So let’s go to something like the Ethereum market. Lots of different markets here for different coins, different blockchains. And like I said, each blockchain is a siloed liquidity so you have to look on each chain and you have to go to the markets and you can see what they’re paying for right now on the avalanche market you’re getting three percent on us dollars and
you’re getting 25 you know quarter of a percent for wrapped Bitcoin. It’s not a lot, right? So what you can do is go to a different market. For example, let’s have a look at Polygon. They’re currently paying 2.35% for US dollars and they’re paying 0.05% for Bitcoin. So definitely Avalanche, their market is paying more. So you can just lend these out.
Now, I believe lending to be somewhat lower risk than most other strategies because it’s a very simple over collateralized loan that is backed by value. And so as long as you believe that this protocol won’t suffer any losses from liquidations or issues with liquidations in a downturn, then you should be fine.
Now, Aave has had some of these in the past, but very few now. It’s really, it’s a battle-tested protocol. And DeFi throughout its history has shown to be extremely high quality when it comes to drawdowns. And we’ve seen centralized companies get absolutely wrecked during bear markets because humans are making bad decisions. Or on here, if a loan is over collateralized, you cannot change that contract.
And so that’s why over collateralized lending is seen as quite safe. But you see the APYs aren’t great because of that. So that’s just something you have to deal with. Now, what you can see as well, if you go over to the Aalanche market is that avalanche are paying some some yield incentives right here so for usd coin let’s do tether you’re getting three percent on tether but you’re also getting almost half a percent as an incentive in the avalanche token to use this market instead of other markets you might want to go ahead and just
lend out some ethereum right on the optimism network on Aave and what you do is you get some Ethereum so you might get let’s say 1% of Ethereum and you might get a bonus of optimism tokens of you know 1% and you get both of these tokens in your wallet so you get some Ethereum back and you get some optimism tokens back as the incentive and Aave is in the middle but of course you can use something like beefy to actually take these op tokens switch them back into ethereum tokens and so your ethereum yield is higher so again on beefy i’ll show you right here you can go over to
the optimism market then you want to search for eth if you want to supply ETH, look down here and you’ll see on Aave, you can use ETH and it gives 3.38%, which is higher than Aave’s paying because it’s taking those optimism incentives and selling them back to ETH. Again, just look for the strategy, look for the risks here, if there are any risks in terms of that strategy and how they do that.
But yield farming is something that you can use to increase your yields over time. But you do obviously have extra risks and trust assumptions with different protocols and smart contracts along the way. It is up to the investor to decide how much risk they’re willing to take to get extra rewards and how much complexity they want to introduce into their investment strategies. You can stake.
This is a low technical risk option with the lowest reward. It’s very reliable and you don’t have to rely on smart contracts or other platforms. You can then use something like liquid staking derivatives, which are open to smart contracts and provider risk, but they can let you have a liquid staking token that you can go ahead and then use to LP and earn extra rewards but then you’re introducing more platform risk and smart contract risk here or you can lend which is actually fairly low risk if you’re just you know lending on
over collateralized loans basis but it’s usually low yield. And then there are strategies to yield farm everything, strategies to build on top of each other that give you the most amount of yield, but then you have the most openness to smart contracts and platform risk, which is a real risk.
And so I only use a few protocols that I’ve seen are battle tested, have been around for years and look to be upstanding for the most part. can never be too sure with these which is why some people are just going to stake if they can and you know and leave it at that so yeah definitely for staking for wallets for blockchains
So this was a requested video on how would I invest $10,000 if that’s all I had. Wouldn’t be that much different. I did a video about a week ago on how I would invest and how I do invest hundreds of thousands of dollars. But the strategy does change the less you have. And so if you have a smaller amount of capital and that’s all relative, then maybe this video will be useful to you.
By the way, these roundtable, these DeFi portfolio roundtable discussions and the hot seat Q&As inside the UIG, join them. I’m doing a series on lending and taking on leverage in a safe way. So if you have a smaller amount, you could double or triple your portfolio or the amount you have to invest without taking on that much risk.
We’re going to dabble it on today’s YouTube video, but it’s probably a 20 or 30 minute conversation with some deeper education behind the scenes to really get it right. Now, I did this again about a week ago on how I would invest 100k. The only thing that I would do different in terms of how would I invest a smaller amount, let’s say $10,000 or less, is I wouldn’t be looking at investing in anything else.
I wouldn’t really be looking to collect an income that depends on your goals, of course, but I wouldn’t be looking to take any out. I may sit on stable coins to reinvest, but I wouldn’t be like paying myself a salary because that’s going to slow down the portfolio growth. But I would most likely use it as collateral.
‘ll talk about it also with with the bigger portfolios we talked a lot about big cap like the btcs the eths the lower percentage yields more hands off more blue chip more stability because a few percentile swings on a big portfolio can oftentimes emotionally and kind of mentally mess with us because we’ll see the dollar amount fluctuating for a smaller amount we’ll still do big cap and blue chip stuff typically especially in a bull run we want to look at correlated pairs that’s not always true just depending what the market is doing and you may have a 20 30 30, 40% of your portfolio made up in the big cap stuff.
Then you might have a 20% kind of mid-capper. I’ve got one, it’s a pair with SUI that’s doing 240%. That’s a SUI ETH position. It’s a pretty good play for a portfolio, especially if you’re doing anything over 100%.
And there’s correlation between the two and there’s big potential for appreciation i mean suey went from less than a dollar to over two dollars your portfolio or at least that position just doubled depending how it’s set up of course then i would maybe look at mid cap to small cap so we’re going down the list in terms of you know top couple hundred in the coin market cap maybe there’s some gems in there that are offering you a 400, 300% return, much more hands-on, and you better know what you’re doing.
And then don’t be afraid of creating a bull run bag. Now I know we’re thinking like a DeFi income portfolio, but the bull run bag, to me, they work really closely together, especially in bullish situations. Also, what I recommend doing, and again, every portfolio is unique, is a lot of this we’re going to be harvesting.
So we’re not necessarily going to be compounding it back into these positions. And we wouldn’t really be doing lending because the returns are just not enough. I’ll show you Aave in a second here. We’ll actually take, here on Polygon, I actually have $10,000 for a trading I’m holding inside the UIG, but we’re just going to do a quick little two minute fun deploying this $10,000 by actually lending it and then borrowing against it.
So we can get 15, $16,000 worth of a portfolio and kind of get free money, so to speak. So I’ll do that in a second here. I also wouldn’t really talk about spending it. We talked about that in the $100,000. We have clients who do million dollar portfolios inside FastTrack and we have clients doing $10,000, $50,000, $100,000, $5,000, $2,000 portfolios in the UIG.
The smaller your portfolio, I don’t necessarily recommend spending it. Again, it depends on your personal goals. And I’m speaking generally here, but it’s just gonna slow down portfolio growth. Whereas if you have 100,000, multi-hundred, multi-million, you might wanna spend it. Pay down your mortgage. We had a client pay off their car with the yields they were earning and they decided to spend it and pay off some debt.
I am a fan of buying bull run bag with it. And I am a fan of buying bull run bag with it. And I am a fan of opening new positions. So it could kind of look like this or this. You’re either growing your bull run bag or you’re opening new positions.
Now, if you’re lending, you’re lending it just because you’re sitting on profits and you’re looking to redeploy. You’re just waiting for the market to do what the market does. That would be like the biggest change I also wouldn’t automate with a bigger portfolio you may want to automate with a smaller every percent counts every time you lock in a permanent loss it really really counts and so we may want to be a little more hands-on just like any business because this is a business we’re building when you first let me know in the comments if you started a business also let me know in the comments if you started a business. Also, let me know in the comments if it took a lot of work to start a business.
At first, if you really want to squeeze out profits, you might have to work on this quite a bit. And that’s fine. And the bigger your DeFi business gets, the more hands off you may want to get, the more you want to automate. But to me, when we’re first starting, every percent counts. And if you could manually adjust ranges and really set things and really get hands-on with it, you can do really well.
We’ve got pages and pages of testimonials. I just posted four on my Instagram story. Someone did about $3,000 in their first month. Awesome. Like 26% or something. Someone else is doing, I think, a month. And that was within the first couple of months.
Like this stuff works, but you’ve got to apply it and you really have to study it. Now, what I would also do, I’ll do a quick little, I wasn’t planning on doing this, but I’m going to do it again. Join the round table discussions or simply just like ask in the UIG. We can always create trainings for you. This. YouTube videos are usually weeks behind what we do in the UIG, just so we’re clear.
And so if you want the fresh stuff, if you want the new stuff, if you want to stay on top of what the market is doing, different projects, different opportunities, actually engage with the team, ask questions, join the Q&As, join the chats, join the live calls, the UIG is where it’s at but I will share this let’s say you have ten thousand dollars you could you could especially in a bullish scenario here you know trade that 10 000 USDC for 10 000 worth of Bitcoin maybe there’s something else that you’re bullish on and you see has more potential
than Bitcoin itself you could swap it over to Bitcoin done bam approve once this is swapped over there we go so it’s swapped over to ten thousand dollars ish worth of btc over here on uniswap and again i’m just mimicking what if you already have crypto assets what if you have bitcoin and you have some eth and you have some other assets maybe you have polygon you could take it like i did i could go over to the ave just for this scenario here i could supply ten thousand dollars worth of bitcoin there we go polygon is super freaking slow supply i i spend so much time on base that i’m
like spoiled i spend a lot of time on base and suey right now so i’m pretty spoiled but once this is supplied then i can take a loan against it and then go use that so i could borrow something against it and then go use it to make yields so if you’ve got if you’ve got a bull run bag already or you want to buy some assets so you can see appreciation you can 2x and 3x 4x 5x your buy and hold position so your bull run bag there we go so as you can see i’m earning no yield on it but i can take a loan against this and so i could borrow an asset then i could go use it now
this if bitcoin doubles won’t be worth ten thousand dollars it’ll be worth twenty thousand dollars and i’ll be creating yields from the borrows that i took against bitcoin and now i’m getting the best of both worlds and you can just make your money go further for you. Again, that’s a probably 20, 30 minute lesson at minimum.
Plus there’s smart contract stuff we have to talk about. And there’s LTV, loan to value ratios, and making sure that you’re not getting over leveraged and getting liquidated. So again, don’t go degen on that, but it’s an absolutely legit strategy. And a lot of our clients and members are using it. Again, head on to the educational portal in the UIG and commit to the stuff.
Learn about the blockchain basics, et cetera, et cetera. But once you get into the DeFi bootcamp, go through the DeFi bootcamp because we go deep here and then go into chapter seven here, lending and borrowing. And like it’s all in there lending borrowing how to mitigate risk understanding different strategies and actually executing on those strategies plus inside the defy framework section here highly recommend you check all of these out but most of all i mean check all these out but most of all check out the liquidity pool
entry criteria portfolio allocations so actually allocations on your portfolio depending on your risk tolerances and just kind of what kind of investor you are liquidity pool assessment and exit criteria knowing when to enter and exit these liquidity pools again most people are just entering liquidity pools and being like oh yay like i’m making some money and the next day their portfolio is down 20 they’re like what happened it’s like it’s not that easy.
There’s a strategy to it. But most of all, check out the crypto business flow chart. Colin leads a really powerful training on the flow chart, really designing your business and understanding what you want it to do for you. And the feedback from clients and members and like what they’ve been working on is just unreal.
They’re like, this is the part that I was missing. So definitely do check that out. With that said, I really hope this video was helpful to you in some way, shape or form. If you liked it, like this video, subscribe to this channel, leave a comment, what landed by leaving a comment and letting people know what landed, or maybe a lesson you pulled from it.
You communicate it in a different way than I did. And it might land for someone because you said it in a way that resonated with them. So do me a favor, like comment, subscribe to this channel, tell your friends about it. This channel does not grow without your support. And that is the cost of admission for this YouTube channel.
If you ever received value, share this in a few groups or share it with a few people, let’s get to a hundred K subscribers. That’s like my goal for YouTube because that spreads the awareness and spreads the word of crypto DeFi. We want to reach as many people and ensure that they don’t miss out on a massive financial system paradigm shift.
Times are changing and a lot of people are going to be left in the dust. And we want this YouTube channel to reach hundreds of thousands of people so they can get on board or at least be educated and aware of what’s going on in DeFi. And believe me, the more people that know about it, the better it is for all of us. So share the word. With that said, I’m out of here. Peace.
