How To Invest in Liquidity Pools (Step by Step) – Crypto Passive Income
https://www.youtube.com/watch?v=U8fT-YTD5Z0
Transcript:
So my goal in this video is to show you exactly how to take your cryptocurrency assets and start earning income on them and investing them into liquidity pools. We’re going to be doing a deep dive in today’s video, so make sure to stay tuned and watch until then. Now, first thing I want to talk about in today’s video, if you guys were to go buy Ethereum on Coinbase, say you were to buy, let’s just say $1,000 of Ethereum, you would get 0.29 Ethereum.
Whereas let’s just say there was a situation where you were able to get say usdc for free without having to pay any fees and you were to go buy a thousand dollars of ethereum over on a decent size exchange you are now getting point three zero zero ethereum now that doesn’t seem like a lot of extra ethereum on this scale but in this case it is 23 more say we were to go execute a 10 000 trade over here on coinbase versus over here using a decentralized exchange.
We’re getting 2.917 versus 3. So even then, that is $233 more by trading on decentralized exchanges, which is exactly why people trade on decentralized exchanges. They pay super low fees, and we should be a part of that when injecting our capital into DeFi.
Therefore, meaning I highly recommend that you use a bank transfer to actually purchase USDC on a platform like Coinbase that sells it to you at a one-to-one rate with no spread and no fees. As you can see, if I were to go purchase $10,000 of USDC right now, I would get 10,000 USDC. I would not pay any fees. I would just get 10,000 USDC. Simple as that. I can then go and send this USDC to my wallet.
And if I’m sending to the Ethereum network, I will pay $1 to $2 in gas fees, regardless of the actual value of the USDC. If I’m sending to any other network, it is basically free for sending to those networks. And then we can take it over to Llamaswap, or we could take it over to Jupiter, or Otos, or another swap aggreg aggregator and pay the absolute lowest fees possible and get the most money out of our trade.
That right there is going to save you thousands of dollars depending on what scale you’re at. Now we’re actually going to dive into how you can find liquidity pools, take the capital that you just invested into the crypto ecosystem and put that into liquidity pools. So we use Metrix.Finance and ultimately this is a software that I’ve spent hundreds of thousands of dollars building. I truly have not found a better software on the market.
I still use DeFi Lama, I still use Crystal and other softwares out there. But ultimately, Metrix.Finance is my go to simply because it has everything I need. Now that being said, we’re going to look across a couple different exchanges and networks and you kind of need to select what exchanges and networks are relative to the assets that you actually have.
So if you’re primarily targeting the Solana network, you’re going to choose Orca and Radium on the Solana network. Whereas if you’re primarily targeting stuff on base, perhaps it’s better to do Uniswap and Aerodrome over here on the base network. Whereas let’s just say you don’t really mind, you just want to find the best opportunities, I would start by segmenting these four on these five networks.
And then after that, I would go on to Orca and Radium, segment those and then start to browse their opportunities. And then after that, I would segment Velodromeca and radium segment those and then start to browse their opportunities. And then after that, I would segment valid drum and aerodrome and start to browse their opportunities across both their networks.
And the reason why we do that is because each group is going to have different types of parameters, they’re going to have different data. And if we start to filter based on this group right here, and then all of a sudden, we go over to work in radium, we’re going to see a lot more opportunities when we shouldn’t be seeing a lot more opportunities, we need to have fair filters to those networks and those exchanges, basically.
With that being said, the next thing that we will do is set our calculation range to seven days. Now, the reason why I’m using seven days is because recently there has been an uptick in volume, and we want to make sure we’re looking at the last seven days of volume, which is most likely more consistent than what we’ve seen over the past 30 days.
If I were to take a look at some of these pools, odds are we saw a huge rise in volume, we saw a huge fall in volume, and ultimately we’re just not looking at consistent data so by using that seven days it’s going to be more consistent data the next thing i’m going to do is start to filter some things out now i don’t want to look at pools that have too high of tbl so i’m going to look at lower than say 30 million but i’m also going to look at pools that are higher than 1 million dollars and the reason why is because i also don’t want to look at too low of tvl pools we still have 614 different pools right here it’s a lot of damn pools uh so we’re gonna
start to filter by apr i like to do higher than 30 percent lower than 550 550 tends to be the sweet spot for factoring out the results that are just like crazy high aprs that ultimately aren’t going to be sustainable or meme coins or something along those lines basically basically trending assets that aren’t going to be trending within a couple days.
And the next thing I’ll do is I’ll go over here to pools. Now, in this instance, I’m looking basically across Ethereum networks. And each of these networks uses Ethereum as their gas token, except Polygon that uses Matic. But even then, there’s still a lot of Ethereum pools over on Polygon. So I’m going to put must include Ethereum.
And the reason why is because I want to look for pools that are paired with Ethereum. And we still have 280 results. And we can cut that thing in half instantly, I go over to the daily fees to TVL right over here, I look at the highest, and then I go over here to the page that is half of the total amount of pages. So there’s 14 pages. So I’m going to go over to page seven.
And I’m just going to cut this list in half by looking at the middle ground, I’m going to do point 035 higher than higher than 0.035. What that does is that says, hey, we have a fee to TVL ratio of 0.0437. So we take the average daily fees, which is $512. And then we divide that by the current TV on the pool, which is $1.17 million. That’s going to give us that 0.047 or so roughly.
Now that being said, this is highly reliant on the volume and the TV on the pools. So I can’t give you a set number because that number is just going to change on a daily basis at this point, basically, which is why we sort by the highest. And then we go in here and we cut that list in half because we want to look at the better half of that list. And we don’t want to do a number like say 0.03.
And then all of a sudden we have a ton of opportunities still. And we also don’t want to do the number like 0.07. And then we barely have any opportunities. So my rule of thumb has just been to cut this thing in half by sorting by highest and then filtering above whatever that middle ground number is. And then now we still have 135 different pools.
If we want to, we can do price volatility lower than 15%. And that’s still going to yield roughly 120 pools right here. So now we can start to browse through these and see what opportunities we actually want to explore and potentially deploy our capital into. Now, again, we don’t want to invest into different liquidity pools that just have a high yield.
We want to invest into liquidity pools that actually have solid assets that we wouldn’t mind holding those assets in our wallet. And ultimately, the goal is to just earn income while holding in those assets. So that way we have market exposure. The price goes up, we make money, price goes down, we lose money.
But during that whole time, we are producing income that we can use as a profit-taking strategy or we can use that income as a compounding strategy and create our own DeFi flywheel. Now, with that being said, some of these things that just sparked my eye are Rio. Obviously, I’ve heard of Rio before. If you haven’t heard of Rio or if you haven’t heard of these assets that you’re seeing on the Discover page, you want to search them over on CoinGecko.
When you search them on CoinGecko, there will be a website section. Before you even go to the website, we see, okay, is this in the shitter, right? Are we doing good? Are we doing bad? I look at one year. I say Rio saw a spike back in March, 2024. It’s completely fine.
It’s seen a decline since then, but at the same time, it’s seen decent price action over the past three months. It’s seen a nice rise. Currently, it’s a $42 million market cap, so it is a lower market cap asset. I also look at what’s the circulating supply versus the total supply uh general rule of thumb is you want anything above like 20 if it’s an asset that has been around for a little bit of time if it’s a brand new asset you do take more risk but again you can make more money on brand new assets so as long as you’re being compensated for the additional risk that you take now after i determine okay this trend doesn’t look bad it’s
not in the shitter right let’s pull up the website Let’s see what it’s about. So it’s an ecosystem for real world assets and basically bringing real world assets on chain onto the blockchain, right? And the way they do that is through their investment platform, their DeFi wallet right over here, these districts that they have for an immersive experience, connecting physical and virtual realities, and this tokenized fund specializing in low cost Bitcoin production and actually mining Bitcoin. So pretty interesting
stuff. We could do a deep dive into this, see exactly if we want to invest into this, see what it’s all about and whatnot by looking at the different products. But if we determine that this is a good fit, and if you guys want me to make a full video on how to determine if assets are a good fit, let me know down below in the comments and also drop a like, subscribe on the occasions turned on because I can make a video on something that I like to call our VRM framework, which is value, risk, and market. What’s the value where does it come from what’s the risk of this asset that we
take by investing into it and how is it positioned in the market um that’s one of the things that we have over here at our d5 legacy program but just let me know i’m happy to break it down on youtube uh in the comments so i’m gonna favorite that for now i’m also gonna dive in here there’s world coin world coin’s not that bad of an asset i know at one point i invested into and it wasn’t doing too hot uh so let’s open it up over here on coin gecko over the past year pretty harsh went from twelve dollars all the way down to two dollars probably don’t want to invest into that
over the past three months again like it’s went from a bottom price of little under two dollars all the way up to four dollars so it’s been very very volatile um so we do have to keep that in mind so let’s go back over to metrics finance and start to find some other options as well see ave to ethereum over here doing a 63 apr doesn’t seem too bad to me i’ll favorite that one i also see anda to ethereum over here we’re just going to start to favor these liquidity pools now as we’re favoriting these liquidity pools we want to start to simulate them as well so after you get a decent
amount of ones over here on your favorite page determine do i really like these assets am i willing to invest into rio ave ando these assets because if i’m not? Am I willing to invest into Rio, Aave, Ondo, these assets? Because if I’m not, I don’t want to invest in these liquidity pools.
And I don’t even want to go further on and start to simulate these liquidity pools because it’s just going to be a flat out waste of time. So after we’ve determined these are solid assets, we start to simulate. So we open up that simulation page. It’s going to bring us over here. This is essentially where we can determine the return. Because yes, we saw 272% fees APR.
That’s the average fees APR based on a plus 25% minus 25% range. Now we need to start to adjust some things to see what the real return that we can get is. Because of course, everybody’s range is going to be a little bit different. So we’re going to factor that in now by using the simulate page. We’re also going to enter our deposit amount, which I recommend if you are using Ethereum network, do at least $10,000. Whereas if you are using Arbitrum base those other networks it doesn’t matter it’s just ethereum
Network is the highest gas fees so I’ll put ten thousand dollars right over here it’s typically how much I’m deploying into a pool like Rio because it’s a little bit more risky I’ll also go over here to my min and Max price now we use something called the range framework which is essentially for finding your ranges obviously but the basis of that range framework is we’re looking at our time span we have a 30-day calculation range which means that ideally we want to be able to be in range for about 14 days we
only want to be in range for about seven days and collect a little bit higher over yield then we’re going to use a 14-day calculation range but i like using 30 days because it works well with my strategy we’re also looking at the asset ratios we’re looking at the notable fluctuations we’re looking at the exposure all that stuff which i’ll dive into in just a second but for the starter range we’re just going to set our min price and max price to the peak and the low of this pool price chart right over here.
Basically, we want to be able to capture the past 30 days. And then we say, hey, this price is trending up. It’s pretty clear that this price is trending up. And their top price is closer to our current price. It’s very close to our current price, the point where we can almost go out of range. So what I do, I bring this max price up until I have some buffer room.
And ideally, I want to be able to capture like a one to two day movement within my price range. Like over here, we went up from $37.55 all the way to $46.63 in the time span of two days. So if we were to see that same move, can I capture that in my range from current price? In this case scenario at $6,100 top price, I can. And then from there, I say, okay, I currently have 60% Rio 41% ETH pretty clear that ETH is doing better than Rio right now because the price is going up. So what do I do, I move this min price up to something like 3450. I want to grab a little
bit less Rio. And actually, that still gives me 57% Rio and roughly 43% ETH. So we’re gonna bring that up to 3650. And that gets me to roughly 53% Rio, 47% ETH, which I’m fine with. Historically, altcoins do better than stuff like Ethereum, Bitcoin, Solana, whatnot.
So it’s fine to have a little bit more at Rio, but I wanted to get close to that 50-50 mark. That’s showing a 270% APR. We’re at the peak of liquidity distribution where there’s $21,000 on the current price. And there’s also surrounding prices with similar amounts. There’s no crazy notable fluctuations in the liquidity distribution. And then I look at volume history. I’m like, what the hell is this? There’s $3 million randomly this day, and then all of a sudden it’s back to like 100K, 300K, 400K, right? So it just completely drops off.
So clearly there was a big buy or sell order right over here that got executed on. Now, with that being said, I don’t wanna factor that in when calculating my potential APR because it’s gonna skew our data we’re showing 270 apr what i want to do is use probably about the past 12 days of volume that’s going to get me back over here to january 14th um and it’s going to capture only recent volume that has been consistent you can see our average is 340 000 and on a daily basis we are coming out to roughly 340 000. it’s
not bad whatsoever. And we’re still showing a 235% APR. So I am happy with that. So now that I’ve evaluated this, I’ve determined, hey, this is a decent fit for my portfolio, we save it. And if we want to invest into it, it’s pretty simple. Actually, we go over to swap.defi.com.
Remember executing on that swap strategy, we get our Ethereum, which is going to be displayed right over here. Now pro tip hit match ticks, that’s going to find the closest tick or price point i like to call it um and now it says we need 1.400 to ethereum so we’re going to buy up 1.
400 to ethereum just like that using the best route and then we’d ideally connect our wallet and actually execute on this trade and then we’re also going to buy up the required amount of rio right over here so type in rio or paste in the contract address from CoinGecko. And we need this much. And then we execute on the best route. We execute our trade.
And something that we have to pay attention to is this slippage right here. We’re putting in $54.63. We’re getting out $53.20. And the reason why is because there isn’t a crazy amount of liquidity here. There’s only $900,000 of liquidity. So we really have to be careful of that slippage. We have to say, okay, it’s going to cost us 2.6% at least to get into this pool, probably more like 3% when we factor in gas fees.
How long is it going to take us to make 3% on our overall position value? In this instance, we’re making about 0.64% per day. It’s still 20% per month, but it’s going to take us a little under a week to actually make that back. So if we’re comfortable with that, that’s fine. But also factor in, hey, to get out of this pool is also going to take us a little under a week because we have to execute the trade back into Ethereum or USDC or something along those lines. So that’s fine but also factor in hey to get out of this pool is also going to take us a little under a week because we have to execute the trade back into ethereum or usdc or something along
those lines uh so that’s always a deciding factor for me to determine if a pool is actually even worth it um but shall we determine hey this is worth it right we already have the realio maybe maybe we already have the ethereum we’re not buying up new assets we don’t have to pay slippage or even slippage is just low we would hit create position this is going to take us over the decentralized exchanges now sometimes uh the decentralized exchanges won’t support like url parameters so we can’t pass all
that information for metrics finance so you will have to go and manually find it on uni swap or whatever it may be but we’ll now type in okay we want uh realio now we want to make sure that we choose the right really oh because there was two rios over here um so we’re gonna go right over to coin gecko type in the asset name and then we will be able to grab something called the contract address it’s going to be displayed right over here uh this is the official contract address which is like basically the official asset address
if i paste it in it’s like hey this is the right one we will continue and then we will select our fee tier now over here we are simulating the one percent fee tier so that matches up we’ll go continue we’ll go custom range and then we’ll just grab this range right over here and paste it in boom there’s one and then right over here 61 21 boom there’s another and then just like that we’ll continue and then it’ll tell us we need to deposit certain amounts of assets right uh so if we just take that 1.400 to ethereum and we paste it in it’s
gonna say we need 7701 rio which is going to be a very very similar number to what you get over here on metrics finance the reason why there’s the slight discrepancy is because when you actually open up this page versus when you go over here to Uniswap, there’s going to be some time where ultimately the prices change because there’s so much trading activity happening in this industry.
So again, it’s going to be give or take, do keep that in mind. But from there, we can actually deploy our capital into this liquidity pool and start to earn passive income from using these two assets. Now guys, if you enjoyed today’s video, I want you to go ahead and drop a like, subscribe, notifications turned on. Let me know what types of content you want to see down below in the comment section.
I’m happy to make some more content around whatever you guys want. That’s how I get these video ideas. And stay tuned for my next video. I think you’re going to find it pretty valuable. I’m going to be talking about my personal strategy and show you guys need support.
