Curriculum

Web3 DeFi Tools

Web3 Yield Profits

0/10

Liquidity Pools (LPs)

0/7

Metrix.Finance

0/7

DeFi Tools

0/14

DeFi Trading Tools

0/6

Liquidity Mining

0/5

Uniswap LPs

0/5

SUI DeFi Blockchain

0/3

BNB DeFi Blockchain

0/1

Video lesson

Secret to Finding High APR

Secrets of High APR Liquidity Pools

Unlocking Passive Income Potential

In this lesson, I’m excited to unveil the ins and outs of finding high Annual Percentage Rate (APR) liquidity pools within decentralized finance (DeFi). Understanding liquidity pools is vital not only within traditional finance but also in the ever-evolving world of cryptocurrency. These pools offer a promising avenue for passive income, allowing you to earn rewards by providing liquidity. With efficient strategies, you can turn potential losses into greater gains, making it essential to grasp the mechanics behind them in both contexts.

Core Concepts

Here are some foundational terms and concepts worth understanding on your journey into DeFi liquidity provision:

Liquidity Pool:
- In traditional finance, a liquidity pool refers to a reserve of assets that can be accessed for trading or providing liquidity.
- In the crypto realm, liquidity pools consist of pairs of tokens locked in smart contracts, which facilitate trading on decentralized exchanges (DEXs). Offering liquidity earns you transaction fees proportional to your share in the pool.
APR (Annual Percentage Rate):
- In traditional finance, APR expresses the yearly interest earned or paid on an investment or loan.
- In DeFi, APR represents the potential return from participating in a liquidity pool, influenced by trading volumes and fees collected from the trades that occur in the pool.
TVL (Total Value Locked):
- In traditional finance, TVL can refer to the total amount of assets held in a financial product or investment vehicle.
- In crypto, TVL is the cumulative value of assets locked in a particular DeFi protocol. Higher TVL often indicates a more trusted and utilized pool.
Market Correlation:
- In traditional finance, market correlation reflects how one investment’s performance moves in relation to another.
- In the crypto world, understanding the correlation between pool assets helps assess market risks and potential returns. A higher correlation means that the assets are likely to move similarly in price.
Divergence Loss:
- While traditional finance doesn’t explicitly recognize this term, it encompasses the risk of impermanent loss in liquidity provisions. When invested assets deviate in value from when you deposited them, minimizing your effective returns.
- In DeFi, divergence loss arises when the value of tokens in a liquidity pool fluctuates, showcasing the importance of understanding market volatility and price impacts.
Volume History:
- In traditional finance, this refers to the historical amounts of trades taking place in a market.
- In the crypto sphere, analyzing volume history allows you to gauge how actively a liquidity pool is used, giving insight into potential earnings from transaction fees.
Portfolio Tracking:
- In traditional investing, portfolio tracking involves regularly assessing investments to understand performance.
- In DeFi, robust tools allow you to monitor liquidity deployments and evaluate profitability in real-time, highlighting market dynamics.

Understanding these core concepts is the first step toward making informed decisions in the world of liquidity pools, helping you navigate both traditional finance and cryptocurrencies with confidence.

Key Steps to Finding High APR Opportunities in Liquidity Pools

In your quest for stable, high-yielding liquidity pools, let’s break down the steps into manageable sections:

1. Identifying Reliable Pools

Key Points:
- Look for liquidity pools with proven performance.
- Avoid pools with extreme volatility or unstable yield rates.
Explanation:
The first step is identifying pools that have a consistent track record of returns. Using analysis tools like Metrics Finance can help you sift through thousands of options to find those that don’t simply offer short-term gains. Consistency in trading volume and yield is crucial.

2. Defining Parameters for Selection

Key Points:
- Set parameters for Minimum APR (Annual Percentage Rate) and Total Value Locked (TVL).
- Focus on pools with high TVL for stability.
Explanation:
It’s essential to filter options based on specific criteria. For example, targeting pools with a TVL exceeding $3.5 million can indicate a reliable participant base and investment security. Additionally, a minimum APR—such as 12%—can help streamline your search for potentially lucrative opportunities.

3. Analyzing Pool Data

Key Points:
- Gather detailed information on yield estimates, asset correlation, and volume history.
- Utilize tools for analysis beyond basic metrics.
Explanation:
Assessing vital data points such as estimated yields (daily, monthly, and annually) allows you to project potential returns accurately. Utilize software solutions like Metrics Finance that allow you to visualize data effectively and aid in making educated decisions.

4. Simulating Investments

Key Points:
- Use simulation tools to test different deposit amounts and strategies.
- Consider correlation metrics to understand asset performance.
Explanation:
Experimenting with simulations helps you gauge various liquidity pool scenarios before committing your funds. For instance, you might simulate a deposit of $10,000 and examine expected returns based on historical asset performance—and remember, a high correlation percentage is generally favorable as it indicates lower risk.

5. Conducting Due Diligence on Assets

Key Points:
- Research the assets in the liquidity pool thoroughly.
- Understand their role in the DeFi ecosystem.
Explanation:
Engage in comprehensive research on the assets comprising the liquidity pool you’re interested in. Knowing the crypto’s fundamental factors will help you gauge whether they align with your investment goals and risk appetite.

6. Tracking Performance

Key Points:
- Monitor your liquidity deployments regularly.
- Analyze the profit margins and divergence losses frequently.
Explanation:
The final stage involves tracking your investment performance through robust tracking tools that provide insights into profits, losses, and emerging market trends. Effective monitoring ensures you remain proactive rather than reactive in managing your investments.

Crypto Connection

In each step above, traditional finance principles align closely with those of the crypto space. For instance, the importance of thorough analysis and understanding asset dynamics remains true across both realms. While traditional finance utilizes cash flow and market analytics, in crypto, tools like Metrics Finance provide valuable insights specific to the DeFi ecosystem. This dual approach empowers you to make informed decisions on both fronts.

Real-World Applications

Historical reference shows that investing in high-APR liquidity pools is not a new concept. It’s akin to investing in mutual funds or stocks with a focus on dividend returns. This investment strategy resonates more in the current crypto landscape, where opportunities for passive income generation are limitless.

Hypothetical Example:

Imagine you invest $10,000 into a liquidity pool offering an APR of 32%. Over a year, given consistent fees from trades in that pool, your earnings could total around $3,200. If you contrast this with a traditional savings account offering 2%, your earnings would amount to just $200. It becomes evident that navigating liquidity pools provides opportunities for not only higher returns but also engaging with innovative financial technology.

Challenges and Solutions

Navigating liquidity pools comes with its own set of challenges:

Problem: High volatility and uncertainty around yield rates can lead to poor investment decisions.
- Solution: Utilize advanced analytics tools to monitor performance and keep up with market trends, enabling better risk assessments.
Problem: Divergence loss, where one token’s value drops drastically compared to its pair.
- Solution: Diversify your investments across various liquidity pools to mitigate risk.
Misconception: Newcomers may view liquidity pools as a guaranteed source of income.
- Clarification: While liquidity providing can offer significant returns, it also requires an understanding of market dynamics and potential risks.

Key Takeaways

Understand Liquidity Pools: Gain a solid grasp of what liquidity pools are and how they function.
Set Parameters: Define clear parameters for pool selection based on TVL and APR levels.
Analyze Data: Dive deep into pool analytics beyond surface metrics to make informed decisions.
Simulate Investments: Use tools to simulate your investments before diving in.
Conduct Due Diligence: Research the underlying assets of your chosen pools thoroughly.
Track Performance: Keep a close eye on your investments’ progress and be ready to pivot.
Embrace Risk: Acknowledge that divergence loss is a real threat and strategize accordingly.

By integrating these takeaways into your strategy, you can position yourself to navigate the exciting, yet complex, landscape of crypto liquidity pools effectively.

Discussion Questions and Scenarios

How does the understanding of Total Value Locked (TVL) influence your approach to investing in liquidity pools?
Consider a liquidity pool with a high APR but low TVL. What risks might you face, and how would you research this opportunity?
Compare the potential earnings from liquidity pools versus traditional stock dividends. Which would you prefer and why?
How does the correlation between assets in a liquidity pool impact your investment strategy?
Imagine a situation where one asset in your liquidity pool crashes suddenly. What would be your immediate steps to mitigate losses?
Discuss how daily monitoring of liquidity pools differs from traditional financial investments; what aspects are enhanced in the crypto space?
In your opinion, is the potential for passive income in DeFi worth the risks involved compared to traditional savings accounts or investment options?

Glossary

Liquidity Pool: A collection of funds locked in a smart contract to facilitate trading on decentralized exchanges.
APR: The annual rate of return on an investment, showcasing the profitability of liquidity pools.
TVL: Total Value Locked, indicating the amount of assets held in a DeFi protocol.
Market Correlation: A measure of how two assets move concerning one another, aiding in risk assessment.
Divergence Loss: The decrease in value resulting from price discrepancies between paired tokens in a liquidity pool.
Volume History: Refers to the historical trading activity within a liquidity pool that helps gauge its usefulness.
Portfolio Tracking: The process of monitoring your investments in real-time to evaluate performance and make timely decisions.

By keeping these concepts in mind and engaging in thoughtful discussions, you can strengthen your confidence in diving into the world of liquidity pools effectively. Each aspect you learn adds another layer to your growing understanding of finance and cryptocurrency.

Continue to Next Lesson

I hope you enjoyed today’s lesson on high APR liquidity pools and found valuable insights to enrich your crypto journey. Get ready to dive deeper into the world of DeFi with the next chapter in the Crypto Is FIRE (CFIRE) training program, where we will explore advanced strategies to maximize your returns!

Read Video Transcript

The Secret to Finding High APR Liquidity Pools (Passive Income)

https://www.youtube.com/watch?v=Z7lgCqITN1o

Transcript:

I’ll be showing you the secret to finding high EPR DeFi liquidity provision opportunities that also are consistent because we’re not looking for opportunities that have a ton of yield one day, a ton of earnings, and then the next day they’re dead. We’re looking for solid, proven to work liquidity pools and strategies.

So for example, this wallet with 93,000 bucks in liquidity is up 8,000 bucks. And if they weren’t deployed into the liquidity pools, they would be at a loss since their assets depreciated in value. But since their assets are in the liquidity pools earning income, they’ve earned $21,000 in earnings, which puts them at a profit. Also, this wallet here with over $6 million in liquidity, if they weren’t deployed into these liquidity pools, they would be missing out on over $150, thousand dollars so it goes to show the power of liquidity pools now if you’re

over on defy llama in the pool section you can scroll and see some information about different liquidity pools but you can’t go super in depth into them you can’t even see how correlated the assets are to each other etc same thing goes for if you go over to decentralized exchanges like Uniswap or Orca, you can go ahead and view the pools that are available on these decentralized exchanges.

But for example, if I take a look at this JLP to sole position, we can’t see much about it at all. We can see estimated yield per 24 hours. And besides that, we can’t see anything else. We can’t see our estimated yield per month, per year. And here, when we’re looking at our estimated yield, it’s based on the past 24 hours of data.

We can’t see anything else we can’t see our estimated yield per month per year and here when we’re looking at our estimated yield it’s based on the past 24 hours of data we can’t change that to be based on the past one week or one month of data so that’s where the software metrics finance comes in it’s the best software for finding liquidity provision opportunities also simulating your portfolio to see what type of earnings you could be making and then third building out your portfolio so if we go over to the launch app section we can go to discover at the top and then we can go ahead and select the exchanges and networks that we want to look at i like to keep

these videos pretty broad so we can select multiple exchanges we can go uniswap orica we can look at radium velodrome aerodrome and then for, we can go ahead and look at Ethereum, Arbitrum, Optimism, Base, and Solana. So there’s 2,281 pools to sort through. And right off the bat on this page here, we can see a ton of information.

It’s a much easier interface to sort through than going through Uniswap or DeFi Llama. So first thing we want to do is add some parameters because obviously out of these 2,000 pools, not all of them are going to be solid. So first of all, we want to look at some pools that have a good chance of being consistent. That’s my main goal here.

So for TVL, we can look at pools that have higher than, for example, 3.5 million bucks in TVL. Pools that have a solid number of TVL can be an indicator of consistency in the long run. And then let’s go to fees APR. And depending what your strategy is, if you’re looking for very high APR, more riskier positions or lower APR ones, you can type in your minimum APR.

So for now, we can look for pools that have higher than 12% APR. And remember, the APR that shows here, it can be higher once you select your range and add a tighter range. So this face value APR right here is bound to change once you actually go ahead and select your range and add a tighter range.

So this face value APR right here is bound to change once you actually go ahead and select your range. So right off the bat, we see some meme coin positions like Peanut to Wrapped ETH, Trump to Wrapped ETH. Yes, people do make money from these meme coin liquidity provision opportunities, but that’s not something I pay attention to. I’m looking for pools to have assets, to have reputable teams behind them, reputable business models, and have a reputable place in them, reputable business models, and have a reputable place in the DeFi ecosystem. So scrolling down, we can see positions like this,

wrapped ETH to UNI. It’s showing 32% EPR with about 60 million bucks in TVL. We can go ahead and simulate that in a new tab. And if you’re looking forward for me to show you how to find these higher EPR opportunities, make sure to subscribe and hit the notification bell so you don’t miss an upload. So here for deposit amount, we can go and enter the sample amount.

I’ll go ahead and enter 10,000 bucks and I’ll leave a link in the description down below where you can claim a trial to the pro version of Metrix Finance so you can try it out on your own. So make sure to click the link below. Scrolling down, we can go ahead and select our range. So by default, it’s set to a 30-day calculation range.

We can zoom this out based on what data points you want to look at. We can look at a 100-day calculation range, zoom back in, look at like a 15-day calculation range. But I’m trying to have a pretty accurate simulation. So I’m going to go with about a 20-day calculation range. Then we can find our range here like so.

And with this calculation range of 228 to 342 it’s showing our apr up here scrolling down you can see how calculated the assets are having this set at a 20-day calculation range is showing that these assets are very correlated it’s showing 95 correlation and if you’re looking at uni swap orca or d5 llama you can’t see how correlated the assets are to each other so this is a great feature of metrics finance that I’m so hyped to share with you.

Scrolling down, we can see the volume history. Again, this is very important to look at when you’re looking to find a DeFi liquidity pool. You can see the fees per day, also the volume per day. And you can also go ahead and look at top positions. You can sort it by liquidity and see some positions with a ton of liquidity.

And you can use this for proof of concept. For example, you can find wallets that are profitable from this liquidity pool as proof of concept that it’s possible for it to work for you. This is the same way I found those wallets that I showed you in the beginning of the video.

I go down here and I can find wallets that are making money with these liquidity pools. Anyways, we can go back and look for some higher APR positions. We can change this to higher than 40%, for example. I’ll go back to the first page. Here we go. We can look for some pools. I see this wrapped ETH to LINK position down here showing about 64% APR with almost 80 million bucks in TVL. That’s a lot of TVL.

So that’s one indicator that this pool could be consistent in the long run. So I’ll go ahead and simulate it in a new tab. And keep in mind, there are risks to this DeFi investing, such as divergence loss. Make sure to do your own research. And when I say consistent, I don’t necessarily mean like consistently profiting every single day. I mean consistent as in there’s going to be fees being paid out every day.

There’s a lot of volume being traded every day across these coins. And also by consistency, I mean that there’s a lower chance that one of the coins you’re in will just go to zero the next day. So again, we can type in our sample deposit amount, scroll down, change your calculation range based on the past 20 days of data or whatever you want to look at.

Then we can go ahead and find our range again. And then once we find our range, we can see stuff such as our yearly EPR and also our estimated earnings per day. Look at this. These assets are about 99% correlated based on the past 20 day calculation range. That’s awesome to see. I’m so glad in this video, I was just able to find a very high correlated asset pair.

So you can go ahead and check out this pool. For example, if you want to get into it, wrapped ETH and LINK, obviously you’d have to do your due diligence on wrapped ETH and LINK. See if they’re assets you want to take on exposure to and see if you want to enter the liquidity pool but it’s there for you remember to check out metrics finance in the description down below there is a link for a trial like I mentioned so going back we can look for some other positions some higher APR once again I see GMX to wrapped ETH we can go ahead open that up in a new tab

scrolling down we can see these assets are about 62% correlated based on 30 days of calculation range. If I change it to 20, they’re looking at about 43% correlated. So these assets here aren’t super correlated, but we can still simulate a range and see what type of money we possibly could be making.

So I’ll make my range a bit lower for the max price and our min price, I’ll put it around here. We can see our estimated yearly APR. And when you’re simulating, you see how this max price, I’m getting weird numbers like 0.01, 0.006. We can go ahead and swap the order of the assets.

Now we have more easier to read numbers like 157.8, 94.9. And once you’ve found a range you’re comfortable with, remember, do your due diligence on the assets, see what roles they play in the DeFi ecosystem ecosystem and see if you’re comfortable taking on exposure to them and if you are you can hit the save to portfolio button for later and it’ll put it in the build section and once you’ve deployed assets if you did remember you can go to the track section into your wallet you can see a ton of data all at once such as your current liquidity if you’re in profit or not your asset

gain so it’s really good for viewing if you have divergence loss or not. You can also see APR as well as 24-hour, 7-day, and 30-day earning projections. And at a glance, you can also view what other liquidity pools you’re in.

If you learned something from this video, make sure to subscribe and click the notification bell so you don’t miss another upload. And check us out in the description down below. I’ll see you in the next one.