Bear market is upon us…. Now what???
The time where the guy down 90% bashes the guy who is down 99% and we all become BTC maxis or where the twitter threads on life hacks, the time when we crack out the ramen. Not the cups but the squares. And on the nights when we want to treat ourselves have a can of soup that’s BOGO from Publix.
Its not all bad tho I have some good news
1.You can still make money in a bear market (more on this later)
2.Things cost less money (get more coins for less)
3.Gas fees are lower (chain has less congestion)
4.Ramen tastes really good (FACTS)
Some of my favorite ways to make money in a bear market have to do with different DEFI Strategies specifically centered around being the “Market Maker” in crypto. There are many ways that an LP (liquidity provider) can earn money and these can be from bribes, liquidity incentives, Traders and Swap fees.
Now each of these incentives have their own Pros and cons.
BRIBES Pros:
•Uncorrelated yield (Revenue is coming from a “paying customer” not inflation
•Non dilutive
Cons
•May not be beneficial to the protocol long term
•Unpredictable yields
LIQUIDITY INCENTIVES (Pros)
•Tend to give higher interest rates (in beginning)
•Extra money on top of swap fees
Cons
•Unpredictable yields
•long term sustainability
•Race to the bottom
SWAP FEES (Pros)
•Better sustainability Long term
•Great during high volume
Cons
•Race to the bottom on fees
•Not as profitable with low trading volume
•Impermanent Loss
TRADERS (Pros)
•Sustainable yield
•Can be lucrative (traders losing money)
Cons
•Traders may be profitable
•Impermanent Loss
One of my favorite ones is Gmx.io. This is a Perpetual Exchange (allows you to trade options aka Long or short the market). With GMX, the yield (aka Fees) are accrued from swap fees, funding rates (cost for long or short position), the mint and burn fees, and when traders lose money . The more Traders lose the more you make as an LP. We all know how that goes 😉 (think binance, FTX, Bybit as in where do they make all their money). Currently the LP’s make 70% of the fees and the GMX stakers earn 30% of the fees.
The reason why GMX gets tons of volume is that it allows people to trade options and it also gives super low fees depending on the balance of the pool.
Literally no fees for the swap between USDC and FRAX…..kinda sweet
Now this isn’t for all of the pairs but this is just to help rebalance with the LP providers. This is where GLP comes into play. The GLP token is the Lp token for GMX, this is currently on arbitrum and avalanche RN. Depending on the balance of the pools some tokens will have no fees or a minimal fee depending on if the token in the pool is at a proper weighting
The fees to mint GLP, burn GLP or to perform swaps vary based on whether the action improves the balance of assets or reduces it. For example, if the index has a large percentage of ETH and a small percentage of USDC, actions which further increase the amount of ETH the index has will have a high fee while actions which reduces the amount of ETH the index has will have a low fee.
If token prices are increasing, then the price of GLP will increase as well, even if a lot of traders have a long position on the platform. The portion reserved for long positions can be treated as stable in terms of its USD value since if prices increase the profits from that portion will be used to pay traders, and if prices decrease, the losses of traders will keep the USD value of the reserve portion the same.
If a lot of traders are short and larger weights are given to stablecoins, then GLP holders would have a synthetic exposure to the tokens being shorted, e.g. if ETH is being shorted then the price of GLP will decrease if the price of ETH decreases, if the price of ETH increases then the price of GLP will increase from the losses of the short positions.
(from the GMX white paper…..who even reads these things 🙃)
So TLDR traders lose money GLP holders win, Traders make money GLP holders Lose money. Now remember this is just GLP we havn’t even gotten into the rewards you earn on the platform for being an LP.
Yes sometimes traders may be profitable some days but over time trades revert back to the mean as most traders end up losing money, its just the nature of the beast.
Now also keep in mind this is not without risk and there is always such thing as smart contract risk and you can purchase insurance here insurace.io. This is the one recommended by GMX but you can actually use with other protocols as well
Another platform similar to GMX is Synthetix and the https://kwenta.io/ exchange. This allows you to trade perps with crypto as well as synthetic assets and currencies. They are ranked top 5 in trading fees at https://cryptofees.info/ so they are prob doing something right lol.
Instead of having users LP thru GLP, the value capture of Synthetix is thru SUSD. SNX is needed as collateral To mint the SUSD stablecoin. This stable coin is what drives the ecosystem because in order to mint any of the synthetic assets or trade on the platform you must have SUSD. (Video soon on this to go into more detail).
SNX staker’s you earn fees from liquidations, bad traders like me, and from inflation rewards. You can check out the stats here https://grafana.synthetix.io/d/pjPJZ6x7z/synthetix-system-stats?orgId=1&kiosk=full&from=now%2Fy&to=now .
The TLDR with the success of SNX in the bear RN has to do with the roll out of atomic swaps (thread for more deets) https://twitter.com/Rentahomefast/status/1539760569259024384
So TLDR
Snx demand
1. for susd to trade
2. for susd to mint synths
3. from those that want to earn fees from trades
4. from those that want to earn fees from liquidations
5. to earn staking rewards
On to the next Strategy, This has to do with LP providing. There are several ways to do this you can go into 50/50 pools, 25/25/25/25, or 33/33/33 and so on it just depends on the protocols you use but most of the time its 50/50. The main risk involved with this has to do with impermanent loss but as long as your picking 2 assets your more bullish on IMO it doesn’t make a difference
Impermanent loss happens when the price of your tokens changes compared to when you deposited them in the pool. The larger the change is, the bigger the loss. You can dig deeper here https://www.blockchain-council.org/defi/impermanent-loss/
But some may hear this word and think its the end of the world but I like to use it as impermant gain (more on this later)
The most common protocol to use for LP providing is Uniswap. When your choosing a pool to LP for you want to:
•Pick pairs with tokens your bullish on, or dont mind having more of
•Pools with a high trading volume to TVL ratio
•Choose the correct chain (gas fees) based on your amount your depositing
•If using uniswap v3 make sure you select the proper ranges (see video)
Looking under USDC on uniswap (optimism L2) I look for the pool with the best tvl to volume ratio.
As you can see in this Screenshot the ones that have the best ratio are the WETH/USDC and the SUSD/USDC pool. Now keep in mind this is not the only thing that should be looked at but its one of the first I look for. The second is the fees. A .3% or a 1% swap fee can have a much less favorable TVL to volume ratio because the fees make up for the difference.
Lastly you want to pay attention to the fees over time. You can get into the details on each of the pairs by clicking on the pool for the token.
This is the ETH/USDC pool under the fees. Based on where the fees have mostly been this seems to be a newer pool. So it is not a pool that has been around a bit so the question is will this pair be good over the long term based on the 3 metrics that we look for.
Summary
- Favorable TVL to volume ratio
- Swap fee percentage
- The average fees overtime
Of course this is not exact but this will help give you a guide on selecting the pools you want to go into. The next thing you need to do after you figured out the pool you want to go into is figure out the price ranges you want to provide liquidity for.
The ranges are mainly going to depend on the assets if they are like assets or volatile to each other. Some assets that would be considered like assets are 2 stable coins like USDC/USDT, most will concentrate the liquidity range around .97 to 1.03 and mabe even less than that
As you can see that is where most of the liquidity is placed right around 1$.
An example of a non like pair would be ETH/USDC
Most of the liquidity is placed between 1k and 1500 and even more concentration from 1200$ to 1250$.
This doesnt mean you must follow what everyone else is doing, but the wider that range the less you will make apr wise. But it will be less position management because you will not have to edit you liquidity position. If you want to learn more about the deets check out the video earlier in this article.
Now the other LP pools that are interesting are the ones that have multiple assets like on https://beets.fi/#/trade and https://balancer.fi/#/. These are really cool because the impermanent loss is not as significant as it would be in a 50/50 pool and you can have exposure to multiple assets while having to only hold one token.
One other trick with LP tokens is that they can be used for impermant gain. Let me give an example of USDC/ETH
if Eth =$1000 and usdc=1$ the lp pool would be 1eth/1000 usdc
lets say eth goes to $500 it would now be about 1.41eth and 707 Usdc
IF you withdrawal the lp you theoretically bought the dip and YOU GOT PAID TO DO IT. Yes you would have been better off just holding and buying it if it went down but really would only be a 5% difference.
You can use the LP’s to your advantage to Auto buy the dips and auto sell the rips and get paid to do it if you play them right.
LETS BRING IT ALL TOGETHER
Right now is where you anchor down and make your plan…you can make money in a bull market, but you can make life changing money in a bear. Looking for farms that have a sustainable yield will allow you to accumulate more crypto assets during the winter. Just be sure they are actually considered “assets 😉 “ and not just a degen altcoin that your only holding to earn 100000000000% apr.
These are not all of the farms I like to use but these are just a few. You can use these as examples on your search for other farms to use.
Just remember 2 things
- If its too good to be true it probably is ( wait it out a few days and see what happens) If you have to ape in now cuz the yields will be gone a few days from now then you prob shouldn’t be in that farm 😉
- If your just starting out, try using small amounts to learn how LP’s work and how yield farming works. You will lose money in the beginning but you will learn valuable knowledge that will allow you to make life changing money.
Luke 19:17
’Well done, my good servant!’ his master replied. ‘Because you have been trustworthy in a very small matter, take charge of ten cities.’
