Perpetual contracts & borrowing on Aave!
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DeFi Slate Fam:
Short intro for you today.
Markets are on fire.
We’re going long. We’re taking on more risk. We’re obtaining more exposure to the upside.
We might get rekt.
This is the risk-on post, teaching you how to get more exposure to the crypto markets using DeFi native tools.
That means fully decentralized, non-custodial, global, permissionless platforms.
Here we goooooo!
-Andy
???? Big Ups To Our Great Sponsor Aave: Earn Interest & Leverage Your Assets with Aave, a non-custodial money market protocol leading the #DeFi charge.
ALPHA LEAK: Deposit LINK tokens into Aave to get aLINK, then head over to Yearn to put your aLINK into the yaLINK vault for extra yield. It all starts here with Aave!
???? Shoutout to DeversiFi! Trade at lightning speed, with deep liquidity, directly from your privately-owned cryptocurrency wallet on DeversiFi’s L2 gasless exchange!
????Their new roadmap is LIVE with liquidity mining on Beehive 1.0 coming soon????Wiretap Wednesday: Going Risk-On using DeFi Tools
Wiretap Wednesday: Going Risk-On using DeFi Tools
On Monday we posted Master It Monday: Hedging & Protecting Your Downside Using DeFi Tools, an overview of how the TVL in DeFi is a self-enforcing flywheel correlated to the prices of DeFi tokens.
Today, we are going to dive into going risk on in the crypto markets (particularly useful for bull markets). Going into risk-on mode can mean a multitude of different things for different investors, so when we say ‘risk-on’ from now on it means you want to get maximum risk exposure to the markets.
To go ‘all-in’ per se.
Needless to say, if you are to looking go in heavy you are big time bullish on the crypto space. Not only do you want to have maximum ‘spot’ exposure (buying BTC & ETH etc) but you want to use your spot exposure to take on more risk.
Borrowing Strategy on Aave
The strategy to take on more risk on Aave is very simple. Dangerously simple, to be honest.
You want to be holding non-stable cryptoassets (ETH, wBTC, LINK) to supply them to Aave (details below) then borrow stablecoins (DAI, USDC, USDT etc.) to purchase more non-stable cryptoassets.
An example would be this:
You supply 10 ETH to Aave.
You borrow 1000 DAI tokens.
You go to Uniswap and purchase $1000 of ETH. You are now ‘long’ Ethereum.
A few key takeaways here, before you do this and get rekt:
Using Aave in this manner is highly risky because you CAN get liquidated which means you lose your supplied collateral
Maintaining a health factor over 3 is recommended
Usage of stablecoins as collateral is smart to lower risk(Ex: 50% wBTC, 25% ETH, 25% DAI) then borrow DAI.
How to supply and borrow on Aave
Step 1: Go to https://app.aave.com/home, connect your MetaMask wallet to Aave and you’ll be taken here:
Step 2: Choose which assets you’d like to supply to Aave, for this example we’ll use ETH because we have some. When you click the asset you want to supply, you’ll be taken here (ignore the health factor, yours will be different):
Step 3: Choose the amount you’d like to deposit, press ‘Submit’ then approve the spending + deposit transactions in metamask then you’re all set! You can click on the dashboard button on the left panel to see your deposits.
Borrowing Assets On Aave
Step 1: You must have deposited some type of asset as supply first – do not continue until you have done so.
Step 2: On the left side of the dashboard, click ‘Borrow’ and find the asset which you would like to borrow. Then you’ll be prompted to this screen, where you’ll choose how much you want to borrow (we recommend keeping it below 55-60%, you can see ours is 53%). Different assets have different borrowing abilities, but for all intents and purposes keeping below 60% of your borrow limit is a “safe” strategy.
Step 3: When you press continue you’ll be prompted to a screen asking what type of interest rate you want, make your choice (stable stays the same – variable can change up and down)
Step 4: Then on the next screen, approve the borrow transaction & wait, then when prompted click submit and follow through the MetaMask transaction to borrow then you’ll see the asset you chose to borrow appear in your Metamask wallet. Then, click the dashboard button on the left panel & you can then review your assets supplied/borrowed – congrats!
Going Long on dy/dX & MCDEX
This is a more straightforward, short-term, higher risk trading strategy. Tbh, we don’t recommend using leverage to trade let alone 5x+ its very risky and yeah you can really rekt yourself. The name of the game here is to survive for as long as you can in order to fully get exposure to the extent of the move that the bull run brings.
This requires not getting liquidated.
We were hesitant to include this section, but its an enormous source of mainstream adoption of DeFi. Trading decentralized derivatives is what brings in Wall Street.
So lets go over what perpetual contracts are, leverage, and how you can use dY/dX &MCDEX take on more risk!
From BitMEX’s defintion:
The Perpetual Contract is similar to a traditional Futures Contract, but has a few differences:
There is no expiry or settlement.
Perpetual Contracts mimic a margin-based spot market and hence trade close to the underlying reference Index Price.
The Funding mechanism is used to tether contracts to their underlying spot price.
This is in contrast to a Futures Contract which may trade at significantly different prices due to basis.
This applies to the contracts on DYDX & MCDEX as well. Unfortunately perps aren’t available on dYdX, but you can trade up to 5x on margin, effectively the same thing.
When you are using leverage or perpetual contracts, you are trading with more capital than you personally own. For example, if you are trading a 50 ETH contract on 5x, then you own 10 ETH but your position be it long or short, is worth 50 ETH.
Step 1: Head over to dYdX or MCDEX and connect your metamask wallet. Then identify which contract you want to trade, make sure you have enough ETH in your wallet for your position and get ready to LONG!
When you are getting ready to go ‘Long’ you can see the important details for your position, including your expected entry, liquidation price, ETH amount and more.
Step 2: Step a stop loss in the ‘Cross’ section, because this is what non-degens do. Here’s a great video to learn how to place stoplosses and why they are NECESSARY!
And with that being done you now have a long position which is more risky and carries a higher degree of personal certainty in the market appreciating in value rather than going down.
Those are two of the easiest, most effective ways to get more exposure to DeFi and crypto using fully non-custodial, DeFi tools!
Take advantage of this next bull market. Its already insane.
⚠️ DISCLAIMER: Investing into cryptocurrency and DeFi platforms comes with inherent risk including technical risk, human error, platform failure and more. At certain points throughout this post, we might get commission for promoting certain projects, if this is the case we will always make sure it is clear. We are strictly an educational content platform, nothing we offer is financial advice. We are not professionals or licensed advisors.
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