Using DeFi in a Bear Market

In light of the global pandemic, the economy is quickly taking a turn for the worse.

While many have touted cryptocurrencies as being an uncorrelated asset class, it should come as no surprise the virtually all of the top tokens have suffered significant drawbacks in the past week.

Ethereum is down by 34% in the last 5 days. Bitcoin is down 21%. Now imagine anyone actually investing because they thought they could hedge the macro uncertainty. This is devastating pic.twitter.com/VuGZiRROH1

— Larry Cermak (@lawmaster) March 12, 2020

Others are still confident in this position as DeversiFi Štěpán Fau notes:

“Even though BTC was supposed to be a hedging tool against traditional market’s volatility, traders are now cash hungry to meet their margin positions requirements. Which is no surprise, since literally every market in the world is propped up on those over-leveraged positions. Even gold, the asset which is considered a hedge against volatility by the most traditional traders, is barely moving, or slightly in the red. Therefore I don’t agree with anybody who’s currently saying that BTC failed to prove itself as a safe haven. If BTC stabilises itself in the short term, it could still serve as a valuable hedging tool.”

For those who have placed a strong degree of faith on these nascent assets, we wanted to take this article to offer a few of DeFi’s silver linings when it comes to hedging risk during bearish market conditions.

Please note that this information is not financial advice, but rather a window into the opportunities DeFi provides to those savvy enough to take advantage.

TokenSets

As a sector-leading assets management products, Set Protocol offers an intuitive product to capture sophisticated trading strategies in the form of ERC20 tokens called Sets.

By navigating to the TokenSets dashboard, users can find solace in Sets which rebalance relative to technical indicators like Moving Averages.

To highlight the importance of these strategies, many of these Sets rebalanced to stablecoins like Dai and USDC prior to the most recent dump, leaving tokenholders with advantageous holdings without having to click a single button.

With the 20MA rebalance, the top RoboSets are all sitting in USD. It’s amazing to see:
– The ETH RSI Set up 70% against ETH since inception
– The ETH 26 EMA up 65% against USD since inception

The RoboSets thrive in times of volatility like thesehttps://t.co/CH4UDc88uZ

— Felix {Setoshi} Feng (@felix2feng) March 12, 2020

Paired with the recent introduction of Social Trader, TokenSets offers a number of assets which have outperformed the market on a weekly basis – providing traders with the opportunity to stack ETH despite cascading prices.

Synethetix

Fancy a bit of foresight? Thanks to Synthetix inverse Synths, users can short a wide variety of Ethereum-based assets in tandem with protocol tokens like Tezos (XTZ) and Binance Coin (BNB).

Inverse Synths have been highly lucrative in the past week, as virtually every major asset on the market is down nearly 50% at the time of writing.

To take advantage of inverse Synths, it’s recommended that traders acquire sUSD – Synethetix’s native stablecoin – and head over to the Synethetix Exchange. Alternatively, users can stake SNX to acquire sUSD – however, this currently required 800% collateralization meaning there is a high degree of capital necessary to acquire a small amount of sUSD.

dYdX

Looking for an easy way to short Ether in a noncustodial fashion? dYdX offers an intuitive interface to open a margin position using a web3 wallet like MetaMask.

In the case of shorting Ether, users are required to deposit DAI which is used as collateral for the trade.

With dYdX, users can open a short with up to 5x leverage, all of which is monitored onchain.

Paired with their recent launch of a new business model, it’s no surprise dYdX’s volume has been surging in recent weeks.

We finally have some good stats on @dydxprotocol volumes and more on Dune thanks to @tomhschmidt 👏 Spoiler: the numbers are big 😱😱😱 Our DEX dashboard will be updated soon. https://t.co/TrjK55v7VD pic.twitter.com/68OWq5PlSm

— Dune Analytics (@DuneAnalytics) March 11, 2020

 

Curve

Looking for solace in stablecoins? While many are familiar with lending opportunities like Compound or the Dai Savings Rate, projects like Curve are taking stablecoin lending to the next level.

Curve aggregates stablecoin lending pools to offer minimal slippage when trading between various stablecoins, a situation which is very helpful when those assets are in high demand.

Better yet, the returns offered by Curve are currently some of the best on the market – largely due to the nascency of the protocol paired with all the passive lending opportunities that arise from DeFi composability.

If you’ve decided to hedge your portfolio into largely stable assets, we recommend checking out Curve finance to optimize your passive returns.

Daily performance of different Curve pools over 24 hours:https://t.co/WlWYGpM5pc 16.27% 🔥https://t.co/gra6PooOHT 10.68%https://t.co/jJ033m1bIn 12.72%https://t.co/RXPHqSI3ew 10.11%

APY flippering to the safest pool?

— Curve (@CurveFinance) March 10, 2020

 

The Big Picture

While many like to focus largely on lending as the main benefit of DeFi, we hope this article can shine some light on some of the other areas where new primitives have improved the Ethereum ecosystem at large.

As we continue to tread murky waters, we encourage crypto holders to take the initiative to seek out new areas to hedge their risk.

In the meantime, stay safe out there!