👩‍🌾 How to use options to hedge asset exposure on yield farming

📉 DeFi TVL takes a hit — On May. 10th, 2022, the total value locked (TVL) in Ethereum DeFi projects was $67.21B according to DeFi Pulse, ~10% lower than the value we saw a week ago. Always remember that DeFi is a rollercoaster, and the market is generous for the ones that have endurance and patience 🧘‍♂️.

📰 Terra’s stablecoin UST fails to recover peg after a 70% crash

No, I won’t make you read another newsletter cover on UST news this week. I’m just here to update the current price on UST: $0.51, as the time of this section is being written (May 11th’s morning).  It means that after 48h when the peg was drastically lost, even with all the BTC reserve, the currency was still unable to recover its $1 peg.

Have no idea why is this happening? We’ve made a pretty clear and educational thread on the main differences between DAI and UST:

😳 Driving crypto and DeFi regulatory updates

💸 DeFi Markets:

• ETH (-19.6%)

• AAVE (-28.3%)

• SNX (-31.7%)

• UNI (-13.28%)

💸 Stable Markets:

• USDC: $1.00

• DAI: $1.00

• USDT: $1.00

• UST: $0.51

👛 The $DPI pulse — The DeFi Pulse Index ($DPI) is presently trading at $107.23, down by 22.96% on the week.

  👀 Latest News you shouldn’t miss:

• IMF’s precise explanation of DeFi, referencing DeFi Pulse amongst others. 

• Polkadot’s parachain messaging is live with XCM.

• Gains Network adds leverage trading for US-listed stock prices.

• Outlier Ventures & Terraform Labs launch focussed accelerator.

• Alchemix launched on Fantom.

• Tron’s new algorithmic stablecoin USDD goes live.

• Solana Pay takes another leap forward with transaction requests.

-DeFinn, Guneet

• Mushrooms Finance deployed to Ethereum Co-chain beta
  TLDR: Mushrooms has joined the CosmosEVM network, allowing users to earn from a range of assets in a sustainable and passive manner;

• Public blockchain KuCoin aims to solve high gas fees on Ethereum
  TLDR: KuCoin and the community developed around KCS, their native currency, have joined forces to address high gas fees issues by developing KCC, a high-performance blockchain;

•  Grayscale’s GBTC and ETHE products now available on Robinhood
  TLDR: GBTC shares give investors immediate access to Bitcoin in the form of security without buying or storing the digital currency. ETHE, on the other hand, is an open-end investment corporation whose shares reflect the trust’s Ether holdings;

• Buterin: L2 transaction fees need to be under $0.05 to be ‘truly acceptable’
  TLDR: Despite the fact that layer-2 transactions are quite inexpensive, Vitalik Buterin believes that all transactions must be under $0.05 to be genuinely acceptable;

• Bored Ape Yacht Club, other Ethereum NFT Prices Plummet as crypto market crashes
  TLDR: The global crypto market has dropped more than 11% in the last 24 hours, with Bitcoin and Ethereum both down over 20% in the previous week, causing the most expensive NFT projects, such as Bored Ape Yacht Club, to drop by 20% or more in terms of U.S. dollar value. 

Twitter Spaces 🎙️

Join us for a Twitter spaces this week with Scalara and NFTX talking about the future and synergies between DeFi and NFTs!!

🚜 How to use options to hedge asset exposure on yield farming (Beefy finance + Netswap + Hegic)

This is not our first time covering an opportunity on Beefy Finance (check this other edition of Pulse Farmer) but, since the winter seems to be coming, we’ve spotted a way of putting your WBTC to work but also minimize downside risk exposure from BTC price going down, by hedging it on an options platform. 

Yes, this is one step further on your road to becoming a professional yield farmer, my friend. So, stay with me.

This Beefy vault is optimizing a pool on Netswap, a decentralized exchange, specifically a fork of Uniswap V2, that operates on the Metis Andromeda network. 

After providing liquidity on Netswap, you can provide your LP tokens on Beefy to automate rewards.

But as I’ve mentioned, we can put an extra layer on this strategy in order to minimize risks from a BTC price volatility. How? Buying a put option on a platform like Hegic.

A put option gives you the opportunity to sell a crypto asset at a specified price within a specified time frame. You’re basically betting in a price decrease, similar to a “short trade”. So in this strategy we’re adding the put option to hedge against the exposure to WBTC.

But you might be asking yourself: which is the yield considering all BTC possible scenarios (crab, up or down)? To answer that question, we’ve prepared a spreadsheet with all 3 scenarios covered. Duplicate and play with it as much as you want.

✅ Advantages of the farm: 

• Netswap, Beefy and Hegic are audited.

• The pool being composed of a stablecoin plus wrapped BTC gives participants reduced market exposure, being this one minimized by the option put strategy.

❗ Risks to keep an eye on:

• USDT is one of the most controversial stablecoins. Managed by Bitfinex, the crypto asset is the target of many US government investigations. So we don’t recommend this strategy if it means you’ll have to buy USDT.

• The pool on Netswap has a moderate amount of Total Value Locked (TVL), so one can assume the yield can drastically decrease from new pool entrants diluting farmers;

• If USDT was to lose peg, a user may lose a significant portion of their funds.

• This strategy involved 3 different protocols, meaning an increased overall risk.

All protocols involved have been audited, but there are no ultimate guarantees in DeFi. So, always do your own research, and never invest more money into any project than you can afford to lose. – DeFinn, Garrett

The Ethereum Name Service (ENS) is a blockchain-based distributed, open, and extendable naming system. The mission of ENS is to translate human-readable names like ‘Juliet. eth’ into machine-readable identifiers like Ethereum addresses, other content hashes, cryptocurrency addresses, and metadata. 

In other words, you can set up your name, nickname or business name as your Ethereum address! No more “copy and paste” all the time when you need to share or input your address.

Keep in mind that each ENS is unique, so make sure you guarantee your preferred names asap! ENS names are NFTs, so you can collect as many as you want.

What can DeFi and NFTs do for each other?

For many DeFi natives, the emergence of NFTs as a prominent use case for crypto has been surprising. Are pictures of cartoon monkeys really the best foot we can put forward for the promise of an open financial system? Do squiggly lines represent an upheaval in how society views property?

Yeah, probably. Cultural significance only has to make sense in context. If you’re ripping Bored Apes and Chromie Squiggles from context, then of course they will look ridiculous. But NFT communities also have their fair share of skepticism for DeFi. Won’t financialization corrupt the best parts of a cultural movement?

It’s worth understanding that financial innovation and art have historical precedent. We owe the Renaissance to a Florentine family hitting it big in textiles and then moving into banking. More recently, David Bowie famously securitized his album sales and unlocked the use of future revenue. With DeFi and NFTs operating on the same rails, their convergence is practically inevitable. 

So, how should we expect this trend to continue and what will succeed? DeFi tools that increase availability, movement, or unlock use cases for NFTs will lead to successful outcomes. NFTs can make DeFi more exciting, and DeFi can make NFTs more useful. For instance, NFTX are early pioneers of this concept. Revolutionizing the idea of making fungible the non fungible. This unlocks the availability and composability of DeFi for NFTs as an asset class – Nathan Howard (Head of business development – Indices at Scalara)

All info in this newsletter is purely educational and should only be used as research. DeFi Pulse is not offering investment advice, endorsement of any project or approach, or promising any outcome. This post is prepared using public information (which does not account for specific goals or financial situations) and links provided to third-party sites are for informational purposes. Such sites are not under the control of DeFi Pulse, so DeFi Pulse or the author are not responsible for the accuracy of the content on such third-party sites. Be careful and keep up the honest work!