How I'm doing some risk management with my $40,000 DeFi position.
I'm bullish, I love DeFi, but I don't always enter a position at the perfect time nor will I ever know when we have a black swan event.
So here's some things I'm considering with my current position on @katana.
To start, this is NOT FINANCIAL ADVICE at all. Just sharing what I have set up and some details that could be helpful.
For context, this position started off as 0.2553 wBTC, valued at ~$30,300, bridged over from ETH mainnet to @katana. The source we'll get into later.
So how is it possible that I have 0.456 wBTC deposited and a $40,000 USDC loan?
That's the first DeFi step and risk, loop staking on @MorphoLabs. Essentially, I deposited my wBTC, borrowed USDC,âïžswapped the USDC to wBTC and repeated the step a few times.
Why? More exposure to Bitcoin + Morpho is paying people to borrow money (-3% APY). The more I borrow, the more Morpho pays me in rewards or until the rates go positive. It's important to remember at which prices you swap your assets at. Mine was on average $120,000 BTC.
So how can you manage a medium-high risk position like this?
With the first âïž from above. The spare USDC from borrowing after the loops can be put in a stablecoin LP position on @SushiSwap. There are many that can earn you 15%-35% APY. This lowers risk because you will always have your loan ready to pay off in any market condition. This would leave you only worrying about the looped assets but that usually holds strong.
Also, converting your rewards to USDC help prepare you to pay off the loan.
However, that's not what I have set up đ.
I wanted a little more exposure to Bitcoin. So I'm currently in a USD/Bitcon LP. I chose this pool not only for the high APR, but that the setup can give me a slighter higher bet on bitcoin without basically looping again.
There will be impermanent loss in this pool but it actually helps. The price range I set my V3 pool is bitcoin's price of $110k-$124k. This means that that if Bitcoin hits $110,000, I will be all in Bitcoin and if $124k all in USD.
If Bitcoin were to dump to $110,000 I would at least have some bitcoin to add to my collateral to buy me some time. If it pumped to $124k, I would have stables to pay off the loan + extra.
So what are my helplines if the market goes down âïž
1. My LP pool will be in Bitcoin which I can add as collateral to lower my liquidation level
2. I have USDC parked and ready to deploy (not locked) to lower the loan amount
3. My rewards are converted to USDC daily for extra help
4. I can split the risk by borrowing from my safer positions (risky, image below)
5. I can purchase some USDC from my bank account and lower the loan (slow, not dependable process)
6. Pray. Or take the loss and sell some Bitcoin before liquidation.
If you've made it this far, congrats. I don't know if I would even read all that.
All of this to say, in DeFi it's very easy to get lost in the yield and so you need to think 5 steps ahead in case the market turns.
Let's hope for the $125,000 bitcoin and I'll switch my setupâïž
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