"Should I borrow $AVAX?"
HOWTO borrow, ... and be able to sleep at night.
An insane guide to borrowing and leverage by el geophf, an insane crypto space cowboy. 🧵
(it's more of a pensée than an HOWTO, but m'kay, fren).
Reasons to take a loan
Okay, first you have to figure WHY you're borrowing, eh? Because if you don't have the WHY then the answer is:
Don't borrow. Borrow entails risk. Your reward has to be worth more than risk.
So, let's go over a couple of viable (?) borrow-scenarios.
So: 2, no: 3, borrow scenarios come to mind if I were to borrow $AVAX:
- I'm making ~7% on @BenqiFinance: can I borrow and make more than that?
answer: hell ya, baby. In this market? I have protocols making a consistent 30-40% returns.
So I borrow $AVAX to fund those projects.
- I'm incentivized to borrow
This is the @anchor_protocol-thing: Terra incentivized borrowing (it was 105% $ANC yields on the borrow when I got in, folks).
NEWS FLASH: most money markets do this: @AaveAave, @GeistFinance, @GranaryFinance, ...
If you PAY ME, sure! I'll borrow!
- I want to short a crypto
Let's say I know $MIM is going to depeg, because my uncle told me, so it HAS to be true!
If I borrow $MIM at peg now, and borrow a lot of it, when it depegs to $0.01, I pay off the borrow at 1/100th of the price.
So. Yeah. A borrow is a short. Kinda.
- redux. $sFTMX loop – 'self-invest.'
- I supply $sFTMX.
- I borrow $FTM, swap to $sFTMX.
- I supply $sFTMX ...
... and loop. 11 times.
The intrinsic 4.7%-growth of $sFTMX vs. $FTM is leveraged 2, 3, up to 8.03x. So I'm making 30%+ NET on my $sFTMX principal, instead of 4.7%.
Wen Repay?
Okay.
- I've established I CAN borrow.
- I've established a REASON to borrow.
When do I repay?
- Never; or,
- when the loan becomes disadvantageous.
Since I never take a disadvantageous loan, my SOP is 1.
PAYING me to take a loan?
Yeah. 'Never' is most cases.
How to borrow
I've referenced @anchor_protocol. Did you cringe? You should have, because I'm still smarting from that debacle.
There was no saving us.
So, how to borrow: there're stupid ways and smart ways of borrowing assets.
Let's go over both.
The stupid way.
This is straight from financial advisor. He told me: "You don't borrow volatile assets against stable collateral. You don't borrow stable assets against volatile collateral."
Borrowing $UST against $LUNA and $ETH collateral?
That was stupid of me. Verra stupid.
Here's another thing you don't want to do: borrow a volatile against a volatile asset.
"I got all this $SOL at $36-per. I'll borrow some $ETH against it!"
NUPE!
Recent history has show that not every asset follows the same cycles, like, for example: $SOL.
The smart way.
So...
- You shouldn't borrow a volatile against a stable.
- You shouldn't borrow a stable against a volatile.
- You shouldn't borrow one volatile against another volatile.
...because all those approaches are stupid.
What does that leave us?
The smart ways to borrow.
Let's look.
Can you borrow anything, ... safely?
The answer is: hellz ya, baybee!
Let's go over a simple scenario.
I have, say $sAVAX-supply on @BenqiFinance, earning 2.6% APY and the intrinsic 7.2% staked APR.
I see the $USDC-pool on @FantomFDN @UniDexFinance is earning 36%.
I borrow $AVAX, (eventually) swap to $USDC and start earning 36% with the borrowed liquidity.
Why not just swap?
The swap works for most people. It works for me, too. But here's why not, in this case:
- I see $sAVAX growth. I want to keep that. A swap would give that away.
- I'm earning ~6% on my $sAVAX-supply / $AVAX-borrow; AND I'm earning 39% on my $USDC-pool. The borrow gives me both.
"The borrow gives me both."
Do I need to shout this from the roof-tops? Yes, I do, because if you got this, you wouldn't swap away an asset you want to keep.
THE BORROW GIVES ME BOTH!
In this case, it gives me 6%-growth (net) of $sAVAX AND 39% APR on the $USDC-pool.
There's another reason why I borrow against an asset: experimentation.
There's this sweet new protocol (uh, oh!) that's offering 4.6k% yield (uh, oh!) in their native token (uh, oh!)
One approach is to turn my nose up against this possible rugpull.
That's safe, but it also misses out on a money-printer.
Another approach is what I've done: borrow the seed amount, then pay back the borrow, completely, with that experiment's hyperinflated yields. When you pay back the loan, the experiment is free. Any extra goes to supply.
Does that always work?
HAHA! NO! Sometimes that experiment's money goes bye-bye! and I'm left with a borrow.
But I'm also left with my collateral.
AND my borrow, since I borrowed smartly, IS EARNING ME NET POSITIVE YIELD!
I funded an experiment with an interest-bearing bond.
Since learning that technique, I've funded all my experiments in this way.
Recently
- I've funded the @FantomFDN-experiment with $AVAX-loans
- I've funded this little experiment called @TeamKujira with $AVAX-loans
My 'interest-bearing bonds'-investments have done pretty well. 😎
And, let's not lose sight that these experiments are thriving, all the while the underlying 'bond' is earning me net POSITIVE 6% on the $sAVAX-supply / $AVAX-borrow.
Do you get it? An asset-asset pair forms a stable(-relationship).
I have created a new stable coin: sAVAX-AVAX.
It doesn't stop there.
- @GeistFinance funds the entirety of my @FantomFDN-portfolio with an $USDC-supply / $MIM-borrow (stable-stable) bond, earning 12%.
- which immediately funds my $sFTMX-supply / $FTM-borrow δ+ loop on @GranaryFinance, earning 24% FROM THAT 12%-YIELDING BOND!
All these self-loans – ALL of them – are either same-same asset in a δ+ or a stable-stable, ... in a δ+.
"in a δ+" means I have more supply than borrow. That means that if I get into a disadvantageous position ANYWHERE I simply unwind that loop, and the disadvantage evaporates.
How can I say that with confidence?
Because I've unwound disadvantageous positions more than twice, and the problem (negative APR) just simply went away: buhbai! Aw, don't leave angry, just leave.
It's that simple.
But guess what? Even though the disadvantageous loan evaporated, the experiments I funded with the borrowed funds? They're still there!
There's no salvaging failed experiments, of course, but the thriving experiments (uh: $FTM, uh: $KUJI) STILL THRIVE!
Folks, crypto in YOUR wallet is YOUR money, not a bank's, not the Gov't's.
That means if YOU want to create an interest-bearing bond, or a liquidity pool, or a treasury upon which you base your own $GEOPHF-token, the only person who can stop you from doing that is YOU.
HOWTO (finna!)
So!
"Where do I start o, guru, the el geophf?"
Great question.
Start smol. Start tiny-smol. Start stupid-teeny-tiny smol.
Create a loan with money you can risk (that you can say "buhbai!" to) as a LEARNING EXPERIENCE!
Learning experiences hurt, by the way.
Say you have $100 in liquidity you can spare?
('spare' is an euphemism for 'lose')
- Supply that $100 in a money market you want to try out or learn about.
- Borrow, say, $70 or $30 or whatever! and fund some experiment.
Learn to self-fund your own experiments. Smol.
This way, if the experiment fails, you're saddled with a loan. That's paying you net positive yields, right, because you borrowed smartly, right?
OR you can simply unwind that (δ+) loan, if it be disadvantageous, 'cuz you borrowed stupidly, and the problem simply evaporates.
But, let's say, against all odds, your experiment is successful and productive.
You fund it more, with just a tiny bit more.
And with that success, you fund a new experiment.
Successes build successes, then you end up with a portfolio where I'M learning from YOU now.
Do that.
