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Staked Ether (ETH), Liquid Derivatives — A whirlwind of arcane jargon for smart contracts and blockchain. Nevertheless, there are several paths through the wilds of ETH staking.
But remember, as the poet Antonio Machado said, “There are no roads. Roads are made by walking.”
Let’s start with the first personality type and appropriate ETH stake type.
Cow: slow and steady
Bulls typically have strong and dependable personalities, but can be stubborn and suspicious of new ideas. If so, you may be interested in staking directly with Lido. I can’t.
Lido Finance is not only the largest Liquidity Staking Derivatives (LSD) protocol, it is currently the largest Decentralized Finance (DeFi) in the market in terms of total locked value ($9.5 billion) and market capitalization. protocol. Lido takes your ETH, stakes it through a team of vetted validators, pools the revenue earned and distributes it to validators, decentralized autonomous organizations (DAOs), and investors. increase.
Related: 3 Tips For Trading Ethereum This Year
In return for providing ETH to Lido, the DAO will issue “stake ETH” (stETH) tokens. This is like a receipt (or “liquid derivative”) that can be redeemed for the original ETH and the yield that is accrued. These tokens can be traded on the open market along with other LSD protocol tokens such as Rocket Pool and StakeWise.
The risks include the possibility that the smart contract holding ETH has an undiscovered bug, the DAO could be hacked, or one or more of Lido’s validators could be penalized by Ethereum and some of their stake Including the fact that it may be deleted. All of the strategies below include these risks and many more.
Dog: Honest, cautious, and a little energetic
If that sounds like you, look into an autocompounder. For example, add liquidity to Curve Finance and lock up liquidity pool (LP) tokens.
I like to use Frax-based tokens when using Curve. This is because the two protocols clearly favor each other, and Frax pools often get the highest rewards. I staked a portion of my ETH in Frax and received an LSD called Frax ETH (frxETH).
Maintaining a highly liquid market for frxETH is in Frax’s interest, so in addition to the fact that FrxETH is earning similar yields, Curve operates an LP that offers up to 5.5% APY. I’m here. good.
However, part of this APY will be paid in CRV tokens. No shade, but I’d rather have ETH, so I jumped on Aladdin DAO’s Concentrator protocol and handed them his LP token. This is like a receipt for shares in the frxETH/ETH pool. They do some magic and return his 8% APY paid on the underlying assets. good.
Naturally, when you mix DeFi protocols into a nasty money cake, risk is compounded with yield. There are three protocols involved here instead of one, so the risk could be tripled, but I’m no mathematician.
The Tiger: Smart, sophisticated and always in control
This is probably the most sophisticated strategy on the list and should be considered by experienced investors preparing large sums of money.
Basically, tigers can use similar strategies as dogs. In fact, there are many LP pools and compounders in the DeFi world, so finding a fit should not be a problem. The problem for tigers is how to hedge the risks.
Some option contracts may be on track. The basic approach is to buy enough in-the-money put options to act as insurance in case ETH crashes. Given that stETH tends to hold its peg, this may be all you need as the risk of temporary losses is low. (For those who want to hedge depeg events, check out the Y2K protocol on Arbitrum.)
A more optimal strategy is the “bear call spread”. This is because it not only guarantees depreciation but also provides some profit in a flat market.
The Frog: Airdropped Ponzi Lovers
The following strategy is very popular in several sections of the crypto world.
This includes “loops”. This means supplying an asset, borrowing against it, exchanging the borrowed money for the original asset, and repeating the process.
Related: 5 tips for investing during a global recession
From my own research, depositing wstETH (which is the same as stETH but with a tighter peg) yields a yield of around 2%, on which yield farms can borrow USD Coin (USDC) at 3.5% interest. I found
You can then exchange your USDC for more wstETH and repeat the process using a 75% loan-to-value ratio so you are not liquidated immediately. Looping this process 5 times would result in 5% APY over 13% on wstETH itself.
Whatever your personality, it is possible to find a strategy that works for you. Having your own decentralized wallet or one on an exchange might sound complicated, but most of them can be done with just a few clicks. While we may condemn the continuation of conventional risk-taking, we believe that the LSD trend is part of the birth of a new yielding asset, ETH.
One day, stETH may even rival the traditional bond market. After all, if governments can basically run a trillion-dollar economy as a derivative of their own bond market, what would a few validator nodes be among our crypto friends?
Nathan Thompson Bybit lead tech writer. He spent his decade as a freelance journalist, mostly covering Southeast Asia, before turning to cryptocurrencies during the COVID-19 lockdown. He holds a Joint Honors in Communication and Philosophy from Cardiff University.
This article is for general information purposes and is not intended, and should not be construed as legal or investment advice. The views, thoughts and opinions expressed herein are those of the author and do not necessarily reflect or represent the views or opinions of Cointelegraph.