How traders use DeFi to profit in any market


In the last few weeks, the cryptocurrency market has shown some signs of slowing down, leaving some to speculate that the bull run might be inching towards its conclusion.

While that sentiment is still up for speculation, savvy traders are already using the full breadth of the DeFi market to not only protect their portfolio but also turn a potentially impressive profit while minimizing risk.

Here, we take a look at some of the ways traders are using DeFi to stay on top of the market.

Decentralized Options Are Blowing Up

Cryptocurrency trading is big business for many savvy traders since the average cryptocurrency value has exploded by more than 800% in the last year alone.

However, though the vast majority of cryptocurrencies have ballooned in recent months, there are plenty of assets that haven’t experienced such impressive growth, while others have actually lost value. Likewise, it is widely agreed that the current bull run isn’t likely to last forever and that there will, at some point, come a period of potentially equally dramatic decline.

But what do DeFi traders do, given this knowledge? Well, many have begun turning to decentralized options — i.e. a type of derivative contract that allows users to easily go long on an asset (profit when it appreciates) or short it (profit when it declines).

Decentralized options trading was a pipe dream for a long time, but recent advances have now made it not only possible — but potentially better than centralized options trading in many cases.

Premia, one of the most advanced DeFi options trading solutions, is quickly gaining popularity among traders looking to either hedge their positions using options, or simply profit when a cryptocurrency dips or crashes. This, because Premia allows users to create their own custom options contracts for a wide array of supported assets, who can also trade them on its decentralized options marketplace.

This can include buying put options of assets they believe will decline in value by the maturity date to turn a profit. This essentially doubles the number of trading opportunities for investors, who can use options to turn a profit both on appreciating and declining assets.

Yield Farming to Stay Afloat

Yield farms have become an incredibly popular way to turn a profit, regardless of the surrounding market sentiment. This is because many yield farms pay out an extremely high APY, which though might be lower in a declining market, is still usually far beyond what one would earn in a simple savings account.

But these can be even more profitable when leveraging the benefits of compound interest.

Now, many investors know that compound interest is their friend. After all, by investing $1,000 into a fixed 10% APR savings account for 10 years and compound the interest, it’s possible to make a total of more than 170% interest in a decade — compared to 100% without compounding.

However, the vast majority of yield farms do not offer automatic compounding, and with transaction fees on Ethereum now sky-high, it can be costly to manually reinvest the interest. But solutions to this issue are now being rolled out, with the first wave of auto-compounding yield farms.

PancakeSwap is arguably the most prominent example, given the fact that it’s by far the most popular DeFi app on Binance Smart Chain. Though the platform offers a massive array of yield farms, the automatically compounding CAKE yield pool best demonstrates the power of compounding.


As of writing, the automatically compounding CAKE yield pool generates an APY of 137.5% APY whereas the manually compound option generates 88.2% APR. This massive difference comes down to the fact that it’s automatically compounded hundreds of times per day to maximize the yield.

Traders are now using yield farms like this to buffer themselves against possible losses and maintain a more stable return on their assets, regardless of the market conditions.

A Stable Yield

Stablecoins have long been a go-to safe haven for cryptocurrency investors looking to either temporarily or permanently exit volatility, or to preserve the value of their assets in a declining market.

But until only recently, that’s all they were good for. Like regular fiat currencies, most stablecoins were still prone to depreciation due to the reduced purchasing power of the assets they were backed by or pegged to — typically the US dollar.

That’s now changing. The last year has seen the advent of what many describe as the first yield-bearing stablecoins, which provide users with relatively risk-free returns simply by minting or holding stablecoins.

BXTB’s CHIP stablecoin solution is perhaps the best-known yield-bearing stablecoin. Unlike regular stablecoins which are either algorithmically stabilized or fiat-backed, CHIP actually derives its value from other stablecoins. To mint CHIP, users need to mine (or buy) BXTB and then combine it with a popular stablecoin such as Tether (USDT) to create yBXTB + CHIP stablecoins.

The CHIP stablecoin remains pegged to 1 USD and can be used and spent like any regular stablecoin, whereas the yBXTB can be held to generate a yield from CHIP transaction fees. Meanwhile, the CHIP can be converted back into the underlying USDT whenever the user wants.

So-called ‘yield-bearing’ stablecoins are becoming increasingly popular among the more risk-averse cryptocurrency investors, who want to generate a yield without taking on the risks of holding volatile assets.

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