Introducing DeFi Strategies.

Explore investment strategies in Open Finance through a trading simulator.

I’m excited to share another educational resource that I’ve been working on to compliment DeFi product tutorials: DeFi Strategies.

Combining available DeFi products, DeFi Strategies helps you explore investment opportunities in Open Finance through hypothetical scenarios. See how your Gain/Loss could change with each strategy given different investment parameters (i.e. your hypothetical investment amount, forecasted ETH price, investment period, etc.)

Here’s how it works:

  1. Browse available investment strategies. I’m starting out with 3 basic strategies focused on Aggressive/Moderate/Conservative ETH growth and will be adding more as product tutorials are released. Each strategy consists of different ETH trade positions and how much of your investment would be allocated to each position. For example, Moderate strategy recommends you allocate 50% of your invested amount to ETH Long 2X Leverage position, 25% to purchasing ETH 20 Day Moving Average TokenSet and 25% to generating interest with cDai. You can click on each trade allocation to view available DeFi products and tutorials to execute selected trade.

  2. Right below trade allocations section, see what your asset exposure would look like if you invested $X amount using a particular strategy. For example, if current price of ETH is $200 and you invested $10,000 using Moderate ETH strategy, your resulting asset exposure would be 2,500 cDai (25% allocation to interest generation) and 50 ETH (25 ETH from 50% TokenSets allocation and 25 ETH from 20% allocation to 2X leverage position). You can change your hypothetical investment amount by clicking edit icon on top right.

  3. Next, see what your Gain/Loss would look like and how much interest would accrue if price of ETH reached $X amount within X number of days. You can edit your forecasted ETH price, leverage amount, interest rates and trade duration to see how they effect your Gain/Loss.

Keep in mind this is a MVP. I’m starting out with very basic strategies and parameters to play around with. Many UI changes to come based on your feedback so keep it coming!

Features I’m thinking of adding soon:

- Execute and manage multiple strategy trades in one 'bundled' transaction.

- More details on product pages, highlighting risks, comparing interest rates, liquidation price levels, and price slipages.

- Live product stats. Things like current lend/borrow interest rates for quick comparison.

- Compare Gains/Losses between investment strategies.

- Additional paramaters to simulate Gains/Losses.

- More interactive charts and explantions.

- Ability to create your own strategy.

- DeFi Glossary tab.

What would you like to see? Please let me know and I will add it.

If there's enough interest, DeFi Strategies will enable asset management tools that use a combination of Set, Compound, bZx and other applicable protocols to help end-users manage and execute strategy trades bundled as one transaction.

Furthermore, if there's enough demand after V1 for risk management tools, DeFi Strategies will implement Hedger which I am currently researching.

Hedger is a system of smart contracts that will allow anyone to write and settle covered options on Ethereum. Using Hedger, anyone will be able to insure their collateral against liquidation losses in case of unexpected market downturns. Premium rates incentivize liquidity providers to underwrite options and provide an alternative income to lending. Purchased options are 'tokenized' to keep track of buyers’ portions and can be traded on 3rd party exchanges like any other token. Writers' collateral is held in escrow in smart contracts and released to option token holders if exercised or returned to writers if expired.

Big questions right now are how to (1) price premium rates and (2) source liquidity. Ideal solution will involve a general liquidity pool (not P2P matching) with algorithmically derived premium rates based on demand for a particular strike/expiration combination.

DeFi Strategies is available by invite only for now. Get access by filing out a form here: https://defistrategies.com

Margin trading with Fulcrum.

Hands on tutorial using bZx's first user-interface.

DISCLOSURE: This is not investment advice. Please do your own research before investing. I am not affiliated, compensated or in any way associated with featured applications in my posts.


What is Fulcrum?

Fulcrum is a front-facing user application that interacts with bZx’s system of smart contracts to enable margin trading.

bZx is an open margin lending protocol on Ethereum. Learn more here: https://bzx.network/faq-fulcrum.html

Key features:

  • Open to anyone without registering for an account, just connect with a compatible Web3 wallet.

  • Increase your ETH exposure up to 4X.

  • DAI, ETH, WBTC, LINK, ZRX, REP and KNC tokens available although liquidity is not substantial for ERC20 tokens.

  • Your trades are tokenized and tradable just like any other ERC20 token.

  • Initial margin is determined by the leverage of the position you enter: 2x=50%, 3x=33%, 4x=25%. Minimum margin maintenance = 15%.

  • No platform trading fees, excluding Ethereum transaction costs.

  • Perpetual, no time-lock on trades.

  • Uses KyberSwap for trading liquidity and price feeds.

  • Margin monitoring and margin call initiation is open to anyone and callers receive a bounty for successfully executing a margin call.

  • The bZx team controls the interest rate model parameters, allowing the rates to effectively be set centrally. Although it is important to note that the team can't alter existing rates once a trader has entered a position. According to Kyle Kistner from bZx, there are plans to have the rates tuned algorithmically and to have token holders be able to tune the parameters of the algorithm.

Who is this for?

People who are seeking high growth potential but willing to accept substantial market volatility. To learn more about margin trading view the beginning of my dYdX tutorial.

Fulcrum tutorial overview:

  • Test date: September 16, 2019.

  • Trade type: ETH LONG 4X Leverage.

  • Collateral amount = 0.10 ETH

  • Buying transaction cost at the time of the trade = 0.0311287004 Ether (or $5.98)

  • Selling transaction cost at the time of the trade = 0.008316957 Ether ($1.65)

  • Gain after ~$7 ETH price rise = 0.00565 ether (excluding eth transaction fees)

  • Summary: as you can see my Ethereum transaction fees ended up being > my gains from the trade because I used such a small amount for my test. I increased my transaction fees in order to process my trades faster. Important thing to keep in mind is that this transaction fees do not depend on my trade amount. I would’ve incurred the same fee trading 100 ETH. Although larger amounts start experiencing higher price slippage. Some UI elements could be improved for end users as mentioned in Step 3 below.


Pre-requisite: Deposit ETH or DAI into your Metamask, or another compatible wallet (view Compound tutorial to learn how to set up Metamask).

STEP 1: Visit https://fulcrum.trade/#/trade and connect your Metamask wallet.

  • What does this do? Designates which wallet address you will use for trading.

  • Smart contract interaction(s): NONE

  • Total gas cost: NONE

STEP 2: Select your desired leverage and buy amount.

  • What does this mean? Your leverage amount (2x/3x/4x) is essentially your asset multiplier. For example, if you have 1 ETH available in your wallet you can buy up to 4 ETH if you choose 4x leverage. But keep in mind the higher your leverage, the higher your liquidation price.

  • Quoted ETH price = $190.72

  • Quoted liquidation price = 166.46 (given 4x margin,if ETH price drops to this amount, your position will be automatically sold to cover your losses + any liquidation penalties.)

  • Quoted Annual Interest Rate = 15.6% (interest you pay on borrowed funds for your margin trade. For example, if you place a 4X margin trade with 1 ETH collateral, you will pay interest on the 3 ETH borrowed for the duration of the trade.)

STEP 3: Click ‘Buy’, confirm your trade with Metamask signature and wait for the transaction to settle on Ethereum.

  • Note: By default Ethereum transaction was taking a long time to settle so i sped up the transaction through Metamask by increasing maximum fee allowed.

  • UI recommendation:

    When viewing my current position, it would be nice to see trade open price and how much interest is currently owed on the margin.

STEP 4: Closing your position.

  • Gain after ~$7 ETH price rise = 0.00565 ether (excluding eth transaction fees).

  • Selling transaction cost at the time of the trade = 0.008316957 Ether ($1.65)


I’m excited to share another educational resource that I’ve been working on to complement DeFi product tutorials: DeFi Strategies.

Combining available DeFi products, DeFi Strategies helps you explore investment strategies through hypothetical trading scenarios. See how your Gain/Loss could change with each strategy given different investment parameters (i.e. your hypothetical investment amount, leverage, forecasted ETH price, investment period, etc.).

DeFi Strategies is available by invite only for now. Get access by filing out a form here: https://defistrategies.com

Automated Asset Management with Set Protocol.

Learn how to obtain baskets of tokenized assets that automatically rebalance based on a strategy of your choice.

DISCLOSURE: This is not investment advice. Please do your own research before investing. I am not affiliated, compensated or in any way associated with featured applications in my posts.

Special thank you to Anthony Sassano for providing valuable feedback on this tutorial.

But the biggest thank you goes out to all of you subscribing to updates. I’m honestly speechless from such a positive response. It seems like a lot of people want to ‘test drive’ new DeFi products through tutorials before playing with real money. I started making these tutorials to:

  1. Highlight new opportunities & risks involved.

  2. Build up an independent ‘Dapp UI auditing process’ which makes sure front-facing applications are transmitting users’ intended transactions to smart contracts.

If you are interested to get to know me a little better, I added ‘about’ page to the website: https://defitutorials.com/#about


Set Protocol: https://www.setprotocol.com/
TokenSets: https://www.tokensets.com/
White-paper: https://www.setprotocol.com/pdf/set_protocol_whitepaper.pdf

What is Set Protocol?

Set Protocol is a system of smart contracts developed by the Set Lab team and deployed on the Ethereum blockchain. Using this system developers can create “Sets” which are tokenized baskets of assets (e.g. 60% Ethereum + 40% Bitcoin) that are automatically rebalanced (bought & sold) based on any number of programmed conditions (e.g. Moving Averages, Bollinger Bands, RSI). Set Protocol is providing key building blocks that enable anyone to create their own ETF, hedge fund, robo-advisor, and other completely new products.

The protocol is open (anyone can create and deploy Sets), non-rent seeking (no fees for creating / buying / selling of Sets), and currently supports 4 assets: ETH, DAI, USDC and Wrapped Bitcoin (WBTC).

Set Protocol intends to begin with a centralized governance in the early days and shift over time to a community-based governance system. Even though smart contract code gets regularly audited by 3rd parties, new bugs might get discovered after the contracts have been deployed to the public. Essentially the team wants to be able to intervene in case critical vulnerabilities are discovered in faulty smart contracts.

TokenSets is the first front-end application built by the Set Lab team to help users interact with the Set Protocol smart contracts. To start, the team composed a couple of Sets defined by some popular trading strategies which are represented as ERC20 tokens on the Ethereum blockchain. These strategies are displayed on TokenSets website for end-users to browse and purchase (more details about available strategies during the tutorial below). TokenSets is just one example of what developers can build using Set Protocol.

Why is this special?

As mentioned in our ‘Intro to DeFi’ post, blockchain technology is doing to finance what the internet did to the media by democratizing the creation of new financial instruments.

Financial entrepreneurs of tomorrow are building open alternatives to traditional asset management products, and creating entirely new use-cases where back-end operations are handled by Set + other viable protocols.

Walk-through using TokenSets:

Prerequisites: In order to start using TokenSets you will need ETH to purchase Sets. Go over steps 1-5 in our Compound tutorial to learn how to set up your wallet and purchase ETH.

  1. Visit https://www.tokensets.com/explore, sign in using your wallet and start browsing available trading strategies.

  2. Set Protocol’s team made some great educational content to help you better understand each strategy. Visit https://www.tokensets.com/strategy/moving_averages to learn about ‘Trend Trading Sets’. To sum up:

    • Sets are ERC20 tokens that represent a claim on the underlying assets composing each Set.

    • Each Trend Trading Set is composed of either 100% the target asset (e.g. Bitcoin, Ether) or 100% a stable asset (e.g. USDC, Dai) at any given point based on the implemented strategy (e.g. Moving Averages) that indicate when to enter and exit a position. 

    • A set amount of time has to pass in between rebalances.

    • Currently there are 2 Trend Trading Sets available on TokenSets and they are both based on Moving Averages.

    • Each Set has a dedicated page to view set’s historical performance, underlying asset allocations, next rebalance criteria, and other key facts.

    • ETH20MACO / ETH50MACO Sets automatically trigger rebalances when the price of ETH crosses the 20 / 50 Day Simple Moving Average. For example, as of this writing the ETH20MACO Set is composed entirely of USD because all underlying ETH was converted to USD during the last rebalance on August 9th when ETH breached it’s 20 Day SMA. So if you were to purchase this Set right now with 10 ETH, your 10 ETH would be immediately converted to USD and held until ETH crosses 20 Day SMA again (~$192 and moving down).

    • Keep in mind the network fee is not based on the value of your transaction, it’s dependent on how congested the Ethereum network is at the time of the Set minting. In my case the network fee turned out to ~$1.40

  3. Range Bound Sets automate buying when prices go down and selling when prices go up to  capture local maxima and minima. The ETH High Volatility Set automatically rebalances cash (DAI) into ETH if the price of ETH drops more than 50% and ETH into cash (DAI) if the price of ETH rebounds more than 40%.  For example, if you were to purchase this Set right now with 10 ETH, half would be kept in ETH while the other in DAI (as shown in the ‘Underlying Assets’ section on https://www.tokensets.com/set/ethhivol).

  4. Buy and Hold Sets automatically rebalance underlying assets to maintain a fixed ratio over time. When you buy the BTC ETH 75% / 25% Weight Set, your assets are allocated at 75% BTC / 25% ETH and rebalance every month to maintain the 75% BTC / 25% ETH target allocation.

  5. What happens after you purchase a Set?

    • Follow your Set’s ‘Next Rebalance’ section where you will see which criteria still need to be satisfied to initiate a rebalance.

    • Once the Rebalance is ready the Set enters the proposal period, a grace period where Set token holders can review the proposed rebalance parameters and either opt in - letting the system automatically adjust your underlying assets based on proposed rebalance.

    • Alternatively, if you do not agree with the proposed rebalance, you can opt out by redeeming your Set tokens for your underlying assets BEFORE rebalancing phase begins. 


  • If you are interested in building asset management products using Set Protocol visit their developer portal to learn more: https://docs.setprotocol.com/


MADE BY NODAR JANASHIA (@NODARJ)

If you want to take DeFi Tutorials to the next level, I’m excited to share another educational resource that I’ve been working on: DeFi Strategies.

Combining available DeFi products, DeFi Strategies helps you explore investment strategies through hypothetical scenarios. See how your Gain/Loss could change with each strategy given different investment parameters (i.e. your hypothetical investment amount, forecasted ETH price, investment period, etc.). Learn more here: https://defistrategies.com/

Learn more about Defi Strategies


Dharma V2 Beta - First Look.

Built on Compound, the new Dharma enables anyone to earn interest.

DISCLOSURE: This is not investment advice. Please do your own research before investing. I am not affiliated, compensated or in any way associated with featured applications in my posts.


After launching as a peer-to-peer lending protocol in mid-2018, Dharma received lots of feedback from users and most were asking for instant interest returns withdraw-able at anytime. Unfortunately, the order-based, peer-to-peer protocol they’ve built up to that point had too many design constraints to execute their new vision. As a result the Dharma team decided to leverage the Compound Protocol as a foundational layer instead, putting full focus on designing the best user experiences.

You can think of Dharma V2 as an alternative front-end interface for simplifying interactions with Compound’s smart contracts. Seasoned DeFi participants might not find this too valuable as you are able to perform the same tasks directly on Compound’s interface but I believe Dharma is targeting new / casual investors who prefer simple, one-button solutions.

Warning: “The initial version of the product is intermittently custodial — if Dharma were to get hacked or go rogue, your funds could be compromised. Users will be transitioned to the non-custodial, 2-of-2 multi-sig wallet system in the coming weeks by default, but this is the nature of the system today — buyer beware!”

Walk-through tutorial:

  1. Visit https://beta.dharma.io and log in.

  2. Click Deposit Dai, copy the deposit address, send some Dai and watch the interest pile up .

  3. Even though the process of depositing DAI/USDC to start earning interest is simple, the main hurdle for many new users is purchasing that DAI/USDC to make a a deposit in the first place. Dharma should focus on building seamless fiat-crypto onramps where users simply connect bank accounts and start earning (using Wyre integration perhaps?).


MADE BY NODAR JANASHIA (@NODARJ)

If you want to take DeFi Tutorials to the next level, I’m excited to share another educational resource that I’ve been working on: DeFi Strategies.

Combining available DeFi products, DeFi Strategies helps you explore investment strategies through hypothetical scenarios. See how your Gain/Loss could change with each strategy given different investment parameters (i.e. your hypothetical investment amount, forecasted ETH price, investment period, etc.). Learn more here: https://defistrategies.com/

Learn more about Defi Strategies

Margin trading using dYdX Exchange.

Increase your exposure to Ethereum up to 4 times.

DISCLOSURE: This is not investment advice. Please do your own research before investing. I am not affiliated, compensated or in any way associated with featured applications in my posts.


“Buying the dip?”

In our last post we discussed earning passive income by supplying liquidity with Compound. This post is about margin trading which is the opposite of passive as it involves a lot of risk, especially given crypto market volatility. Make sure you do additional research before making any investments.

So what does margin trading mean exactly? Say you deposited $200 into Coinbase and bought 1 ETH. Now you can use this 1 ETH to initiate a 4x long margin trade on dYdX, giving you exposure to 4 ETH instead of 1. Of course this comes at the expense of interest owed on a 3 ETH loan based on how long your trade lasts and at the risk of getting liquidated in case the price drops to a set liquidation price.

For example, say you have 1 ETH with current price of ETH @$200 and you want to initiate a 4x long margin trade (buy $800 worth of ETH). If you do this your liquidation price will be around $170 - which means that if the price drops to $170 your 1 ETH collateral will be automatically sold at market price ($170) to cover the losses from your liquidated margin position (4 X -30 = -$120) PLUS a 5% liquidation fee, leaving you with less than $50 (1 ETH sold @ $170 - $120 loss - 5% liquidation fee).

Alternatively, if the price goes to $230 you will gain ~$120 (minus interest) which is a 60% gain on your $200 investment as opposed to $30 (or 15%) if you simply held 1 ETH on Coinbase.

dYdX Exchange walk-through tutorial:

  1. Deposit ETH or DAI into your Metamask wallet (view previous tutorial to learn how to set up Metamask).

  2. To use dYdX Exchange you do not need to sign up for an account or wait for your deposits, simply visit https://trade.dydx.exchange/ and connect with your Metamask wallet.

  3. From the left, select LONG and choose your leverage amount (keep in mind the higher your leverage, the higher your liquidation price). You will see your liquidation price change as you switch between 1.5X / 2X / 3X / 4X.

  4. Enter the amount of ETH you wish to buy on leverage. If you click MAX under ‘Amount’ the system will calculate your maximum available purchase amount, given your leverage. For example, if you have 1 ETH in your Metamask wallet, select 3X Leverage and click MAX, the system will fill in 3 ETH under ‘Amount’.

  5. Click ‘Place Order’ and within a few seconds a Metamask notification should appear to approve your trade. Click ‘Confirm’ and wait for your trade to clear as a transaction on the Ethereum blockchain. You can even watch it get executed on Etherscan. As mentioned, you do not need to sign up or go through any verifications in order to start trading on dYdX because all operations, including custody of your assets, are handled by Ethereum. dYdX is essentially a system of smart contracts built on top of Ethereum with a UI to help end users like us interact with these smart contracts.


NODAR JANASHIA (@NODARJ)

If you want to take DeFi Tutorials to the next level, I’m excited to share another educational resource that I’ve been working on: DeFi Strategies.

Combining available DeFi products, DeFi Strategies helps you explore investment strategies through hypothetical scenarios. See how your Gain/Loss could change with each strategy given different investment parameters (i.e. your hypothetical investment amount, forecasted ETH price, investment period, etc.). Learn more here: https://defistrategies.com/


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