As a bear market looms in the crypto space, there are still ways to thrive in a volatile and slow market. This is not going to be a “YOLO 100x, Lambo, get rich quick” strategy or financial advice. If that’s what you’re looking for, you’ll need to look elsewhere. Instead, this is an educational article on how to navigate the market using stablecoins.
We’ll mainly focus on USD-backed stablecoins since they are the most popular and are accepted in most centralized and decentralized exchanges and chains. Interest rates and rewards will vary depending on your chosen platform.
- Earn Interest Through Lending
This is the most basic and easiest to understand strategy for anyone starting out in the DeFi space. You deposit your stablecoins, and the protocols lend them out to other users. You’ll earn an interest rate that you share with the platform. Several decentralized platforms like Aave, Compound, Venus, and Maker offer these services. Centralized exchanges like Kraken and Binance provide similar options.
- Yield Farming
A few years ago, we published a full article on Yield Farming (link available). When providing liquidity to exchanges with stablecoins, the pricing should remain relatively stable at $1 or $0.99. However, depending on the stablecoin you’re using, you could be subject to impermanent loss, which occurs when the value of assets in the pool changes significantly. While this shouldn’t happen frequently with stablecoins, it remains a possibility.
- Staking
Some protocols offer stablecoin staking in exchange for rewards, often in the form of their native token, to maintain TVL (Total Value Locked) in their treasuries. Before staking, thoroughly research the platform you’re considering. Some platforms could be fronts for Ponzi schemes and rug pulls, or they might be vulnerable to hackers if not properly secured.
- Arbitrage Trading
The concept is simple: take advantage of price differences for stablecoins across different exchanges. Buy low on one platform and sell high on another to profit from the spread. However, this is quite difficult and risky in practice. You need to pay very close attention and act quickly when prices change, as differences could range from 3 cents to as little as 0.001 cents. This is primarily a volume play, only generating significant returns with substantial capital. Additionally, you’ll be competing with thousands of trading bots and high-frequency traders.
- Crypto Savings and Trading
Some platforms operate like banks, offering modest interest rates for crypto custody. However, several companies have failed catastrophically, leaving customers unable to access their funds and waiting years for bankruptcy courts to return partial amounts, as seen with Celsius and BlockFi. This approach requires trusting that the institution won’t fail. Alternative options include trading stablecoins on platforms like Curve, but you’ll face similar challenges to arbitrage trading.
- Algorithmic Stablecoin Strategies
This is the riskiest strategy as it involves stablecoins not backed by US dollars or other assets, relying solely on financial mechanisms. The Terra Luna stablecoin collapse a few years ago caused one of the biggest financial disasters in the crypto industry. While these platforms may offer high yields, you risk losing everything if the token depegs from its target currency.
While additional strategies exist, always conduct thorough research and experiment cautiously. Never invest money you can’t afford to lose. These approaches can provide modest gains in a bear market, but they’re not “set it and forget it” solutions. Regular monitoring and knowing when to exit are essential.
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