A simple guide to making your APY 300% and higher

Image for post

We will announce the details of the HodlTree token Liquidity Mining pilot on Monday 21 September!

HodlTree will grant $HTRE rewards to farmers who contribute liquidity to the HTRE/USDC pools on Uniswap and Balancer. Our goal is to understand how effective liquidity mining is in reaching a wider distribution of tokens and community involvement in the protocol governance & activity in the future.

Our pools:
[Uniswap Pool]
[Balancer Pool]

20%+ for lenders & 0% for borrowers. Is it possible? Absolutely

In traditional finance in order to be a successful market maker you need significant funds, technical equipment, specialized knowledge, connections with exchanges to get rebates and much more. Unfortunately, all of those factors still cannot guarantee that you will succeed in your work. Would you believe that in a world of negative rates, it is possible to raise your APY up to 300% and more without having an army of highly experienced traders, special connections and a degree in finance?

The ongoing development of decentralized finance continues to push the boundaries for retail traders. Most of the people have not yet realized it, but the reality has changed. Among many up-and-coming opportunities of the decentralized finance world there are two that can change the market-making algorithm significantly. The Balancer and adding inverse Tokens to a pool are two game-changers, that can boost your profits.

The emergence of various decentralized projects opens up unique opportunities previously unavailable to retail traders.

Turn your losses to profits

One of the main reasons of losing trading strategies is fees. Trading commissions, with all their external insignificance, are one of the greatest sources of negative expected value. One of the ways to solve this issue is suggested by the recently launched DeFi project — The Balancer.

The Balancer allows any user to create their own portfolio of up to 8 tokens, which will automatically rebalance them in the specified proportion. The best thing about it is that when you get your portfolio rebalanced, not only you don’t pay any fees, moreover — you get trading fees. You set the commission level of your pool, while creating it. You can read more about how it is achieved on the Balancer website.

To put it simply, market makers are trading participants who make money from the volatility of traded assets by buying lower, selling higher and hedging the overall position to reach the delta-neutral position. The higher the volatility of the traded asset is, the more income the market makers earn. An ideal scenario for them is the high volatility of an asset within a small range.

Placing several tokens on the Balancer pool you receive income depending on the difference between the assets traded and the overall volatility relatively to each other.
For example, you have placed 50% ETH and 50% DAI on the Balancer pool.
The pool will automatically rebalance your assets to meet the given proportions. If the price of ETH rises, the pool will sell part of the ETH for DAI and vice versa to bring the ratio to the initial 50% ETH and 50% DAI. Accordingly, the higher the volatility of Ethereum is, the more you earn on commissions.

Make a step further with inverse Tokens

If your benchmark is $ and you do not want to lose in them, then the pool, described above, contains the high risk of losing value, if the ETH price goes down. Thus, if you don’t want to lose in value of your portfolio in $, you can compose it from various Stablecoins. For example, 50% DAI and 50% USDC. The total value of your portfolio will be stable. But this type of pool will also have a big flaw as DAI and USDC are theoretically tied to the value of the dollar. They almost do not fluctuate relatively to each other and your total income from the traded volume will be very low. For example:


Image for post

The total volume of locked liquidity in this pool is $2.46M and the total daily volume is $297K.

Fees = 0.0005%  
~$148.5*365=~$54202 per year
54202/24600=~2.2% APY

In a world of negative rates, 2.2% APY is already nice, but it would be so much better if we could get more. Therefore, the ideal MM pool should have a maximum volume and be delta neutral. Seems impossible, but actually it isn’t.

Theoretically, the maximum volume in the Balancer pool can be achieved, if it contains two types of assets with a negative correlation. Having a positive correlation, the delta between assets will be negligible. Long story short, a negative correlation is when assets move in the opposite direction.

For example, it can be described as follows:

You created a Balancer pool with two tokens: 50% Token1 and 50% Token2 (Inverse to Token1).

  1. The initial price of Token1 and Token2 is equal to $500, the total pool amount is $1000.
  2. The price of Token1 goes up by 10%, then inverse Token2 goes down by 10%. Consequently, the price of Token1 will be $550 and the price of Token2 will be $450.
  3. The pool will align the ratio to the original 50% Token1 and 50% inverse Token2. The Balancer will have to sell part of Token1 for $50 and buy part of Token2 for $50. The total volume will be $100 what will be equal to the total volatility of the Token1. The total value of the pool will also be $1000. Plus swap fee.
  4. The price of Token1 goes down by 10%, then inverse Token2 goes up by 10%. Consequently, the price of Token1 will be $450 and the price of Token2 will be $550.
  5. The pool will align the ratio to the original 50% Token1 and 50% inverse Token2. The Balancer will have to buy part of Token1 for $50 and sell part of Token2 for $50. The total volume will be $100 what will be equal to the total volatility of the Token1. The total value of the pool will also be $1000. Plus swap fee.

Image for post

Thus, composing a Balancer pool of two tokens (Token 50% & Inverse Token 50%), one which is inverse to the first, we will get the opportunity to receive trading fees for all volatility, including the intraday and keep the delta neutral position in dollars. Taking into account the high volatility of cryptocurrencies, the amounts of trading fees will be very attractive.

To do this you will need an inverse token and I will make you happy by saying that one already exists.

There are solutions from Synthetix.


Watch out, An example of how iSynths work

Also, an excellent project from UMA has appeared on the market. UMA is designed to power the financial innovations made possible by permissionless, public blockchains, like Ethereum. Using concepts borrowed from fiat financial derivatives, UMA defines an open-source protocol that allows any two counterparties to design and create their own financial contracts. But unlike traditional derivatives, UMA contracts are secured with economic incentives alone, making them self-enforcing and universally accessible.

Use it wisely

Balancer pool example:


Image for post

YFI 50% — WETH 50%

Despite the fact that ETH is not inverse to the YFI, the daily turnover can easily reach 50–60% and more. If there was an inverse YFI, then the daily turnover would easily be more than 100%. With a trading fee of 1%, this is a whopping 365% APY. Also, you could make reinvesting and achieve much higher APY.

And the best part is that The Balancer distributes its tokens to liquidity providers. To do this, the tokens must be in the whitelist. You can check the return on providing liquidity here:

Thus, having the return on volatility and on providing liquidity to the Balancer pools, you can easily get two three-digit profitability figures.

We Are HodlTree

HodlTree is a second-generation decentralized lending protocol.
Our mission is to provide significantly improved interest rates for lenders, with a targeted rate of 8 to 20% APY, and a zero interest rate for borrowers.

We are waiting for your feedback. Visit our website, find us on Telegram or follow us on Twitter (@hodltree) — we’d love to share our DeFi insights (#DeFinsights) and to hear your thoughts.

Stay tuned
Twitter Telegram

Azamat Malaev Co-founder of HodlTree


The Content is for informational purposes only, you should not consider any such information or other material as legal, tax, investment, financial, or other advice.

Rebalancing will depend on the activity of the arbitrageurs
In the case of a directional intraday trend, the value of the portfolio may change.