Over the last few months, several crypto-platforms have gone bankrupt, unable to fulfill their payout promises. Several of them did not practice asset segregation and invested their customers' assets in ways they weren't supposed to.
As a result of these grave misconducts, people are wondering how crypto yield protocols can be used without entrusting private keys to a centralized entity, yet retain access to funds 24/7 365 days a year.
This is where the DeFiChain wallet comes in. It’s not only a highly secure wallet where you own the private keys, but it’s also the gateway into the DeFiChain ecosystem, with investment opportunities far exceeding those offered by centralized custodians. Currently, you can e.g. get 10%+ on your Bitcoin holdings by setting up a vault and taking out a loan. Let's take a look at how this strategy works.
Step 1: Download the DeFiChain app and transfer in some DFI
To get started, download and install the most recent version of the DeFiChain wallet mobile app. In contrast to the DeFiChain desktop wallet, the noncustodial mobile app runs using the Ocean infrastructure, enabling it to operate faster without having to host a full node. However, if you have some coding experience, you can also use the console on the desktop wallet. Don't forget to write down your seed phrase and store it somewhere safe.
The next step is to transfer some DFI into your DeFiChain wallet. To do this, open the app and click on the >>receive<< button to get your DeFiChain address and copy it into your clipboard.
Now head over to one of the many exchanges where you can purchase DFI. The full list of exchanges can be found here.
Last but not least, go to the respective platform's spot exchange and purchase the amount of DFI you want to invest. After buying DFI, withdraw it to the DeFiChain wallet address you've copied to your clipboard. The DFI should appear in your DeFiChain wallet within a few minutes.
Step 2: Create a vault and fund it
In essence, vaults are places where you can store coins, with the additional benefit of being able to use them as collateral for loans in the form of dTokens. In this blog post, we explain how a vault works and how to add collateral and borrow against your vault (mint dTokens).
Now, that you've created your vault, it's time to earn some rewards. The first step is to fund your newly created vault with DFI and a second coin such as BTC, ETH or a stablecoins.
Currently, you have two options (we are soon adding a third one) when it comes to transferring BTC, ETH, or stablecoins into your DeFiChain mobile wallet:
- Use the Decentralized Exchange (DEX) to swap half of the DFI you just sent into your wallet for the other coin.
- Transfer BTC, ETH, or stablecoins from your Cake DeFi wallet to your DeFiChain wallet
- Wait 1-2 months for the newly to be introduced BTC bridge. Upon launch, you will be able to transfer Bitcoin into your DeFiChain wallet without undergoing KYC.
The key to this strategy is that 50% of the investment value needs to be in DFI and the other 50% in the other coin. In other words, if you plan to use the DEX to swap some DFI for the other coin pair, make sure to send twice that amount into your wallet.
Step 3: How to generate returns
Now comes the fun part: we're going to show you how to earn money by taking out a DUSD loan. When taking out a loan, you should always ensure that you do not exceed the collateralization ratio. If, for example, you choose a collateralization ratio of 150%, make sure that your loan is overcollateralized by at least 200+% to prevent your vault from being liquidated.
The main objective of this strategy is to farm the stabilization fees. But what exactly is that? With the introduction of the stabilization fee with DFIP-2208-A, the DeFiChain ecosystem offers rewards for taking out a DUSD loan. Those rewards are being re-distributed from users who sold their DUSD and had to pay a fee to users who are minting DUSD / are taking out a DUSD loan. The stabilization fees will remain in place as long as the algorithmically-backed and crypto-backed DUSDs aren't in balance.
In contrast to liquidity mining rewards, these rewards are solely derived from the stabilization fees. Thus, there is also no impermanent loss since you don't have to put any coins into a liquidity pool; all you do is to deposit DFI along with another coin into the vault and take out DeFiChain's stablecoin DUSD.
You don’t even have to invest the minted DUSD, you can just leave them idle in your wallet. Since DUSD will always be the token used to pay back your loan, there is no price risk associated with it.
In addition to freeing up your collateral, closing the DUSD loan currently results in 20+% p.a. in rewards. You should be aware that if more people do this, the rewards will become lower. That's why you should always remain flexible and be ready to reallocate your funds whenever necessary.
Step 4: Get the extra kicker through dTokens
To make this reward strategy even more lucrative, you can place your freshly minted DUSD into a vault and mint dTokens. These tokens range from dTSLA to save heaven assets such as dSPY.
Unlike in step 3, these rewards are not derived from the stabilization fee but are obtained through liquidity mining. As a result, you are now exposed to a potential impermanent loss. While there is a risk of getting fewer tokens than you put into liquidity mining (impermanent loss), there is also an opportunity to increase your rewards significantly.
This extra investment opportunity could easily equal or even exceed the returns from the stabilization fee (step 3). By minting dTokens and putting them into liquidity mining, you can supercharge your reward potential and end up with around 40-50% APR. Once again, it's important to constantly monitor the composition of your vault and to adjust your allocations accordingly.
Please let us know what you think of our strategy and if you have any suggestions on how to make it more profitable. If you have any questions, please get in touch with us via Telegram and one of our helpful moderators will assist you.