Difference between revisions of "Investing & Trading with Decentralized Loans and Assets on DeFiChain"

From DeFiChain-Wiki
Line 119: Line 119:
 
'''🡺 The best case for this investment: Asset price decreases and DFI price increases'''
 
'''🡺 The best case for this investment: Asset price decreases and DFI price increases'''
 
|}
 
|}
 
+
<hr>
 +
<hr>
 
==Part 2: Liquidity mining==
 
==Part 2: Liquidity mining==
 
{|
 
{|
Line 175: Line 176:
 
'''🡺 The best case for this investment: The price of the asset increases'''
 
'''🡺 The best case for this investment: The price of the asset increases'''
 
|}
 
|}
<hr>
 
 
<hr>
 
<hr>
 
=== Liquidity Mining – Long DFI / Asset neutral ===
 
=== Liquidity Mining – Long DFI / Asset neutral ===
 
{|
 
{|
|[[File:Bild 6-3.png|alt=|right]]'''<big>Investment thesis</big>'''
+
|[[File:rading Liquidity Mining – Long DFI - Asset neutral.png|alt=|right]]'''<big>Investment thesis</big>'''
 
*Generate crypto cashflow with liquidity mining.  
 
*Generate crypto cashflow with liquidity mining.  
*In the long term the DFI price will decrease and the asset price will increase.
+
*Long term the DFI price will increase and the asset price will stay unchanged.
  
 
'''<big>DefiChain procedure</big>'''
 
'''<big>DefiChain procedure</big>'''
*Sell some DFI on the DEX for dUSD
+
*Put some coins (e.g. DFI) as a collateral into decentralized loan and mint decentralized token (e.g. TSLA token) + dUSD
*Buy your preferred asset on the DEX with half of the dUSD (<code>amount x</code>) received in step 1
+
*Put dUSD and asset with the pool ratio into liquidity mining
*Put dUSD and asset token in the pool ratio into liquidity mining
 
  
 
''<big>Goal in the future</big>''
 
''<big>Goal in the future</big>''
 
*Get DFI rewards with each minted blocks + trading fees
 
*Get DFI rewards with each minted blocks + trading fees
*Remove liquidity and sell asset token for <code>y amount</code> dUSD (long term)
+
*Remove liquidity
 +
*If the pool ratio is different to start swap missing asset/dUSD
 +
*If needed: Buy missing asset/dUSD
 +
*Close loan by putting asset token/dUSD + interest back
  
'''Profit:''' <code>(y-x) dUSD + LM rewards/fees</code>
+
'''Profit:''' <code>LM rewards/fees - interest - loss of pool ratio change</code>
  
 
'''<big>Remarks</big>'''
 
'''<big>Remarks</big>'''
*All trade profits are in dUSD.
+
*LM block rewards are paid in DFI
*LM block rewards are paid in DFI.
+
*The fees from LM are paid in asset token and dUSD
*The fees from LM are in asset token and dUSD.
+
*Pool ratio change reduces your overall profit 🡪 asset neutral position
*Any price movements of DFI will not have an effect on your investment.
+
*Your DFI amount getting back in step 6 is the same as in step 1 → you open a long position on DFI
*Your complete capital is invested and generates cashflow.
+
*Not all your capital is generating rewards (2/3 – 1/10 with respect to loan collateral) → reduced yield rate
  
 
'''<big>Example</big>'''
 
'''<big>Example</big>'''
  
Swap 560 DFI to 700 dUSD and 1 TSLA, which has an overall value of $1400 (DFI price $2.50). Put both of them into LM with a DEX price of 700 dUSD/TSLA.
+
Generate 1 TSLA and 700 dUSD with 1,120 DFI (200% collateralization and DFI price $2.50). Put them into Liquidity Mining with a DEX price of 700 dUSD/TSLA.
  
 
<code>liquidity token = sqrt(TSLA token * dUSD token) = sqrt(1 * 700) = 26.45</code>
 
<code>liquidity token = sqrt(TSLA token * dUSD token) = sqrt(1 * 700) = 26.45</code>
Line 215: Line 217:
 
<code>dUSD = 1000 TSLA 🡺 dUSD = 836</code>
 
<code>dUSD = 1000 TSLA 🡺 dUSD = 836</code>
  
Removing liquidity and swapping the 0.836 TSLA abd 836 dUSD into USD will result in an overall amount of <code>2 * $836 = $1672 = $1440 + $272</code>
+
Removing liquidity will give you 0.164 less TSLA and 136 more dUSD. Swapping the 136 dUSD will result in an overall amount of <code>TSLA = 0.836 + 0.136 = 0.972</code>.
 
 
Additional to ''<u>your Liquidity Mining rewards</u>'', you ''<u>got $272 profit</u>'' from price movement of TSLA, this is the profit from asset long position you made.
 
 
 
'''<big>Remark</big>'''
 
  
If in the same time frame DFI goes up to $4.00, you will only get 478 DFI for your USD position.
+
''<u>0.028 TSLA are missing</u>'' to close the loan and must be bought from reward income.
 +
If in the same time frame the DFI price dicreases to $4.00, you will make additionalyl to ''<u>your Liquidity Mining rewards</u>'' a ''<u>profit of $1,680</u>'' with your DFI long position.
  
'''🡺 The best case for this investment: The price of the asset increases'''
+
'''🡺 The best case for this investment: Pool ratio remains unchanged and DFI increases.'''
 
|}
 
|}
 
<hr>
 
<hr>

Revision as of 19:06, 29 September 2021

We explain DeFiChain - Investing & Trading with Decentralized Loans and Assets on DeFiChain

Part 1: Long and short positions with stock token

Bild 1-1.png
With decentralized loans and assets on DefiChain, you can invest in different assets betting on increasing (long) or decreasing (short) prices. We will explain 3 different ways of investing.
Bild 1-2.png

Long position - Neutral DFI

Investment thesis

The future price of an asset will be higher than it is today.

DefiChain procedure

  • Sell DFI on DEX for dUSD
  • Buy your preferred asset on DEX with x amount of dUSD

Goal in the future

  • Sell asset for y amount of dUSD

Profit: (y-x) dUSD

Remarks

  • Trades and profit are in dUSD
  • DEX prices are relevant for the trade, not the price feed

🡺 pay attention of the pool ratio

  • Any price movement of DFI will not have an effect on your investment
  • Step 1 and 2 will be combined to a composite swap, which is only one step for the user
  • Your complete capital is invested

Example

With a DFI price of $2.50 you sell 280 DFI, and receive 700 dUSD. You buy 1 TSLA for those 700 dUSD and hold it.

After some time the TSLA price rises to 1000 dUSD and the DFI price to $4.00. Selling TSLA for dUSD gives you 1000 dUSD and you make 300 dUSD profit.


Remark

  • If you want to go back to DFI you will receive 250 DFI for the 1000 dUSD, because the price went up to $4.00.

🡺 The best case for this investment: The asset price increases


Short position - Long DFI

Investment thesis

The future price of an asset will be lower than it is today.

DefiChain procedure

  • Put some coins (e.g. DFI) as a collateral into a decentralized loan and mint a decentralized token (e.g. TSLA token).
  • Sell the token on the DEX and get dUSD amount x from selling.

Goal in the future

  • Buy token + fee back with dUSD amount y (from holding)
  • Close loan by putting token + fee back

Profit: (x-y) dUSD - interest

Remarks

  • Asset trades and profits are in dUSD.
  • DEX prices are relevant for the trade, not the price feed.

🡪 pay attention of the pool ratio

  • Getting your DFI amount back in step 4 is the same as in step.

🡪 you open a long position on DFI

  • Not all your capital is invested (2/3 – 1/10 with respect to loan collateral).

🡪 reduced yield for short position on asset

  • You will have a liquidation risk if the price of your collateral falls too low.

Example

With a DFI price of $2.50 you put 280 DFI into a decentralized loan = $700. For the value of $700 you get 0.5 TSLA (200% collateralization and TLSA price of $700). You sell this 0.5 TSLA on DEX and get 350 dUSD.

After one year the TSLA price decreased to $500 and the DFI price increased to $4.00. Now you buy back the 0.5 TSLA for 250 dUSD  and 0.01 TSLA for 5 dUSD (interest). With 0.51 TLSA you can now close your loan and make 95 dUSD profit.

You also receive back your DFI, which are now worth $1120 and you make an additional profit of $ 420. Your DFI long position was the right choice.

🡺 The best case for this investment: The Asset price decreases and DFI price increases!


Long position - Long DFI (leverage)

Long position - Long DFI (leverage)
Investment thesis

The future price of an asset and DFI will be higher than it is today.

DefiChain procedure

  • Put some coins (e.g. DFI) up as collateral for a decentralized loan and mint dUSD.
  • Buy your preferred asset on the DEX with x dUSD

Goal in the future

  • Sell the asset for y dUSD
  • Close a loan by putting tokens + interest back  

Profit: (y-x) dUSD - interest

Remarks

  • Trades and profits are in dUSD.
  • DEX prices are relevant for trades, not the price feed.

🡪 pay attention of the pool ratio

  • Getting your DFI amount back in step 4 is the same as in step 1.

🡪 you open a long position on DFI

  • Not all your capital is invested (2/3 – 1/10 with respect to loan collateral).

🡪 reduced yield for long position on asset

  • You will have a liquidation risk, if the price of your collateral falls too low.

Example

With a DFI price of $2.50 you put 280 DFI into a decentralized loan. For the value of $700 you get 350 dUSD (200% collateralization). You use this dUSD to buy 0.5 TSLA on DEX.

After one year TSLA price goes up to $1000 and DFI price up to $4.00. Now you sell the 0.5 TSLA for 500 dUSD. With 357 dUSD (350 dUSD plus 7 dUSD fee) you can close your loan and made 143 dUSD profit.

You also receive back your DFI, which are now $1120 worth and made an additional profit of $ 420. Your DFI long position was right.

🡺 The best case for this investment: Asset price decreases and DFI price increases



Part 2: Liquidity mining

Bild 6-1.png
With decentralized loans and assets on DefiChain you can generate cashflow with liquidity mining. In this case you have four different ways depening on your investment strategy.
Bild 6-2.png

Liquidity Mining – Neutral DFI / Asset long

Investment thesis
  • Generate crypto cashflow with liquidity mining.
  • In the long term the DFI price will decrease and the asset price will increase.

DefiChain procedure

  • Sell some DFI on the DEX for dUSD
  • Buy your preferred asset on the DEX with half of the dUSD (amount x) received in step 1
  • Put dUSD and asset token in the pool ratio into liquidity mining

Goal in the future

  • Get DFI rewards with each minted blocks + trading fees
  • Remove liquidity and sell asset token for y amount dUSD (long term)

Profit: (y-x) dUSD + LM rewards/fees

Remarks

  • All trade profits are in dUSD.
  • LM block rewards are paid in DFI.
  • The fees from LM are in asset token and dUSD.
  • Any price movements of DFI will not have an effect on your investment.
  • Your complete capital is invested and generates cashflow.

Example

Swap 560 DFI to 700 dUSD and 1 TSLA, which has an overall value of $1400 (DFI price $2.50). Put both of them into LM with a DEX price of 700 dUSD/TSLA.

liquidity token = sqrt(TSLA token * dUSD token) = sqrt(1 * 700) = 26.45

Remove liquidity after some time with increased price to 1000 TSLA.

pool ratio = TSLA/dUSD = 1/1000 🡺 dUSD = 1000 TSLA

26.45 = sqrt(1000 TSLA) 🡺 TSLA = 26.45/sqrt(1000) = 0.836

dUSD = 1000 TSLA 🡺 dUSD = 836

Removing liquidity and swapping the 0.836 TSLA abd 836 dUSD into USD will result in an overall amount of 2 * $836 = $1672 = $1440 + $272

Additional to your Liquidity Mining rewards, you got $272 profit from price movement of TSLA, this is the profit from asset long position you made.

Remark

If in the same time frame DFI goes up to $4.00, you will only get 478 DFI for your USD position.

🡺 The best case for this investment: The price of the asset increases


Liquidity Mining – Long DFI / Asset neutral

Investment thesis
  • Generate crypto cashflow with liquidity mining.
  • Long term the DFI price will increase and the asset price will stay unchanged.

DefiChain procedure

  • Put some coins (e.g. DFI) as a collateral into decentralized loan and mint decentralized token (e.g. TSLA token) + dUSD
  • Put dUSD and asset with the pool ratio into liquidity mining

Goal in the future

  • Get DFI rewards with each minted blocks + trading fees
  • Remove liquidity
  • If the pool ratio is different to start swap missing asset/dUSD
  • If needed: Buy missing asset/dUSD
  • Close loan by putting asset token/dUSD + interest back

Profit: LM rewards/fees - interest - loss of pool ratio change

Remarks

  • LM block rewards are paid in DFI
  • The fees from LM are paid in asset token and dUSD
  • Pool ratio change reduces your overall profit 🡪 asset neutral position
  • Your DFI amount getting back in step 6 is the same as in step 1 → you open a long position on DFI
  • Not all your capital is generating rewards (2/3 – 1/10 with respect to loan collateral) → reduced yield rate

Example

Generate 1 TSLA and 700 dUSD with 1,120 DFI (200% collateralization and DFI price $2.50). Put them into Liquidity Mining with a DEX price of 700 dUSD/TSLA.

liquidity token = sqrt(TSLA token * dUSD token) = sqrt(1 * 700) = 26.45

Remove liquidity after some time with increased price to 1000 TSLA.

pool ratio = TSLA/dUSD = 1/1000 🡺 dUSD = 1000 TSLA

26.45 = sqrt(1000 TSLA) 🡺 TSLA = 26.45/sqrt(1000) = 0.836

dUSD = 1000 TSLA 🡺 dUSD = 836

Removing liquidity will give you 0.164 less TSLA and 136 more dUSD. Swapping the 136 dUSD will result in an overall amount of TSLA = 0.836 + 0.136 = 0.972.

0.028 TSLA are missing to close the loan and must be bought from reward income. If in the same time frame the DFI price dicreases to $4.00, you will make additionalyl to your Liquidity Mining rewards a profit of $1,680 with your DFI long position.

🡺 The best case for this investment: Pool ratio remains unchanged and DFI increases.


Part 3: Leverage of DFI with decentralized loans

Part 4: Arbitrage trading of dUSD – DFI pool

Part 5: Arbitrage trading of dUSD – asset pool