In the previous article we saw the huge potential of doubling, tripling or even quadrupling your investment with the upcoming Liquidity Mining with dTokens on DeFiChain. There are a total of 3 distinctive strategies that you can use to unleash the full potential of the liquidity craziness starting on Monday, December 6. Which strategy you ultimately pick depends on your risk preference. So let’s have a look at how you can choose the ideal strategy for yourself.
Strategy #1: Hold on to your DFI
The first strategie is all about holding on to your DFI. It does not matter if you hold them on an exchange, on your DeFiChain wallet or in your Cake DeFi account. All you have to do is to keep them there and DO NOT SELL them. Alternatively you can also put them into Staking or the traditional Liquidity Mining with BTC, ETH etc.. It can’t be easier than that!
The first strategy is most likely the easiest one and is the perfect fit for people who are not super tech savvy and do not want to read into all the new features DeFiChain launched earlier this week. It’s perfect when you don’t feel comfortable using the new DeFiChain mobile app or if you simply want to wait a bit to see if all new features work perfectly fine.
The concept behind decentralized assets is based on Vaults. One of the prerequisites to be able to open a Vault, is to fund it with at least 50% in DFI. So whenever someone wants to engage in the minting process of new dTokens, he or she needs DFI –– a lot more DFI than what this person can mint in the form of dTokens. This overcollateralization ensures that quite some DFI will be bought and locked away by new users entering the liquidity craziness. As a result, we will see the DFI price increasing.
Strategy #2: Mint your own dTokens & put them into LM
The second strategy is by far the most complex one, albeit also the most flexible and profitable one (under certain conditions). Strategy #2 is all about creating dTokens by opening a Vault using the DeFiChain mobile app.
Well, this strategy is not for everyone. If you are curious and like to try out new things, then this strategy is for you. If you are already familiar with Vaults, how to set them up, transfer in collateral, then you are already well prepared and will most likely be among those people who make the most out of dTokens. In case you don’t feel experienced enough, then you can learn all you need to know in this article. This strategy is ONLY available on the DeFiChain mobile app; Cake DeFi does not support the minting of dTokens.
By opening a Vault and transferring DFI into it, you are still owning these DFI. It’s not that you sell them, you simply use those DFI as a collateral and mint a new dToken in the form of DUSD, dTSLA etc. So, when the DFI price increases, then you still participate in the DFI rally. The only thing you have to watch out for is to properly overcollateralize your Vault by at least 4-500% (considering you are subscribing to the 200% loan scheme) to prevent your Vault from being liquidated.
On the other hand, you can now mint dTokens against the collateral in your Vault. These dTokens can then be allocated into Liquidity Pools, enjoying APYs north of 500%. These high rewards together with your collateralized DFI could be a more profitable strategy even though you have an effective 50% or less amount of working capital. Alternatively, you could also use these dTokens to take advantage of unbalanced liquidity pools by arbitraging them out or simply hold on to the dTokens like dTSLA.
Strategy #3: Buy dTokens via the DEX & put them into LM
The third strategy is a mix of the previous two strategies. Instead of minting your own dTokens via a Vault, you simply buy/swap them via a Liquidity Pool. This strategy allows you to use all capital to work for you (in Liquidity Mining). Do note that the difference between strategy #2 & #3 is that in strategy #2 you can only mint a fraction of your collateral, resulting in less working capital. On the other hand you do not worry about being liquidated. This strategy is also available to Cake DeFi customers.
This strategy suits you best, if you think DFI will not go parabolic and will just moderately increase in price. You are then not super bullish towards DFI and think you can get profit most by the initial high Liquidity Mining rewards. This strategy also gives you peace in mind, since you do not have to worry about a possible liquidation. On the other hand you have to be aware of the fact that you may end up overpaying for your coins by also losing some degree of flexibility.
You can maximize your working capital and go all into Liquidity Mining. On the other hand you do not own any DFI anymore. Most importantly here is to check the price first before you buy/swap into a dToken. Remember, you are exchanging DFI or any other token via Liquidity Pools and these pools can be unbalanced and you could end up with far less coins than you had expected. Best thing here is that you can basically go all in with your coins and hold onto your dTokens or put them into Liquidity Mining.