Our strategy in a bear market
Written by our lead farmer, Ξ huf
Many in the community have asked what Reimagined Finance ($ReFi) will do in a sustained bear market.
Here is our plan.
1. Stablecoin farming
Our strategy has always been to maintain a large portion of the portfolio in stablecoins.
Stablecoins are designed to be pegged to the dollar, so 1 USDC = $1.
Currently we have about over $100k in USDC deposits on Avalanche, which can easily be bridged over as UST to Anchor to earn 20% APY. Remember depositing UST gives us aUST (interest bearing collateral) which can then be used even more productively.
Our preferred strategy is outlined below, which can and will be looped, especially when it arrives on Fantom (currently on Ethereum). This would net ReFi investors an APY over 100% on stablecoins alone!
I have notifications set for MIM replenishes and we will make sure we have UST ready when opportunities arise.
Your lead farmer is also active in some exclusive DeFi trader discord groups where yield optimisation on stables is discussed on a daily basis. Here’s a screenshot from a conversation yesterday.
Furthermore, there are often interesting USDC/fUSDT LP’s where we can provide liquidity and leverage up with minimal risk. The below pool was paying over 300% recently and has now dipped to 58%, but importantly — it will likely increase again as demand for stables increases.
Overall, earning 85%–100% just on our stablecoins will be attainable but you need to be fast, you will need to be connected to the DeFi community, and you will need to know what you are doing.
2. Delta neutral strategies
“Delta” refers to your exposure to the broader crypto market. Putting on a delta neutral strategy means you hedge out your risk and make money irregardless of when markets go up, down , or sideways.
I’ve already outlined what we are doing in Mirror Protocol to earn us 70%+ APY in a delta neutral manner (short and long farming on Coinbase stock).
Other delta neutral positions we could take can be even more lucrative (400%+ APY), as outlined by one of our podcast guests (shivsak.eth)
There are also some interesting delta neutral strategies that we can explore on the Solana network, which can yield anywhere from 25% to over 100% if modelled correctly.
One we like in particular is on the Tulip protocol. We’ve already got spreadsheets set up and ready for when we want to put these positions on.
Sometimes in crypto you get opportunities to make risk-free returns. I tweeted in real time when I was doing this on Yearn Finance.
Another interesting arbitrage opportunity takes allows ReFi to participate in systematic arbitrage to help maintain the UST algorithmic peg. We would deposit into an arbitrage vault, earn interest and then receive additional payments for providing liquidity whenever the stablecoin peg breaks down.
Another interesting arbitrage is possible using Kujira app, which would allow us to participate in liquidation cascades and buy assets significantly below where they were trading. We can then sell them immediately for a profit.
4. Using options
The bulk of my TradFi experience is in buying and selling equity options (the right to buy or sell a financial asset), as well as building systematic option strategies.
There are some interesting opportunities that are now starting to migrate over to the crypto world (I personally know some of the founders). These option plays mostly would involve ReFi selling options and then hedging our position. Here’s some that we like and the expected yield:
The idea is that if markets are trending downwards, we sell upside call options and earn the premium. Even if markets do bounce strongly up we are ‘covered’ because we own the underlying asset in equal proportion.
There are also some interesting single side option vaults that we can participate in to earn around 50% APY on our Ethereum.
The key point to make here is that there are quite literally, “options” available to us, and these strategies actually pay even better when there is a lot of volatility to the downside.
5. Other ideas
ReFi are big believers in innovation and we’d keep our capital available for any other tactical opportunities that might become available during a bear market.
In fact, in some ways, if we can maintain a decent sized farm then we are at a unique advantage in that we can be cash rich and buy some distressed assets e.g. DAOs that trades below their treasury value, or DeFi protocols where the market cap and revenues generated have de-railed and valuation looks cheap.
Yes, a bull market is probably the best case scenario for everyone, but we have a plan to earn you passive income in any case.