How I Used DeFi to Short ALGO
Learn how I turned 1,000A into 1,500A in less than two months
Welcome back to the Club, gov!
After dropping some serious alpha this week in the inaugural Alpha Club post, I’m back to break down how I used DeFi to short ALGO and turn 1,000A into 1,500A+ in less than two months – in a relatively passive way to boot.
You see – back in early April I had a strong conviction that both the stock and crypto markets would continue to move in a downtrend during Governance period #3, and eventually lead to a capitulation event as the fear of a recession weighed on investors' minds.
And I was willing to make a bet on it.
So I provided liquidity to Pact’s ALGO/USDC pool to take a short position on ALGO.
What do I mean by that?
As the market went down, the pool would essentially DCA into ALGO for me as it worked to maintain a constant value between both ALGO and USDC. To put it simply: as the price of ALGO went down, my ALGO position would increase.
And the best part?
I would get a sizable amount of ALGO paid out to me in high APRs and Aeneas rewards while I waited for the price of ALGO to decrease and eventually crash. All without having to stress about timing the market perfectly.
Gov Tip: Why Pact? Check out our Pact overview from last month to learn why we identified them as one of the best protocols to earn during this Governance period due to their Aeneas rewards allocation, high APRs, and growing TVL.
In the event of a market crash, my plan was to exit the pool and buy the dip with whatever USDC was remaining.
The way I saw it, my worst case scenario was the market would continue to trade sideways and I would “only” earn ALGO through Aeneas rewards and taker fees.
That was a worse case that I wouldn’t lose any sleep over.
But what about impermanent loss?
Sure, if I converted my ALGO to stablecoins and waited for the perfect moment to strike, I could’ve potentially walked away with more ALGO. But I’ve often found this increases the risk of making a mistake because of impatience. Besides, no stablecoin pools were paying as well as the ALGO / USDC pool on Pact.
And despite not crafting the “perfect” strategy to strike at the perfect time, I still turned 1,000A into 1,500A in less than two months with little to no work.
Now that’s what I call passive income, gov.
In fact, this proved to be the most successful tactic I implemented this Governance period and proves you can make money by planning for the worst – as long as you stick to your plan.
So what was the plan?
I entered the pool with ~1,000A in value with an ALGO entry price of $0.78, set a desired exit price range between $0.35 - $0.50, and planned to take immediate action in the event of a crash.
Before I entered the pool, I modeled out low, medium, and high profit scenarios based on Aeneas rewards, taker fees, and the potential of a crash in ALGO’s price:
And during the 6th week of providing liquidity, I woke up to ALGO hovering around $0.37. I executed my plan with no hesitation and secured 500A+ in profits:
I won’t lie either, gov. As ALGO dipped near $0.55 only two weeks prior it got tempting to pull liquidity and buy the dip. But I remained patient as I watched the macro environment get worse and worse, and I figured why give up the weekly income I was earning on Pact after only a month?
Turns out it does pay to wait.
So, what can you learn from this?
In market conditions like these, the risk of permanent loss is lower. You’ll have more than enough time to realize the market is recovering to pull your liquidity.
Incentivize your patience. It’s easier to wait to buy the dip when you’re earning high APRs and extra rewards.
You don’t need to be perfect, you just need to make money. While ALGO can definitely see more downside before the end of this period, I decided to stick to my plan and book profits. Trying to be perfect isn’t worth the stress, especially in a market like this.
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Until next time, gov!
Disclaimer: This isn’t financial advice and the information provided in this article should be used for illustrative purposes only. Do your own research, make plans that work for your own personal situation, and don’t ever invest more than you’re willing to lose.