RED Market Opportunities - Collaterals for pHBD / USDC Farm

The crypto market is non-stop crashing due to FUD over UST and liquidation of 42.5M worth of Bitcoin because of the depeg situation in UST. Meanwhile, both the crypto market and all other markets were already shaken by the news by FED recently.

When these negative narratives came together, we witnessed a sharp decrease in the prices of cryptocurrencies for some time. However, it may not be the worst-case for investors if you know how to use De-Fi products and if you have some experience in margin trades.

Polygon Aave Collaterals for PolyCUB

It has been an idea in my mind that will bring me a decent amount of return thanks to the high APY rate of pHBD / USDC farm on PolyCUB. However, the problem was that I had been expecting the market to go down and the drop in the prices may result in the liquidation in De-Fi.

What's the action plan?

It is a maximalist view of collateralization for both Bitcoin and PolyCUB. When I realize that the price of Bitcoin has tested the bottom levels, I'm going to supply Wrapped BTC to be able to borrow USDC from Aave.

As you can see above, the liquidation threshold is 75% for Wrapped BTC. It means that if the price drops 25%, my BTC portfolio will be liquidated. Thus, the best place should be chosen to jump into this maximalist game.

Since the borrow rates can also fluctuate due to the volatility in the crypto market, it would be too risky for me to borrow a variable APY rate. Thus, I'll accept paying 5.5% APY for my USDC borrow on the Aave market.

Providing Liquidity on pHBD / USDC Farm (48% APY)

After borrowing USDC for stable 5.5%APY, I'll buy pHBD with half of my USDC bag and add liquidity on pHBD Farm to multiply my stablecoin bag thanks to juicy APY 😎

Even if the price drops % by 50, the APY rate will easily compensate for the borrowing rate of USDC on Aave. Thus, the good debt will bring more value thanks to this investment.

The Risk Factor

There is a tiny little point that should never be disregarded. If Bitcoin loses 20-25% value before you take an action, you may lose your Wrapped BTC since it is going to be liquidated.

However, if you can take immediate action to close your position by paying USDC back, then your Wrapped BTC will be on the safe side as before. Though it sounds like a great idea, you should consider your risk appetite before diving into it. To be honest, I'm up for it because both BTC and PolyCUB tokens are 2 assets that I'm trying to pile up more gradually.

TL;DR

Aave and Compound are two great projects on Polygon that can be used to get some loan for our Polygon Network investment. Personally, I'm waiting for a good spot to collateralize my BTC bag on AAve to get some USDC at stable APY (5.5% as of writing).

After borrowing USDC from Aave, the stablecoin will be farmed on pHBD / USDC pool to get a decent amount of APY for my share (48%). Since the debt will be stablecoin, the LP of stablecoin can be easily converted in case of emergency.

The risk in this investment is, obviously, the liquidation factor of my Wrapped BTC supply. If the price drops 25% before I am able to take any action, then the supply will be gone consequently. Thus, risk factors should be regarded before taking such an action. Personally, I'm going to give it a try when the price of BTC and the crypto market find strong levels to stay above 🦁✌

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