The DeFi Edge, a DeFi researcher
Original compilation: 0x137
This article is based on the views of DeFi researcher The DeFi Edge on personal social media platforms, and BlockBeats has translated it as follows:
Most people's ETH is idle for a long time, here are some low-risk ways to use ETH to earn passive income:
Method 1: Store in a cold wallet
You don't have to earn money on everything, think of this as a stash of gold bars. DeFi carries a certain risk, and doing so can hedge against potential hacking and running away.
Risk: 1/10
Method Two: Lend Your ETH to a Centralized Organization (CeFi)
You can lend your ETH to companies like Celsius Network, BlockFi, Hodlnaut, etc. They then lend it to hedge funds, trading platforms, institutional traders, etc., and that's where your income comes from.
I calculated an annualized return based on 5 pieces of ETH in the chart below.
Pros: It's easy
Disadvantages: First of all, KYC is required.
Also, while they do take security very seriously, CeFi doesn't have FDIC insurance like banks. Remember, BlockFi's token is managed by Gemini; Celsius Network was also affected by the BadgerDAO exploit.
Risk: 3/10
Method three: direct pledge ETH
ETH 2.0 staking is the process of locking in a holder token to help maintain a PoS network. By staking ETH, the holder can receive additional ETH. But this has a big drawback, you need to stake at least 32 ETH (about $100,000) and wait until ETH 2.0 merges to unlock it.
Here are some alternative options:
1. Pledge through a centralized trading platform
Trading platforms like Coinbase allow you to pledge directly, with an annual interest rate of around 4.5%.
Pros: Very simple
Cons: Lower interest rates, KYC required and you lose custody
Risk: 2/10
2. Liquidity Pledge
Liquidity pledge solves the problem of direct pledge ETH, which does not have a minimum pledge amount and lock-up. After depositing ETH, you will get a token that represents the ETH you have pledged, such as stETH (stETH is a version of Lido), which is pegged to ETH 1:1 and receives a pledge reward every day by changing bases. You can also use these tokens for other DeFi activities, such as providing liquidity or borrowing.
Here are some liquidity pledge platforms:
• Lido Finance - Most popular, TVL highest
• StakeWise - Uses a dual-currency design that separates staking ETH and rewards
Rocket Pool - The most decentralized, users can run their own nodes for additional benefits
Advanced Operations:
You can earn additional benefits by using stETH in the liquidity pool on the Ethereum mainnet. The main platforms are Curve, Convex, Yearn Finance, etc. I'm not going to go into details because Ethereum's high gas will cost most people reading this article dearly.
Risk: 4/10
Method four: Use the Anchor Protocol on Terra
It was my personal strategy, and when I first started, the interest rates were much higher than they are now. On the one hand, Anchor is almost paying people to borrow; on the other hand, I also want to get some LUNA exposure.
Specific steps:
1. Convert your ETH to stETH at Lido Finance
2. Convert your stETH to bETH at Anchor
3. Deposit your bETH as collateral into Anchor
4. You can borrow up to 75% of the UST, but I recommend about 25% LTV
5. Deposit UST to earn 19.5% APY
Pros: Earn UST and aUST increases production
Cons: Conversion requires gas; leverage and the risk of smart contracts; APY may not last forever
When depositing UST, you receive aUST in return. At this point, you can get additional benefits with aUST without taking too much risk. For example, there is a policy called Delta Neutral on mirror Protocol, and Aperture Finance can automate this.
Risk: 5/10
Method 5: Use the Nexus protocol on Terra
Putting your bETH on Terra and depositing it in the Nexus Protocol at an annual rate of 6.45% is very simple.
Method 6: Use ETH in a liquidity pool
You can offer ETH as a liquid trading pair, for example you can pair ETH - USDC on the agreement and earn profits. But again, the gas for this operation on the Ethereum mainnet is too high.
solution:
You can bridge ETH to different chains. By bridging it to other public chains, you can not only maintain the value of ETH, but also significantly reduce your gas cost in the long run. These chains include L2 chains such as MATIC and Arbitrum, and L1 chains such as AVAX and FTM. I think FTM has the most revenue opportunities right now.
You can use SpookySwap to convert your ETH to wETH and connect it from the Ethereum main bridge to the FTM network. This way, you can use your own wETH in FTM's liquidity pairs.
In the bridging process, it is necessary to pay attention not only to the gas problem, but also to consider the risk of cross-chain bridge. Wormhole was hacked last week that led to most of the ETH theft, but fortunately people got compensation from the parent company. But not all cross-chain bridges have "rich dads" like Jump Trading backing them.
Method 7: Use Tarot on FTM
Deposit your wETH with Tarot Finance for unilateral pledge at an annual interest rate of 6.6%.
Method 8: Provide liquid trading pairs on FTM
There are two options here:
1. The Grand Orchestra strategy on Beethoven x, after providing FTM, WBTC, WETH three trading pairs, you can get BEETS as a return, with an annual interest rate of 31.18%.
2. FTM-WETH trading pairs on LiquidDriver have an annual interest rate of up to 48%. Similarly, you will reap the LQDR in return.
Pros: You can get high gains, especially when you get tokens that increase in value
Risks: Impermanent losses; possible decline in the price of acquired tokens; potential tax events; smart contract risks
Risk level: 7/10
How should you choose?
I think users have to find a balance between ease of use, risk levels, yield, and decentralization. For the general friend group, staking on platforms such as Coinbase is the most appropriate; for junior DeFi participants, bridging and moving to Nexus, Tarot, etc. benefits more; and I personally adopt the Anchor plus Mirror strategy.
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