tl;dr: While de-fi platforms seek to bootstrap their efforts to generate activity, an interest rate arbitrage 0pportunity is open to anyone. Soon, the spreads will tighten.
First, the usual disclaimer.
This isn’t investment advice. Crypto-investing is still new and there are unknown risks. If you take advantage of this opportunity, it’s on you.
Ok, now on with it.
I’ve written about De-Fi (decentralized finance) platforms such as Dharma, Compound, and dydx before.
How to Create Your Own Cryptocurrency and Make Your Business Ready For The Future | Data Driven Investor
According to defipulse.com, the industry is steadily making its way to becoming a $1 billion sector.
Considering it not only didn’t exist two years ago but was literally impossible, that’s quite a feat.
It is going to be much, much bigger in the future and the competition is intensifying to become a leader within the space.
As a result, many of these platforms are incentivizing individuals to lock up their crypto-assets, which can then be loaned out to traders.
What that means is that there is a short-term opportunity for interest rate arbitrage.
The rates change frequently, but when I took the screenshot yesterday on dydx, here’s what I saw.
Later, I saw this:
Either way, not bad, eh?
How to Take Advantage of the De-Fi Interest Rate Arbitrage Opportunity
To make this work, you’ll need two things.
- a MetaMask wallet.
- a way to procure DAI or USDC.
The good news is that USDC can be easily procured through Coinbase for no fees whatsoever.
Here’s what you do.
- Go to Coinbase and buy USDC (their dollar-backed stable coin)
>if you want to try the DAI route, you can give Zierion a shot
- Send the USDC to your Metamask wallet (there will be a minor fee, but we’re talking a few cents). I recommend doing a test send first, just so you know it works for you.
- Go to dydx or Dharma
(I don’t think Compound takes USDC, but they do take DAI)
- Log-in to their site with your Metamask. No username, no password. Single sign-on. (a great thing about crypto)
- Follow the prompts to deposit your USDC
When all is said and done, you are taking the dollars that would otherwise get 1 or 2% at a bank account and loaning it out via a De-Fi platform for 6–8–10%.
Now, of course, if you are going to do this, you should keep in mind that De-Fi is still a very new industry and there are all types of known and unknown risks, so be smart.
Still, for now, in the early stages, the opportunity exists and, for once, you’ll feel like a world-class trader.
There’s probably something I am missing here because, as the old adage goes…if it sounds too good to be true, it probably is.
But, until I figure that out, I’ll just tell myself that this is my way of thanking you for reading the blog.
If you do decide to try it, let me know how it goes.
Again…see the disclaimer at the top of this post.
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