🔍 An underrated DeFi strategy
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GM friends.
Here’s what I’ll cover today:
🔎An underrated DeFi strategy
📊 Crypto chart of the week
🗞️ The latest DeFi news
🔎An underrated DeFi strategy
The most obvious and fastest way to make (or lose) money in crypto is trading.
But besides investing or trading, there are also many other, less popular strategies that you can use to gradually grow your stablecoin holdings.
I wanted to talk today about one of these strategies I’ve been using to make money with my stablecoins over the past few months. Let’s dive in:
First of all, I’ll provide a bit of context.
Many yield-bearing assets work this way (I will use Ethena as an example):
You can instantly stake a base asset with no yield, such as USDe, for a yield-bearing asset like sUSDe, but if you want to unstake sUSDe, you have to wait up to a few days.
If an sUSDe whale needs instant liquidity fast, it can choose to instantly sell the yield-bearing asset (sUSDe) on a DEX, but at a slightly worse price than it would get by unstaking sUSDe and waiting for the unstake cooldown period.
And whenever that happens, it often creates a peg arbitrage opportunity.
Because the liquidity for most yield-bearing assets, including sUSDe, is not very deep, if a whale sells, the sUSDe DEX price might temporarily drop below its actual NAV exchange rate shown on its website.
NAV exchange rate = the true value of that token (e.g., for USDC it’s $1.00)
What that means is that you could, for instance, do this:
Notice that sUSDe is trading slightly under its peg on DEXs after a whale sold
Check Ethena's website and verify that sUSDe is still overcollateralized, and that there’s not a fundamental reason for the depeg
Swap 30,000 USDC for 22,000 sUSDe on a DEX (for example)
Unstake that sUSDe on Ethena for USDe
Wait 24h (the unstaking cooldown period) and then receive $30,045 USDe in return
Swap that USDe back to 30,041 USDC and walk away with $41 profit in 1 day
This is just an example with made-up numbers to show you how this strategy (I will call it peg arbitrage) effectively works. The returns vary a lot, but personally, at times, I was able to earn 50-100% APY for a few days by doing peg arbitrage.
That said, peg arbitrage isn’t something you can do every day, as big depegs like this happen only once in a while (e.g., after the rsETH hack, there was a decent sUSDe depeg), but when they do, you can make good money by capitalizing on them.
Next, I will show you how to track depegs like this in order to take advantage of them whenever they occur. Before that, here’s an overview of Pareto:
Brought to you by Pareto
It’s time to make on-chain credit more useful
On-chain credit has been growing fast.
But bringing loans onchain is only the first step.
The bigger opportunity is to make these credit positions easy to use across DeFi and unlock greater capital efficiency.
That’s where Pareto comes in.
Pareto provides vault infrastructure for tokenized credit markets, helping turn credit exposure into positions that can be integrated with lending protocols.
It supports deploying credit vaults with the compliance, liquidity, reporting, and uptime guarantees that institutional products require.
One of the most successful products built on Pareto is the FalconX Credit Vault, which is composable by design:
Users can deposit USDC into it and get AA_FalconXUSDC receipt tokens
The capital deposited into the vault is then lent by FalconX to trading firms, hedge funds, etc., in order to generate a yield
Depositors can then use their AA_FalconXUSDC tokens as collateral on Morpho to borrow USDC against them
The borrowed USDC can then be used to create a loop position with high returns or for any other strategies. Looping can also be automated through Gauntlet.
This setup provides a lot of flexibility:
Instead of simply holding a credit position, users have the option to access borrowing opportunities while maintaining exposure to the yield-generating vault.
Recently, Matteo Pandolfi, CEO and Co-founder of Pareto, and Craig Birchall, Head of Lending at FalconX, were guests of Unchained’s Bits + Bips podcast.
They discussed there what’s behind the $16 trillion repo market and why bringing it onchain is DeFi’s most important missing piece of infrastructure.
You can check out the full podcast here.
Read more about the $16T repo market and why it matters for onchain credit in this article.
🔎An underrated DeFi strategy (part 2)
How do you catch peg arbitrage opportunities?
There are multiple ways, depending on how far you want to take it.
If you know how to code or you’re a vibecoder willing to spend some time on this, you could build a bot to alert you when such an opportunity arises.
But the simplest way is this:
Find a list of yield-bearing assets (e.g. Stablewatch has a good one here) and check their charts on Coingecko to see which ones have seen depegs on DEXs before
After you identify several of them, research how their redemption/unstaking mechanism works, and if there’s any way you can arbitrage them (arbitrage in the way I described works only for the yield-bearing assets that have a permissionless redemption/unstaking mechanism - some don’t)
Go to Dexscreener → Watchlist
Add to the Watchlist the yield-bearing assets you found that meet your criteria, click $ button to see their native price, and check the watchlist once or twice a day
When you notice that one of them dropped >0.05%–0.1% in the last 24h, check whether it’s trading below the NAV rate on its website, confirm the drop isn’t due to an exploit/loss of funds, and arbitrage it if the return is worthwhile (be aware that some assets have redemption fees)
sUSDe, reUSD, and PRIME are a few yield-bearing assets I am monitoring.
You can also set alerts to trigger when a specific price is hit using Dexscreener.
With this strategy, just yesterday, I noticed that PRIME, a yield-bearing RWA asset, dropped to $1.037 for a brief period while its NAV exchange rate was $1.0397.
If you had bought it when it depegged, you could have gotten a 0.26% return in just a few days by buying it on a DEX where it was depegged and by beginning the PRIME unstaking process on its website. (in this case, Hastra)
These are not crazy returns like we are used to in crypto. But if you hold stablecoins, this arbitrage is a nice way to make some additional money on the side IMO.
With that said, I hope you found this guide useful!
What I wanted to show in this post is that while making money in crypto is certainly harder now than it was a few years ago, this market is still very inefficient.
If you hold stablecoins and manage to spot these inefficiencies, you can grow your portfolio even during market crashes.
Chart of the week
Spot HYPE ETFs absorbed 1.04% of HYPE’s circulating supply in their first 10 days
Crypto meme of the week😂
The latest developments in DeFi
Hyperliquid launched outcome markets based on real-world events
Base introduced Base MCP - enabling anyone to connect AI agents to their Base account to trade on-chain
NEAR Protocol released confidential on-chain payments
Aave’s proposal to deploy Aave V4 on Avalanche with up to $15M incentives is live
Sui released gasless stablecoin transfers
Resolv announced its recovery plan and introduced primeUSD - a permissioned leveraged RWA product
Liquid introduced Co-Invest - the first way to trade directly via ChatGPT and Claude, powered by Hyperliquid
Ethereum proposal to enable native private ETH and ERC-20 transfers on mainnet was presented by Facet co-founder Tom Lehman
Polymarket released its perps product in the beta phase
Ondo Finance Founder Nathan Allman passed away
Re, a reinsurance platform, introduced its governance token called RE
Babylon proposed bringing native BTC collateral to Aave V4
Euler Finance launched modular lending on HyperEVM
Solstice’s token and airdrop claiming portal went live
That’s all for this week!
Until next time,
The DeFi Investor
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