DeFi - Farming MATIC using Aave + Curve

Update on 22nd June 2021: Not applicable anymore. Yield has dropped drastically. 

Easy money in crypto? Not so much anymore, all my crypto farms are losing money now but life goes on. There is probably a new batch of people who got burned and decided that crypto is a scam and will stay away. lol. In fact, I am glad that the price is falling so I can continue to farm more coins. As for the bulk of my money in Aave, no pain/movement at all. That is the beauty of stablecoins.

Anyway, after my previous article on DeFi - Aave, QuickSwap and AdamantVault on Polygon (Matic Network), besides the reader that left a comment stating how risky it was to borrow MATIC which is equivalent to shorting it, another reader asked me to check out Curve and I have changed the farming strategy to a much safer but higher yield approach.

Before I go into that, let me just share a bit more on the risk of getting liquidated in Aave. My previous strategy was to borrow MATIC and deposit MATIC in order to earn/increase the yield by participating in the borrowing market. Leveraging this way would have brought my yield to 24%+/- depending on the price of MATIC. However, doing so as the reader has correctly pointed out, I might get liquidated if the price of MATIC increases suddenly/drastically. It is not very intuitive right?

To understand how it works, let's take a look at how the health factor is computed. It is (your collateral x the liquidation threshold) / borrowed asset. The liquidation threshold is constant/fixed and can be found here. Hence, the health factor will be affected by both the collateral and the debt/borrowed asset.

There are 2 ways to get liquidated:

1. When your collateral decreases (e.g. BTC or ETH price falls). This can happen when your collaterals are not stablecoins. If they are stablecoins like how I am doing it, then you can ignore this.

2. When your debt increases (e.g. MATIC price increases). Although I deposited the same amount of MATIC back, the LTV of MATIC is just 50%. Hence, when the price of MATIC increases, the rate at which my debt increases will be doubled the increase in my collateral and the chance of being liquidated exist. On the other hand, if you were to borrow stablecoins, then you can ignore this.

If you are planning to farm on Aave and is interested in playing with the spreadsheet or using it to manage your risk, you can make a copy of it here. 

Not sure if you have figured it out after reading so far, in order to play the Aave game safely without the risk of being liquidated, one will have to deposit and borrow stablecoins. This is where Curve comes into the game plan. Similarly, the founder of Curve is made known, hence rug/exit scam will unlikely happen. You can read more about Curve here but to put it simply, it is a DEX for stablecoins. The yield at Curve is currently ~40%+ and behind the scene, they are also using Aave pool and have shared the other risks of using Aave. Do read it here.

This is my current setup using Aave + Curve:

The majority of my capital is in USDC and I borrowed USDT from Aave. I can keep a much lower health factor than before (1.2 initially and it has fallen due to the price of ETH falling) because both my collateral and debts will not be moving much.

The borrowed USDT will then be deposited into Curve. If you are wondering why not just deposit into Curve directly, the answer is by leveraging I will be getting a higher yield which consists of more MATIC.

Of course, the yield will increase/decrease depending on the price of MATIC. This is like the movie - Inception where a dream happened within another dream. I am borrowing USD from the bank at 1%+, used the borrowed USD to borrow more USD to get a yield of 47%+. Easy money? Only time will tell :) If you looked closer, you will see that my initial US$30k has become just US$29.8k because of all the fees I had to pay to convert and transfer/bridge the money to its final USDC form in Polygon. I am sure I will earn it back soon. 

The above seems too complicated? A more fuss-free approach is to just use Celsius Network for 10% interest where the capital is guaranteed and I have demonstrated how to withdraw the USD out too. Check out the articles below. 

Anyway, I have blogged about different ways to leverage crypto to build wealth for people with different risk appetites:

The safer approach using stablecoins

- Earning High Interest Using BlockFi and Celsius Network

- Earning High Interest Using BlockFi and Celsius Network Part 2

- Earning High Interest Using BlockFi and Celsius Network Finale

Risky approach but more hassle-free

- CakeDeFi - The Easy Way to DeFi

- CakeDeFi Freezer + Tracking in StocksCafe

Highest risk and you are on your own

- DeFi apps on Binance Smart Chain (BSC) such as PancakeSwap and PancakeBunny

- DeFIRE with DeFi

- DeFi - Aave, QuickSwap and Adamant on Polygon (Matic Network)

- DeFi - Farming MATIC using Aave + Curve

On a side note, Futu's moomoo app attractive sign-up bonus (one free Apple Share besides other benefits) has been extended to 31st May 2021 (1500hr SGT)! Take a look at the latest benefits here.

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