My DeFi Investment Strategy (2021)

I’m experimenting with Decentralized Finance (DeF) as I’ve been thinking more about unbundling of work and cash flow. I think that DeFi, and yield farming in particular, could be a viable mechanism to generate predictable cash flow, that is not tied to active labor.

I hope to be able to only commit a few hours a week to spot-check positions and harvest rewards and 1-2 full days a month to research new projects and rebalance the portfolio. I will track the starting point and try and calculate my effective yield but given the volatility of the assets and unpredictability of the rewards, I know the result will be difficult to replicate consistently. 

It’s also worth noting that this kind of active management might not be significantly better than just buying and holding ETH (this article has some good data) which has much fewer fees and work associated with it – but where is the fun in that 🙂

This is the structure I use for my strategy: 

NameDescription% of AssetsAPY TargetRisk LevelActive Management Project Examples
SafeStablecoins that earn yield passively40%5-10%LowNoneBlockFi, Celsius
Stable PairsHigh correlation long-only assets25%10-30%MediumMed (Weekly)ETH-WBTC, ETH-DPI
Stable and LongStablecoin + long-only asset30%15-50%High Med (Weekly)USDC-ETH, USDC-MATIC
DegenHigh incent temporary reward pools5%100%+InsaneVery High (Daily)Polycat, Pacake Swap (Polygon)

The core of my farming is liquidity pools with stable pairs and stablecoins (like USDC which is collateralized and pegged to the dollar) with assets that I’m long like Ethereum, Matic or Solana. 

Everything that is outside the “Safe” section requires a wallet (or multiple wallets across multiple chains) to access and is all pretty confusing (even crypto native folks).  You’ll need to use some aggregators like Zerion, Zapper or DeBank (better for cross-chain) to help you visualize your portfolio and your trading history.  I try not to have more than 10-15 core positions at any point in time but curiosity, low friction, and lack of discipline usually get the best of me so I end up having to trim back every few months. 

I’m not borrowing against my assets yet, but it’s something that I’m considering when there are good incentives for borrowing against “safe coins” like BTC or ETH. In traditional finance, this is one of the main benefits of using a financial advisor like Goldman Sachs or owning a primary residence — you can often get leverage against your assets so I will experiment more in this space in the future.

“Safe” Yield (40%)

A significant part of my exposure is in “Safe” US Dollar stablecoins that are passively generating 5-9% yield in BlockFi and Celsius.  I am comfortable that BlockFi especially has very solid security practices. This interview with Zac Prince (CEO) is a good listen

All you have to do is send in your money and pick how you want to get paid (I get paid in ETH on BlockFi) which makes it fairly easy to access for most people even those completely unfamiliar with crypto. Celsius has slightly faster withdrawal times than BlockFi which usually takes a few days. 

Even though this is “safe” in crypto land there is still no FDIC insurance as crypto is not FIAT so you are mostly relying on the fact that BlockFi and Celsius are well run with strong risk management practices and will refund you your money in case of an incident. This is just a reminder that this is still a lot less safe than a bank or money market account. 

Stable Pairs (25%)

Stable pairs are assets with high or 100% correlation which reduces the impermanent loss risk of exchange rate volatility. This strategy is reserved for assets that I plan to hold anyway.

  • Stable pairs are assets with high or 100% correlation:
    • USDC-DAI (100% correlated)
  • As a farmer providing liquidity for stable pairs (usually in an equal ratio) you are usually rewarded in trading fees and special tokens as an incentive for providing liquidity. 
  • When the market moves your assets will typically increase or decrease in value in synchronization which means you reduce your exposure to Impermanent Loss. Impermanent Loss occurs when a the automated market maker rebalances the pool to get to a 50/50 ratio of value and can eat into your expected gains significantly. 
  • New projects especially on new chains (e.g. Polygon or Solana)  will incentivize you to provide liquidity on their platforms. The “safest” ones have established projects moving to new chains – e.g. Balancer moving from Ethereum to Polygon feels safer than a totally new project on Polygon. 
  • I generally avoid new algorithmic stablecoins unless there is a very good reason to trust it – eg. UST is probably fine on Terra as it has a $2BN market cap but still makes me nervous as it’s not technically collateralized. 
  • You usually don’t make that great yields on stable pairs but I generally look for incentives that can get me to 15%+ yields. 

Example Projects

  • I’ve been playing around a little bit with leverage for correlated pairs (starting with Alpha Finance), but this just adds more risk and most of the reward is in $ALPHA (degen coins) that I’m likely to sell as I harvest.
  • DPI is the DeFi Pulse Index and a good mix of all the main DeFi coins. I like the DPI-ETH liquidity pool with $INDEX rewards.
  • DFX is a decentralized FX for currency stable coins to allow for EUR-USD-CAD transfer which is offering 20-40% yields for providing liquidity with $DFX rewards.

Stablecoin + Long Assets (30%) 

For this strategy, I usually look for pools that pay higher yields than the stable pairs because of the increased risk and margin erosion from Impermanent Loss (explainer video here). 

  • For assets that I plan to hold like $BTC, $ETH, $MATIC, and $DPI I will often invest in a pool with a stablecoin. e.g. 
    • USDC-ETH
    • USDC-MATIC
    • DAI-ETH
  • I only do this for things that I would hold anyway and when the farming rewards are high enough so that I’m comfortable that they will offset the impermanent loss
  • I think that a number of projects on Solana (e.g. Raydium) and Terra (Anchor, Mirror) are interesting and I’m able to execute this strategy on those protocols as well. 
  • I target 25%+ yields here (higher than stable pairs) but they can often end up much higher. 

Example Projects

  • I usually provide liquidity on the major exchanges like UniSwap V3 or SushiSwap which have high volume so good trading fee revenue,  but often will move these pairs to new chains (like Polygon) where the token incentives are better. Revert Finance is a good tool to track all your liquidity positions and APY. 
  • Projects like Balancer, Visor, and Charm are interesting from a liquidity management perspective and can help counter the effects of 50/50 pools that you would just let sit passively  — I’ve recently increased my exposure to these projects.  
  • Mirror is a decentralized platform to own public securities like ETFs, Apple, or Google and is a new project with token incentives to provide liquidity. 

Degen Coins (5%)

Here is where it gets really weird and this is a place where I don’t think most people should participate. It’s as close to gambling as you’re going to get in Crypto but the 1%+ daily yields can often be very enticing. I’m almost never planning on holding these over the long term unless I start to really get conviction on the project.

  • Holding and providing liquidity for Degen coins is extremely risky. I’ve already been burned over and over again with the allure of stupid APRs and had a front seat to the Iron-Titan fiasco where I almost lost my original investment besides being up almost 3x within a 2 week period.
  • I very rarely participate in Degen projects on Ethereum – the gas (transaction hash) fees are so high that it’s usually not worth it. Most of my degen activity is on Polygon but also play around on Solana as well.
  • However, It’s a lot of fun to play with these projects so if you do dive in, pick projects that seem legit and put in a small amount of money into the pools (or farm with stables) and then sell off the LP rewards as they come in to reduce risk.
  • It’s even more fun to be in Degen projects/pools with friends because it’s exciting and things move fast. It’s also helpful to have friends around to tell you when to get out!
  • I look for 200%+ APYs for this strategy and try not to stay in the coins for too long – if you do make gains, I’d suggest locking them at around 2-3x and then playing with house money. I’ve never really made any money on Degen, but I’ve never really made any money gambling at a casino either 😂

Example Projects

Note, these projects may not exist when you read this 🙂

  • Pancake Bunny: Yield aggregator with auto-compounding pools on Polygon. I’m in the ETH-Bunny pool at 1% yield per day.
  • Polycat: Yield aggregator with auto-compounding pools on Polygon I’m in the FISH-MATIC pool at 0.8% yield per day. 
  • OHM: An algorithmic reserve currency. I’m staking OHM at 1% yield per day. 

I hope this helps folks, and none of this (as with everything on my personal blog) is financial advice. I’m just sharing my own experiences in case it’s helpful to others and to refine my own thinking.

DeFi Set Up and Project Diligence

https://defi.cx/dyor-what-to-check-before-buying-a-token/

DeFi is evolving quickly and presents interesting opportunities to make money by investing in new projects. This is a summary of what I wish I’d done before starting to invest more seriously and my current diligence process before backing a project.  As always, I’m writing this all up to be helpful to others, clarify my own understanding and get feedback to refine my approach. 

DeFi Set Up

Before you get started I’d spend a bit of time getting set up — I did not do all of this in the beginning and am much calmer now that I have some of these bases more covered. 

  • A sounding board: Build a network of friends who are more experienced that you can ask about projects and share experiences. All of this is incredibly confusing as a new person, and so it’s important to give and get help. It is also helpful to have early warnings if risky projects look like they are heading for trouble.
  • Start small: I usually start with a smaller amount for new projects and if the user experience with the DApp (Decentralized Application) after a few weeks is good, and I like the risk/return profile, I make it a “core position”. I aim to have no more than 10-15 core positions at any point in time or it it’s very hard to track.
  • Understand risk: Understand that there are layers of risk – new chains, new projects, new tokens all have compounded risk compared to established projects. For example, supplying USDC-DAI on UniSwap Liquidity pool (LP) on Ethereum is way less risky than a RAY-SOL LP on Solana. Another example is using multiple platforms like Beefy to autocompound your DPI/ETH LP on QuickSwap creates layers of risk vs. investing in a single token.
  • Secure your DeFi environment: Spent the time securing your wallets and trading platforms (See this article from the CEO of Nexus who had $8m stolen from him). I use a password manager (1PassWord, LastPass), MetaMask, and write down my codes on paper which are torn in half and kept in separate and secure places. I also use two-factor authentication for everything using products like Google Authenticator/Authy over text where possible. I also use a separate email and browser profile for all my crypto projects.
  • Impermanent loss: Understand impermanent loss before providing liquidity. Impermanent Loss occurs when an automated market maker rebalances the pool to get to a 50/50 ratio of value. Impermanent loss can mean that you actually make less money by providing liquidity than just holding tokens if the price of the underlying tokens changes. This video is great and this article from Bankless and this from Bancor are also excellent.
  • Fees: When executing on strategies especially in Ethereum there are often layers of fees involved (both putting money in and taking money out) – e.g. Token Transfers, Transaction Approvals, Swaps, Pooling Tokens, Staking LP Position, Claiming Rewards, Pooling and Staking to Compound Claimed Rewards. Each of these has a gas fee and can seriously eat into your returns. Good article on holding ETH vs. Active Strategies.
  • Portfolio trackers: You’ll need to use some portfolio trackers like Zerion, Zapper and DeBank (DeBank better for cross-chain) to help you visualize your portfolio and your trading history. The newer projects will likely be excluded so you may have to use a spreadsheet as well.

You need to get comfortable knowing that you’ll never precisely be able to calculate your expected yield – rewards are constantly changing, fees are hard to estimate, and you never know how impermanent loss will affect your returns. 

Before Backing a (New) Project

New projects are riskier than established projects (higher risk of logic bugs, hacking risk or rug pulls) so do extra research before investing in these projects even if the yields are enticing. In particular,  projects with very high XXX%+ yields are inherently very risky and need more work / or less capital at risk. 

For thse newer projects, you need to do extra research and I usually go through the following steps to help you derisk:  

  • Research: Read the medium/announcement posts, join the project Discord and follow their Twitter account — look for good English, signs of a strong community, and engagement from the project developers. 
  • Hacks: Check to see if they’ve been hacked in the past (https://rekt.news/leaderboard/) and avoid projects that have been hacked.
  • Audits: Check to see if they’ve passed audits – Certik and Perk shield are common but this does not guarantee against hacks. 
  • Understanding: Don’t just ape in (go in big, hard, and fast) to chase yield without actually understanding the project. If you can’t describe it in one sentence, don’t invest — I’ve been greedy and gotten burned many times including a front-row seat to Iron Finance where I just managed to get out with my original investment. 
  • Rewards: New projects are particularly fun because you can get rewarded for being an early user and supporter in a very meaningful way, much like early equity investors (e.g. early UniSwap users got $12k of tokens awarded to them). 

Understand the terms

For all your DeFi investments you should read through and understand the terms of your investment as well as the circumstances for each situation. Here are the things I usually look for before making an investment:  

  • Fees: Deposit and withdrawal fees.
  • Lock-up periods: Some farms don’t even let you take out your capital or are subject to high fees if you pull out before the lockup. 
  • Vesting: Vesting of rewards or hurdles before you get your liquidity provider rewards.
  • Source of Yield: Yield can come from trading fees, liquidity pool tokens, or additional third-party staking fees. All of these are usually volatile and require active tracking.
  • Total Value Locked (TVL): I only consider investing if there is at least $1M in pools and there is active trading in those pools else you expose yourself to more slippage and liquidity risk.
  • Liquidity to trading volume ratio: When Trading Volume > Liquidity that feels particularly dangerous (volatility/pumping/dumping etc.)
  • Price slippage: Particularly important for small pools where you are a significant % of the pool which impacts both your deposit and withdrawal. 
  • Difference between APR and APY: APY assumes compounding which is usually inflated as most people are not manually compounding and rewards don’t stay stable over the course of a year. 

This guide (Part 1, Part 2) is BSC (Binance Smart Chain) specific but the concepts are all solid in case you’d like to dig in further or get alternative perspectives.

The Depths of DeFi

Decentralized Finance could potentially change the way we interact with financial services forever and is a total rabbit hole. Here are some of the “levels of depth” that you can get into DeFi and roughly reflects my journey into the DeFi abyss (yes, I will be overusing this analogy!).

I don’t think that most people should move past the shallows unless you’re interested in the underlying technology, are comfortable with the significant risk, and want to follow the impact of DeFi on the financial services ecosystem. 

Dipping your toe in the water

For most people looking to get access to cryptocurrency and DeFi, the best thing to do is to set up a regular order to buy Ethereum and Bitcoin (e.g. every two weeks) through an exchange like Coinbase and not worry too much more about it.  BlockFi and Celsius offer 5-10% yields on stable coins (USD coins backed by real USD) and this interest can be paid out in cryptocurrency or stable coins. $BTC and $ETH are ~80% correlated to each other but neither are particularly correlated with the stock market. This is probably more than 90% of the financial advisors know which also makes me a little sad, given that they are a gateway to investment products.

Wading in the shallows

Once you’re in the water and you have an account on an exchange like Coinbase or Kraken, you may start buying a few more tokens for projects that you’ve heard are interesting like Solana ($SOL), Cardano ($ADA), Polygon ($MATIC), or Polkadot ($DOT). 

Once you’ve bought your cryptocurrency the natural next step is to consider what else you can do with it 🙂 You will create a MetaMask Wallet and install the browser extension to manage your currencies and make your first swap between cryptocurrencies. You’ll send some $ETH to your wallet and maybe buy something like the DeFi Pulse Index ($DPI) which is a collection of some of the most popular DeFi tokens like Uniswap, Sushi and Aave.

You can probably get most of the exposure and benefits of participating in the crypto and DeFi ecosystem by stopping here. You’ll probably also save a ton of money on transaction fees and a lot of unwanted stress. It’s also probably simple enough to do your taxes by just exporting a file from Coinbase and a wallet CSV export.

Feet off the floor

If you’re wondering what’s next, this is when it starts getting more fun. Instead of just holding assets passively your coins start “working for you” and generating yield – much link investing your fiat (USD) you are investing your cryptocurrency.

The main things you’re going to start doing are:

  • Providing liquidity: You’re not just holding tokens for projects that you like but you’re providing liquidity in pools (LPs)  on exchanges like Sushi or UniSwap
  • Staking: You’ve discovered that exchanges or projects will provide extra incentives for providing liquidity (as LP tokens) or with the tokens directly by staking these tokens and locking up your assets for rewards.
  • Reading and learning: You’re reading more frequently and have discovered things like the Finematics Youtube Channel, the Bankless newsletter and podcast, and maybe Kevin Rose’s Modern Finance Podcast. You understand things like impermanent loss, rug pulls, and the difference between proof of work and proof of stake. 
  • Joining the project communities: You may join a few project discords or telegram chats and potentially even participate in the discussions when you’re really excited about the project. 
  • Friends: You probably have a group of like-minded friends that are at the same stage in their journey that you can bounce ideas off. 

Deep waters

When you are in the deep waters you’re comfortable with the basics, you have a clear strategy and you’re switching projects regularly to try and find the best risk-adjusted reward across different chains. I’m here in my DeFi journey. 

  • New Projects: You’re investing in totally new projects, reading whitepapers/announcements, and staying on top of the latest incentives so you can get the best rewards for your tokens. 
  • Degen: You’ve invested in a few degen projects with high volatility – you’ve been burned by impermanent loss a few times and exited too early or too late. 
  • Multiple Chains: You’re investing across multiple chains like Polygon, Terra, and Solana and complaining about the gas fees on Ethereum all the time. You’re scared to look at how much you’ve spent on gas. You go to https://fees.wtf/ and are sad. 
  • Best Price: You’re using tools like Matcha to look up the best exchange rate for your swaps vs. going to UniSwap by default. You feel good when you save money on fees. 
  • Portfolio Construction: You’re starting to think more about portfolio construction, investing discipline, and having some rules for when you invest and when you exit to improve risk/return. 
  • Leverage: You’re starting to get loans on your stable assets and leverage for some stable liquidity pools but still nervous when you do this (and keep collateral around in case it goes sour). 
  • Governance: You are holding governance tokens for some projects that you’ve been supporting for a while and actively voting on the future direction of the project (much like shareholders vote).  
  • Trimming down: You’ve invested in too many things and constantly have to trim back and rebalance because you’ve collected so many useless coins that you don’t know what to do with them. 
  • Portfolio Tracking: You’re using tools like Zapper, Zerion, and Debank for cross-chain — you may even get frustrated that all these tools don’t support all the projects that you’re investing in. You probably have a spreadsheet to calculate all your positions and daily yield because the other tools don’t support it.

This chart shows how other chains like Polygon and BSC have increased the overall trading volume significantly in 2021, due to much lower gas fees (cost per transaction).

https://twitter.com/WuBlockchain/status/1401418884310200320/photo/1 

The darkness

I honestly have no real idea what lurks in the darkness, and don’t really want to dive here if I can avoid it, but I can only imagine the following things exist:

  • Programmatic trading: Instead of manually moving around your money you’re writing code to programmatically make trades or execute strategies with specific logic. 
  • Pre Launch: You’re in all the right communities and know when projects are launching when exchanges will list tokens, and maybe even have tokens before the general public. 
  • Arbitrage: You have a deep understanding of the incentives, risk, and arbitrage across chains and are able to systematically take advantage of these before retail investors (much like traditional finance).
  • Moving markets: You’re pooling assets, taking out flash loans, or in small communities of large investors to take advantage of scale and your trades are actually moving markets. I recently came across a tool called Furcombo which is a no-code tool to let users use flash loans to take advantage of price arbitrage across decentralized exchanges. 
  • Stacked Leverage: You’re taking advantage of stacked leverage and incentives which is hard for normal retail investors to understand or access.  
  • OTC: You’re not trading using conventional systems because your trades are so large that you can get better rates over the counter 🙂

Here is a similar take from the folks over at Finematics, who produce great content and I’m a support of theirs on Patreon.


I hope you enjoy your experiences throughout your journey in DeFi, but unless you want to dedicate a lot of time and mental space to it, wade in and just have fun the shallows and rest safe and easy 🙂

Why Decentralized Finance?

One of the movements I’m most excited about is decentralized finance. Here is the description is taken directly from the Investopedia article which sums it up nicely. 

“Decentralized finance is a system by which financial products become available on a public decentralized blockchain network, making them open to anyone to use, rather than going through middlemen like banks or brokerages. Unlike a bank or brokerage account, a government-issued ID, Social Security number, or proof of address are not necessary to use DeFi.”

One of the better crypto funds I’ve come across, 1kx, estimates that 35% of the cost of the labor market is driven by establishing trust – legal, tax, accounting, auditing, KYC, etc. DeFi refers to a system by which software written on blockchains makes it possible for people who have no established relationship or confidence in each other collaborate without going through a middleman or central authority with a trustless transaction. It puts established centralized institutions such as banks, clearing houses or governments at risk and as such is one of the most disruptive ideas of our generation. 

The blockchain is enabling a shift from the “internet of information” to the “internet of value” where information and value transfer can be written into the same protocol and the incentives of users and developers are more closely linked than ever before. 

We are still in the early innings of decentralized finance; even though there is ~$75BN locked in the ecosystem, the global financial system is close to $100TN (1000x the size). DeFi only really saw the volume pick up a little over a year ago in May 2020 (the start of the “DeFi Summer”). 

Source: https://www.coingecko.com/en/defi – About $75BN in total value locked in July 2021. 

This evolution from traditional finance to decentralized finance is not going to be a smooth ride — the incumbents are centralized institutions like governments, banks that are deeply ingrained in our politics, economics, and culture. The disruption is all bottoms up and global by design and these central institutions are not going to embrace change or give up control quietly.  

Traditional or Centralized vs. Decentralized Finance

Centralized (traditional) finance gives control to a small number of organizations (banks, governments, clearing houses) which users of those organizations are supposed to trust. In many developed markets we trust these central organizations but it’s not true in many emerging markets, with good reason.

Centralized finance excludes many people in the world. Almost 2BN people in the world don’t have access to the banking system and almost 40% of Americans under 25 are underbanked.  These systems are built on outdated infrastructure and process which have very high fixed costs relative to decentralized finance and lack interoperability. Another thing that we cannot control as individuals is the leverage ratio of central banks, the supply of money (governments can print new USD causing inflation) and this gives us less control of our finances in the long term. 

DeFi, has many structural advantages – better technology, faster, cheaper and no reliance or expense needed for central institutions which operate with much higher costs — physical locations, expensive employees and rigid systems.

For example, international wires using traditional rails can have multiple intermediary banks, complex processes, unpredictability of the final transfer amounts (FX and fees) long wait times, and high transaction cost. It’s expensive, slow, and feels awful compared to crypto rails. When you first send USDC to a friend in another country using their wallet address instantly, which is fully trackable and is a fraction of the cost it’s so obvious that the incumbent technology and process is broken.

Here is some high level data on two lending platforms on traditional vs. decentralized rails; Lending club (-60% margin) vs. Maker Dao (+99% margin) and decide which is a better business  🙂 

Source: https://newsletter.banklesshq.com/p/defi-is-eating-finance
Source: https://newsletter.banklesshq.com/p/defi-is-eating-finance

Even though decentralized finance has many structural advantages and I’m very bullish on the bottoms up shift towards decentralized finance, the products and experience are still in their infancy and not appropriate for most people.

It is complicated to access, requires understanding of the underlying mechanisms (which are in turn, complicated) and you have almost no protection as a user. There is constant risk of getting hacked, logic bugs in Distributed Applications (DApps), rug pulls, user error and no FDIC insurance to save you if the sh*t hits the fan. If your wallet or the projects you’re investing in gets compromised you lose your money and there is no way to get it back. The tax code in the US also treats cryptocurrency like property which means that every time you swap currencies it’s a taxable event which is also no bueno for your taxes. The attitude of many enthusiasts in the ecosystem is one of “do your own research” not one of protection or support – proceed with caution even if you are curious.  

Intro Articles

If you’re interested in digging in further, here are a few articles that I think are worth checking out:

Podcasts


I’ll be writing a series of posts on DeFi and my experiences over the next few weeks — the next about the depths of defi and the different levels I’ve experienced personally over the last year.

Crypto Investment Strategy

Bitcoin has increased by 300% in the last three months from $10k (Oct 3) to $33k per $BTC (Jan 3). Ethereum has also increased by 270% in the same period from $350 (Oct 3) to $950 (Jan 3) per $ETH.

I started buying Cryptocurrency in early 2013 ($BTC mainly) mainly because I thought it was an interesting concept at ~$50 a coin. I ‘lost’ most of these coins as part of the Mt Gox Bankruptcy in 2014. I’m hopeful that 10-15% of our holdings may be returned soon, after seven years of waiting.

The US government has printed more than 20% of the total USD in circulation in 2020 alone (over $USD 9 Trillion) and many people have no idea we just got a lot poorer. Given this is happening globally (across governments) I’m starting to think that I should have a more significant percentage of my savings in $BTC and cryptocurrency in general over fiat ($USD). There are also lots of other benefits/value of cryptocurrency beyond inflation protection but I won’t cover them here.

Ultimately, I’d like to allocate 10%+ in Crypto, 20% in technology companies (private), 30% in real estate and 40% in public equities (mostly in tax advantaged retirement and non liquid accounts) but this will take many years and a good amount of luck, too 🙂

Given these observations, here is how I’ll modify my strategy going forward.

Crypto Strategy

  • Focus on $BTC and $ETH: Most of my $BTC is locked up in Mt. Gox (stuck in bankruptcy proceedings), and this counts towards my overall allocation. I assume around 15% of coins returned at some point as $BTC (not fiat). My next largest position is ETH which I’ve had for years. I plan to hold BTC/ETH/All Altcoins in a 50/35/15 ratio in terms of USD fiat value.
  • Regular Purchase: I started taking 15% of my paycheck (2x per month) and purchasing $BTC and $ETC in an equal ratio (50/50) as I am over indexed in $BTC. The goal here is to remove emotion from the decision and dollar cost average over the next few years.
  • Crypto Savings Account: I moved all my extra money to BlockFi and now Celsius (referral links). I have kept some $BTC and $USDC (USD stablecoin) in BlockFi the last year and would rather make 5-8% interest vs. 0.5% interest in traditional finance alternatives. Note that BlockFi is not risk free (they are lending like banks do) but they do have strong security measures to protect your collateral.
  • (optional) DeFi: I have positions in all the stuff powering Decentralized Finance (DeFi) on the Ethereum network, which started for fun but now is more significant (which is how $BTC started for me anyway). I play around with staking, liquidity pools and lending but beware the gas fees (I got burned). My largest position outside of ETH is in this DeFi Pulse Index (https://defipulse.com/blog/defi-pulse-index/) which is a weighted index of all the tokens powering DeFi.

I also hold small amounts of other Altcoins like Stellar Lumens ($XLM), Polkadot ($DOT), Ripple ($XRP), Filecoin ($FIL bought in the 2017 SAFT), Arweave ($AR), UNI ($UNI), Sushi ($SUSHI), Cosmos ($ATOM), Solana ($SOL) as well as about a dozen others, but those are more out of interest than part of an actual strategy. I also added NFTX as an index for collectibles to the mix.

All of this is still very experimental, and I wrote this up to share more easily and get feedback. Despite dabbling for eight years, I still feel like a n00b most of the time in the crypto world.

Unbundling your Job

Why do we have jobs? Jobs provide us with a bundle of many things, which is why they’ve been around for so long:

  • Predictable cashflow: cover lifestyle costs, plan for the future.
  • Benefits: 401k retirement accounts, health and life insurance, paid time off, access to new capital such as mortgages.
  • Purpose: creative outlet, sense of accomplishment, contribution towards something bigger than yourself.
  • Identity: personal and company branding, access to opportunities and people that would not otherwise be attainable.
  • Community: friendships, human contact, collaborating with others towards a shared purpose.

A job as a bundle was an important innovation, particularly when people spent a lot of their careers working at the same place for a very long time. But this innovation could create fragility in people’s lives — if they stop working in their jobs they lose this entire bundle of important life pillars which increases the switching cost for work. For example, my father in law has been a neurologist at the same hospital for 35 years; his purpose, sense of accomplishment and community are all closely tied to his work. When he retires he will lose all these important parts of his life at the same time and it may hit him harder than if parts of his life were more diversified.

With the rise of the passion economy, I believe we will start to see more unbundling of work where people will get predictable cashflow, purpose, and community from different places and it will ultimately lead to more antifragility in people’s lives which I think will be positive for society.

I’ve been starting consider what it would look like to unbundle the predictable cashflow component from my job. A couple of areas that I’m starting to explore, beyond dividend focused public markets investing are below:

  • Franchises: One idea could be investing in / running franchises which can have quite low initial investment costs, fast payback periods and decent margins which can lead to predictable cashflow. You would need to diversify the type of franchises to invest in so you’re not over-indexed on specific sectors e.g. boutique fitness or fast-food.
  • Real estate: A diversified real estate portfolio which focuses on yield is another interesting product to generate cash flow from rental income. I’m currently investing in tools like Fundrise and potentially Cadre to learn how each of these work.
  • Decentralized Finance (2021 Update): Decentralized Finance powered by cryptocurrency allows normal people to access financial grade products in a distributed way v.s. going through centralized (traditional) financial services institutions which take most of the revenue and profits for themselves.

This is just an idea, and I plan to continue to iterate on this concept as I continue to refine my thinking on the subject.