We’re going to analyze the basic tactics used by DeFi investors — starting with simple holding and ending with some hybrid strategies. Keep in mind that in DeFi landscape it’s critical to adjust your strategy to your investment goals and risk tolerance.
Decide Upon Your Basic Asset
Let’s begin by choosing your base asset. This choice will affect every step of your DeFi journey. Usually, it comes down to USDT or TON.
Choosing TON allows you to take advantage of more opportunities on decentralized exchanges (DEXs), e.g. on STON.fi and other similar platforms. More varied trading pairs and frequently cheaper transaction fees are made possible by TON’s native integration. It does, however, expose you to TON’s price volatility.
USDT as a stablecoin provides price stability, but it may also restrict your options in certain protocols that are specific to TONs. For investors who are risk averse or as a hedge against market volatility, it’s a great option.
✏️ Pro tip. Seasoned investors use a hybrid strategy that keeps TON and stablecoins in balance. This approach keeps a steady core in the portfolio while enabling swift pivots based on market conditions.
Let’s now observe the most frequently used tactics.
Basic Holding
Despite its apparent simplicity, holding effectively involves more than just purchasing and putting it away. It includes:
- Average Dollar-Cost (DCA). Purchasing TON in fixed dollar amounts on a regular basis, irrespective of price changes.
- Setting price alerts. Make use of tools that alert you to noteworthy price changes so you can enter or exit the market at the right time.
- Comprehending the tokenomics of TON. The distribution plan, inflation rate, and overall supply of TON can all have a big impact on its long-term value proposition.
Liquidity Pools
A key component of DeFi is liquidity provision. To enable users to trade tokens, DEXes require liquidity, and they reward liquidity providers with APY.
How it works. You deposit both tokens into a liquidity pool, e. g. TON/STON. The ratio of tokens in the pool changes as trades take place in order to keep the product (x * y = k) constant, where x and y represent the quantities of each token.
Liquidity providers receive a portion of every transaction made in the pool. On STON.fi it is 0.2% of the transaction amount. For example, a person who supplied 50% of the total liquidity will receive half of the 0.2% of each transaction in that pair.
Liquidity pools have fluctuating annual percentage yields (APYs). That is why it is critical to monitor liquidity pools and identify the most relevant ones.
❓ How do I calculate APY? To calculate your actual APY:
- Take the advertised APR.
- Compound it according to how frequently rewards are distributed.
- Adjust for the actual investment period.
Equation: APY = ((1 + APR / Number of times compounded per year) ^ (Number of times compounded per year) – 1)
⚠️ Remember to account for impermanent loss risk.
Impermanent Loss (IL) is a key concept for liquidity providers. IL occurs when the price ratio of your deposited assets varies from when you deposited them. For example, if the price of TON doubles in comparison to STON, you would have been better off holding the assets separately rather than in the pool.
Equation: 2 P (1+P)-1, where P represents the price ratio change.
Learn more about impermanent loss in the STON.fi guide
Option: Liquidity Provision plus Farming. Some DEXs, including STON.fi, provide additional incentives for yield farming. Here’s how it increases your returns:
Base APY (after trading fees): 2.92%
Farming APY: 17%.
Total APY: (1 + 0.0292) * (1 + 0.17) – 1 = 20.41 percent
Remember that these rates fluctuate and should be monitored on a regular basis.
How to Provide Liquidity on STON.fi
Staking
Staking is a powerful way to generate passive income, especially in Proof-of-Stake networks like TON.
How it works. Assets are locked up while the investor verifies transactions on the blockchain, in return for validating transactions, the investor is rewarded with a share from a blockchain fee.
1️⃣ If you stake TON. Popular platforms: Tonstakers, bemo.
Nowadays a liquid staking is the most frequent option: it is when you stake a token and get a yield plus Liquid Staking Tokens (LST) as a reward. You may further use LSTs you get in various strategies. For example, you may put them in a lending protocol as a deposit.
Platforms like Tonstakers and bemo offer liquid staking solutions. Here’s what you need to know:
- Minimum stake: 1 TON
- Validation cycle: no need to wait until it ends
- Rewards: distributed daily, often auto-compounded
- Liquid Staking Tokens (LSTs): depend on your staked position (e.g., stTON, tsTON).
2️⃣ If you stake TON-based tokens (jettons). Popular platforms: Tonstakers, Bema and STON.fi.
What you need to know:
- Lock-up periods. Can range from flexible to several months
- Reward structures. Some offer linear vesting, others offer cliff vesting
- Early unstaking penalties. Be aware of any fees for withdrawing before the lock-up period ends
Lending Protocols
Lending platforms bring traditional financial services to DeFi. Allows for loaning cryptocurrency and getting yield from users who pay interest for borrowing tokens from the platform. For example, you may loan TON, USDT, some popular LST (tsTON, stTON) and jettons.
Popular platform on TON: EVAA.
Key Metrics:
- Utilization rate: the percentage of deposited funds currently borrowed. Higher utilization typically means higher APY for lenders.
- Collateral factor: the percentage of an asset’s value that can be borrowed against.
- Liquidation threshold: the point at which a borrower’s position becomes undercollateralized and subject to liquidation.
- Interest Rate Models: most lending protocols use algorithmic interest rate models. As utilization increases, both supply and borrow rates increase, incentivizing more deposits and fewer borrows to maintain balance.
- Risk Management: always diversify across multiple assets and protocols to mitigate smart contract risks.
Combining Strategies
Now, let’s explore how to synergize these strategies for amplified returns.
Example: TON Maximalist Strategy
- Stake TON on Tonstakers, receiving LSTs (tsTON)
- Provide liquidity to TON/tsTON pool on STON.fi
or
- Loan your LSTs tokens on EVAA
⚠️ Attention! This is an imaginary example that should not be considered as an investment strategy.
This strategy allows for multiple layers of yield generation but comes with increased complexity and risk. Key considerations:
- Blockchain and DEX fees. Each step incurs transaction costs. Ensure your transaction size justifies the fees. Read more about blockchain fees in STON.fi guide
- Smart contract risk. Exposure to multiple protocols increases the chances of vulnerabilities exploited by attackers. You should only use audited smart contracts and avoid untested or unaudited contracts.
- Financial risks. Impermanent loss exposure and market price volatility may lead to undesired effects. Still, proper diversification, preliminary testing of new approaches and meticulous choice of protocols may mitigate this risk.
Wrapping Up
Remember, the DeFi space evolves rapidly. What works today might not be optimal tomorrow. Stay informed about protocol upgrades, new yield opportunities, and potential risks. Always do your own research and never invest more than you can afford to lose.
By mastering these strategies and understanding their intricacies, you’re well on your way to becoming a DeFi pro on TON ecosystem.
