How Do I Make Money in Crypto, Part 2

First of all, the title for this post is misleading. This post is about some of the tools you can use to make money. You can also use those same tools to lose money. Perhaps all of it. So think of this as a rhetorical exercise…if I had all the answers I would probably be on a beach somewhere.

A few weeks ago, I provided some examples of finding yield in crypto. Almost all of those ideas involved protocols built on Ethereum, which makes sense given the general dominance of Ethereum over other layer -1 blockchains like Solana, Avalanche, Algorand, etc. However, it is no secret that fees on Ethereum can take a serious bite out of returns, especially when deploying modest sums of money in any given strategy. For instance, depending on the contract, swaps on Uniswap were hovering around $60–80 per trade for weeks, with fees for staking tokens even higher. So if you are looking to invest $1,000 into some of the strategies mentions, you’re looking at blowing over 25% in fees for a round trip — $70 to buy, $100 to stake, $100 to unstake, and another $70 to sell. This is not practical.

The obvious answer is to look beyond Ethereum. There are three places we can look: the same protocols built on Ethereum layer-2 chains, the same protocols on alternative layer-1 chains like Solana or Avalanche, or entirely different protocols on alternative layer-1 chains.

There are literally thousands of protocols out there so the trick is finding the ones you are most comfortable with, in your preferred ecosystem. there are

Below I update the protocols I discussed previously with their available chain, and add some new ones as alternatives to ETH only protocols. This is in no way exhaustive, nor are they recommendations or rankings of any kind. (I happen to think Algorand is one of the most promising chains out there, but no ALGO native protocols are listed here.)

Hopefully, this post helps to shed light on just a few of the options available in decentralized finance. If you’d like additional information on a particular protocol, I’d recommend checking out the protocol websites and whitepapers. DeFiLlama, DappRadar, and Token Terminal are also great resources for information and market data.

Fixed Rate Lending / Borrowing:

Protocols mentioned in part 1:

1. Notional Finance (ETH only)
2. Element Finance (ETH only)

Alternatives

Pendle and Tempus are both very similar to Element in that users stake yield-bearing tokens and the protocol splits these tokens into a yield token and an principle token. Another to watch here is Sense Finance, but their app is not live yet and it looks like it will only launch on Ethereum.

88mph offers pure fixed-rate yield and is an alternative for both Notional and Element. Users choose a maturity and can currently stake 21 single, non-yield bearing tokens and receive fixed yield on those tokens, which range from 0.01% for Link to 4.12% for CRV. Technically, this is similar to Aave or other yield farming protocols, but the difference is 88mph offers fixed rates for set maturities, instead of perpetual, variable yields like Aave, Compound, etc.

Barnbridge and Tranche Finance are alternatives to Element, where users stake yield-bearing tokens in return for a fixed yield, although the mechanics are very different. Both are yield risk-tranching protocols that split yield producing LP tokens into two tranches: a low-risk, low-return fixed rate token, and a higher-risk, high-return leveraged variable rate token. Users can choose which tranche they would like to participate in.

Availability

Pendle — ETH, Avalanche

Tempus — ETH, Fantom

88mph — ETH, Polygon, Avalanche, Fantom

Barnbridge — ETH, Optimistic, Polygon, Avalanche, BSC, Arbitrum

Tranche Finance — ETH, Polygon, Fantom, Avalanche

Staking

Protocols mentioned in part 1:

1. Lido Finance (ETH, Terra, Solana)
2. Curve (ETH, Arbitrum, Avalanche, Fantom, Harmony, Optimism, Polygon, xDai)
3. Convex (ETH only)
4. Bancor (ETH only)

Alternatives

There are hundreds of other protocols that allow users to stake the native token in the protocol for rewards. For most revenue generating protocols, this is the primary mechanism for fee distribution for token holders. There are too many to list, however, a good place to start is to consider looking at DeFi Llama or Token Terminal for protocols with the highest total value locked and protocol revenue. (Just be careful, of the protocols that have tokens not all reward token holders with fees, like dYdX for instance, so be sure to check the docs for tokenomics details.)

https://www.tokenterminal.com/terminal/metrics/revenue

Providing Liquidity

Protocols mentioned in part 1:

1. Curve (ETH, Polygon, Avalanche, Moonbeam, Fantom)
2. Uniswap (v2 — ETH only, v3 — ETH, Polygon)
3. Balancer (ETH only)
4. Sushi — formerly SushiSwap (ETH, BSC, Polygon, Avalanche, Harmony, OEC, FUST, Telos EVM, Moonriver, Celo)
5. Bancor (ETH only)

Alternatives

All DEXs require liquidity providers, so if there is a particular DEX or liquidity pool you are interested in investing in, it’s just a matter of finding it. It may seems like a tall order, as there are 374 DEXs according to DeFi Llama, but platforms like Beefy can help simplify the search. Also, you’ll want to find the DEXs with the highest volume in the particular pool you provide liquidity for.

List of DEXs — https://defillama.com/protocols/Dexes

I also mentioned Beefy Finance and Alpha Finance here in the previous post, but those are really yield farms so I’ll include those below.

Asset Managers / Yield Aggregators / Yield Farms

Protocols mentioned in part 1:

1. Yearn (ETH, Fantom)
2. BadgerDAO (ETH only)
3. Beefy Finance (BSC, Polygon, Avalanche, Harmony, Cronos, Moonriver, Fantom)
4. Alpha Finance (ETH, Avalanche)

Alternatives

Asset managers and yield aggregators are primarily tools to simplify the process of providing liquidity while adding additional features. Essentially, they all layer these tools on top of various DEXs so picking one versus the other is simply a matter of finding one that supports you choice of tokens and chains.

List of yield aggregators— https://defillama.com/protocols/Yield%20Aggregator

Option Vaults

Protocols mentioned in part 1:

1. Ribbon Finance (ETH only)
2. Squeeth (ETH only)

Alternatives

There are two main types of options protocols: structured products and marketplaces. Ribbon Finance and Squeeth, a product from the Opyn team, are both structured products which employ options strategies automatically in a particular product. Messari describes these protocols as “protocols [which] sit on top of option marketplaces and offer vaults for users to deposit funds into. Each vault executes a defined options-based yield strategy underneath abstracting complex pricing and risk management away from users. Similar to how Yearn executes yield farming strategies for money markets and exchanges underneath their vaults.” Marketplaces are markets where users can buy and sell individual options on particular tokens.

StakeDAO is essentially a one-stop-shop for various investment strategies, including passive strategies, options vaults, arbitrage strategies, LP farming, and staking. Several of their options strategies and LP farms are currently yielding over 30%, so worth considering. ThetaNuts and Dopex are options vault protocols similar to Ribbon and provide structured products on various coins and tokens. Dopex also has an interesting token/governance model, which makes it an interesting hold in its own right.

Katana, Friktion, and Chest are all Solana based option vault protocols and apparently built by the same team. Katana is a straightforward option vault protocol like Ribbon while Friktion offers some more advanced strategies like pure volatility exposure through options and impermanent loss protection. Chest, or Treasure Islands, is a gamified LP farm that combines several elements of DeFi in a game that pays users using various DeFi native strategies, including options.

If you are interested in the flexibility of trading individual options, Lyra Finance and Hegic are options DEXs available in the US, albeit with a fairly limited orderbooks. Unfortunately, the protocols with the deepest orderbooks and most advanced features, like Zeta Markets and Premia Finance, are unavailable to US users.

Finally, PsyOptions provides both an orderbook marketplace for individual options, which is not available in the US, and a suite of structured products similar to the other options vaults mentioned above, which IS available in the US.

More on a few of these here: https://messari.io/article/overview-of-options-vaults?referrer=asset:ribbon-finance

Availability

StakeDAO — ETH, Avalanche, Harmony, BSC, Polygon

ThetaNuts — ETH, Avalanche, Aurora, BSC, Boba, Fantom, Polygon

Dopex — ETH, Arbitrum, Avalanche, BSC

Katana — Solana

Friktion — Solana

Chest — Solana

Hegic — ETH, Artbitrum

Lyra Finance — ETH, Optimism

Premia — ETH, Arbitrum, BSC

Zeta Markets — Solana

PsyOptions — Solana

Nodes

Protocols mentioned in part 1:

Nope.

Alternatives

Pass.

Outsourced / FaaS

Protocols mentioned in part 1:

1. Exponential Capital (ETH only)
2. Reimagined Finance (ETH, BSC)
3. Node Squared (ETH only)

Alternatives

Many. I added Aggregated Finance, purely as a valuation play, but these are still very risky. While there are some that trade on Avalanche or BSC, buying these tokens is trusting the team to not only deliver technically, but also the investment team to beat the market. I’m comfortable with the names above and will just leave the rest alone.