Conversation

Dan Held
@danheld
Replying to
@danheld
6/ Risk assessment: When you lend your coins to Ledn, BlockFi, etc. you have to trust that they’ve evaluated counter party risk properly, which includes: - Financials of borrower - Collateral requirements (typically 30-110%) - Trading strategy
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Dan Held
@danheld
7/ As everyone knows, March, December, and May were insanely volatile months. Here’s how they operated through the volatility: - Deposits and withdrawals all processed normally (1-2 business days) - “zero losses in the lending book” - All of the products had near 100% uptime
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Dan Held
@danheld
8/ Note: there may be no benefits to diversification as you do not know the counterparty overlap between lenders (ex: Ledn and BlockFi).
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Dan Held
@danheld
11/ Lending is by far the easiest way for a regular trader to earn yield and at size if you’ve got more coin (ex: call strategies suffer from poor liquidity). Next I’ll dig into covered calls👇
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Dan Held
@danheld
12/ What are “covered calls?” It’s an option trade which has the owner of the underlying asset (“covered”) sell their upside above a certain price (“strike”) in exchange for a payment (“premium”) The more likely that event occurring, the higher the premium (very simplified)
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Dan Held
@danheld
13/ So how does that look with some real numbers? (Pulled 8/10 split spread) 9/24 $60k strike = $1,447 premium (17% annualized) 9/24 $100k strike = $300 premium (3.5% annualized) Annualized is a bit of misnomer -you don’t know what the yield will be the next time you sell calls
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Dan Held
@danheld
14/ Historically I’ve been selling 2-3x current price strikes 2-3 months out and earning an average of 4-6% Because of how intense Bitcoin's bull run has been, I'm not selling any new calls for the time being.
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Dan Held
@danheld
15/ With covered calls you only have exchange custody risk, which is some of the lowest risk you can have. One advantage of covered calls is that if you sell a 1yr+ duration call AND it gets assigned (price > strike) then your premium is taxed as long term cap gains (in the US)
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Dan Held
@danheld
Replying to
@danheld
17/ Coinjoins allow for Bitcoiners to obfuscate their coin holdings through mixing them with other Bitcoiners. In order to create a market of individuals willing to mix, there are makers and takers. Makers post availability to mix, takers pay the makers for that convenience.
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Dan Held
@danheld
18/ Lightning Pool Most simplistically, it is an order book for lightning liquidity (or a channel marketplace) done in a non-custodial manner (note: there is a coordinating server).
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Dan Held
@danheld
19/ DLCs (Discrete Log Contracts) Two parties can bet on a certain outcome based on x/y/z condition being met. For example, what the price of Bitcoin might be tomorrow.
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Dan Held
@danheld
20/ The way it works is that two parties send funds to a multi-sig address. In order to settle the bet, an oracle (a party that pipes in outside data like the price of Bitcoin) signs the contract with a signature that corresponds to the hash of the winning outcome.
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Dan Held
@danheld
21/ I was given a sneak peek into the
@AtomicFinance
beta a few weeks ago. What they’re looking to do is create DeFi options trading (specifically covered calls) on top of Bitcoin using DLCs.
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Dan Held
@danheld
22/ This is done in a self-custodial manner, so you maintain control over your coins more so than on a centralized options exchange like LedgerX. Basically, you’re making a bet on the price of Bitcoin being above or below a certain price (strike) on a certain date (expiry)
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Dan Held
@danheld
23/ Below the interface shows the yield (premium) you receive for selling a covered call of a certain date and price. They’ve done a wonderful job abstracting away the complexities of covered calls.
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