Conversation

Dan Held
@danheld
1/ [November Bitcoin Yield update] Over the last 2 years, I’ve earned ~2BTC with various yield generating services to earn a historical average of 1-5% on ~25 BTC. However, many things have changed these last few months! Here’s my journey and how to guide👇
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Dan Held
@danheld
Replying to
@danheld
3/ Earning a yield enables you to stack more sats, or reduce the temptation to sell your coin through earning an income. The yield you earn comes with RISK! Below is my current allocation for October (will update MoM) (yellow = changes)
docs.google.com
Bitcoin Yield Spreadsheet
Personal Portfolio May Portfolio Companies,Bitcoin,Yield,Term,Personal Notes Lending Ledn,1.3,5.25%,OT,Ledn hasn't used Genesis since October, has their own book Genesis Trading,10,4.5...
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Dan Held
@danheld
4a/ [October>November Changelog] TL;DR - Not much. Last tweet storm I covered: - SEC and lending - New participants and rates But not much has changed since then. Here's a recap for those who didn't see it.👇
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Dan Held
@danheld
4b/ SEC and Lending The SEC has stated that they consider a wide variety of lending platforms as violating securities law. Because of this Coinbase shut down its plans for a lending service after.
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Dan Held
@danheld
4c/ After talking to a few of the lending platforms in the space, there seems to be a few factors that increase risk of enforcement: - If they service consumers vs accredited investors - If they continue to service clients in jurisdictions that have asked them to stop
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Dan Held
@danheld
4d/ However, the SEC has little desire to make these platforms go bankrupt. It is unlikely they would shut these platforms down in a rushed manner that would cause massive losses for consumers. The most at-risk platforms for enforcement seem to be: Celsius, Nexo, and BlockFi
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Dan Held
@danheld
4e/ Other updates: - Rates have stabilized around 2% - FTX added - A new service was added that I can't disclose. What's really cool is that they only lend my coin to overcollateralized borrowers which dramatically reduces risk.
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Dan Held
@danheld
5/ Where does the yield come from? Most of the borrow is going to the GBTC arb trade, shorting, DeFi, or the futures “cash and carry trade.” (for all lending platforms)
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Dan Held
@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
9/ Note: I am not a fan of lending/borrowing services that have a token. There is no reason why you need a token as it introduces regulatory and structural risk: - Cred blew up earlier this year - Custody issues with Celsius - NYAG sent notices to Celsius and Nexo
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Dan Held
@danheld
10/ There are other ways to earn interest through lending, which include lending coins to exchange margin pools: - Bitfinex: rb.gy/rdgbb4 What is beneficial about this method is you understand your counterparty risk.
bitfinex.com
Bitfinex | Cryptocurrency Exchange | Bitcoin Trading | Futures Trading | Margin Trading
Bitfinex is the longest-running and most liquid major cryptocurrency exchange. Founded in 2012, it has become the go-to platform for traders & institutional investors.
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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? (Pull 11/29 split spread) 2/28 $80k strike = $2,070 premium (21% annualized) 2/28 $100k strike = $1,280 premium (13% 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% The quotes above are quite a bit closer to the money. 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
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. What they’re looking to do is create DeFi options trading (specifically covered calls) on top of Bitcoin using DLCs. Super cool.
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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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