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How fast can I grow $1,000 in DeFi? - Week 1.
April 22nd 2021
It's day 1 and I'm starting off with $1,000 ($1,117.18 to be precise) to invest in Harvest.Finance. My initial rules are as follows:
Invest 50% of my total balance in the highest APY pool on Harvest.Finance that has at least $500k in liquidity.
Hold the other 50% in a US pegged stablecoin (Binance USD, BUSD). The rationale here is that if a smart contract fails in the farming portion, my losses are limited to 50%.
Withdraw the full amount from the pool into BUSD once I have both a) made back at least my transactions fees, b) see a pool offering a higher APY.
Go back to step 1 and repeat.
To be clear, I see a very high chance that I will lose all of this money. If you plan to do yield farming, I suggest you plan on losing all of your money too. This is highly speculative. I don't see it as anything more than entertainment.
Ethereum or Binance on harvest.finance
As of today, the APYs are higher on Binance than on Ethereum. Fees are also lower on Binance, so I will go along with Binance tokens for now.
The EPS-BNB pool on harvest is paying over 2,700% annual return and has about $500k in it, so I'm going with that one. EPS is Elipsis, which is the governance token of a Binance stable coin exchange. BNB is the Binance token.
50% of my current balance is $500, so I'll be investing about $500 in the EPS-BNB pool.
To get into this pool, I first need to put EPS and BNB tokens in the EPS-BNB pool on Pancakeswap (binance's decentralised exchange).
To do that, I first need to buy EPS and BNB on pancakeswap.
Converting from fiat to BNB (actually first I went to BTC)
It was a nightmare getting cash converted into BNB. Binance wouldn't accept my credit cards. Coinbase doesn't seem to offer credit card options in Europe (unless you have a 3D secure card). Ultimately, I had to buy Bitcoin on Cash app, and then using a bridging tool to move that BTC over to a Binance wallet.
I bought 0.019 BTC for $1,010. So $1,010 is the original cost basis for this project.
I then transferred 0.019 BTC over to BTCB (wrapped BTC on the Binance chain) using the Binance Bridge (you basically send in BTC and they give you BTCB). I've now got 0.019 BTCB in my Binance Chain wallet (a browser extension that you can install on Brave or Chrome).
Buying EPS and BNB
Next, I needed to buy an equal amount of EPS and BNB over on pancakeswap.finance.
To be able to use pancakeswap, I needed BNB in order to pay for gas. I forgot about this so I had to go in to Binance.com, send myself about $100 worth of Eth I had in another wallet (0.0417 Eth to be precise) and swap that into BNB. [That increased my total cost basis up to $1,117.18 (including Ethereum gas costs of $5.99). The transaction confirmation was quick.]
I then converted Eth to BNB on Binance.com and got 0.189 BNB.
I then sent those BNB to my Binance Chain Wallet to pay for gas transactions on Pancakeswap. This was also pretty quick.
BTW, at this point, I'm showing $1,082 in my Binance Chain Wallet - which means I've lost about $40 in fees and net price fluctations so far.
Finally, I can buy the following on Pancakeswap.finance :
0.00475 BTCB worth of BNB
0.00475 BTCB worth of EPS
0.0095 BTCB worth of BUSD
A note on BUSD - a binance US dollar pegged stablecoin
You can look at liquidity for the different tokens on pancakeswap. Liquidity for USDC is very low - even though that would be my preferred option as it is the world's largest US dollar pegged coin. There is reasonable liquidity for both BUSD and also TUSD. I can't tell which is riskier. Both are probably somewhat risky, so I'll go with the one with the largest liquidity, which is BUSD. Maybe later in this project, if I grow funds, I'll move some of my TUSD back over to Ethereum and to USDC (or even back to fiat dollars).
As a side note - you can see that liquidity on pancake swap is not that far off uniswap:
Adding to Pancakeswap EPS-BNB Liquidity Pool
With EPS and BNB tokens in hand, I went to the liquidity section of Pancakeswap and deposited BNB and EPS:
and here's what I get in return - some EPS-BNB tokens (that I can deposit on Harvest.Finance):
What's happening in the above step is that I'm contributing BNB and EPS to a pool that allows pancakeswap to offer BNB-EPS exchange services. In return, I get paid my proportional share of the 0.17% transaction fee that goes to the liquidity pool.
Depositing EPS-BNB on Harvest.Finance
By this time (3 hours later), the return on the EPS-BNB pool is down to about 1,200%, haha. I shall proceed nonetheless! I'll additionally choose to stake my deposit, which means I'll get FARM tokens (bFARM I think, which is the Binance form of FARM). I'll be able to sell these off at a later stage to get more BUSD or similar. The nice thing here on Binance is that fees are low so I'm not getting crushed by doing the additional staking step.
What's happening here is that Harvest Finance is putting my EPS-BNB tokens into a larger pool. There are EPS tokens that are being paid out as rewards right now because EPS is relatively newly launched. Harvest is selling those off in order to buy more EPS-BNB tokens to add to the larger pool. So, when I withdraw my EPS-BNB tokens, I hope to withdraw more than when I first put them in.
Some comments on risks:
There are a lot of different things that could go wrong (or right) for me here:
BNB or EPS prices might go down. Even if I do well farming on harvest and/or get good fees in the pancakeswap liquidity pool, this could all be undone by BNB or EPS going down.
Impermanent loss. The BNB-EPS pool itself in Pancake swap supports exchanges on the platform. Certain exchanges (for example, participants swapping in BNB and swapping out EPS - when the price of EPS is rising) can result in an unrealised loss in value to the pool. If this is not compensated by the 0.17% exchange fee earned by the pool, then I can lose out.
Smart contract risk - There are multiple layers of contract risk here - at the BNB and EPS level, at the Pancakeswap level and at the Harvest.Finance level (and then also at the Harvest.Finance staking level). It's possible that contracts hit a bug and funds get stuck. It's also possible the contracts or pools get hacked.
A comment on fees:
It seems I've spent at most 0.002 BNB on transaction fees. This is less than one dollar. So, I think I can just move my money between pools as the return falls. I'll probably just look back every week and move my funds to a pool that is giving - ideally a 1,000%+ yield annualised.