So you want to get paid on Polkadot?

My dad always told me, “the best way to learn is to do”, I couldn’t agree more. Almost everything I’ve learned in crypto has been by reading the documentation, spinning up a new wallet and testing protocols out. In that spirit, today I’m going to offer you 3 different Polkadot trading strategies that you can deploy today to get your beak wet. I’m going to list them in order of complexity, offer no code strategies and I will attach each applications documentation below so you can review.

Lending Stablecoins:

Similar to traditional financial markets, we have money markets in crypto. Money markets are a place where you can lend and borrow with other market participants. Borrowers are required to both pay an interest rate and deposit sufficient collateral to ensure the loan can be repaid at all times.

On Polkadot we have many of these markets, Interlay, Moonwell and soon Bifrost. There is a range of assets you can both lend and borrow but to keep it simple we’ll stick to stablecoins for now. At the moment there are some great APY to be had. 25% on Interlay USDT and 29% on Moonwell USDC.wh (Wormhole)

The advantage of this strategy is it is simple, you can do the transactions and move on with your life. No need to manage your positions actively and little market risk as you are dealing in stablecoins. I cannot stress this enough, making 25% in the stock market would be seen as a record return. If you can capture that with a couple of transactions on Polkadot, then why not?

Stablecoin Strategy:

• Get USDT on Binance
• Withdraw to Statemint a.k.a AssetHub
• Bridge assets to either Interlay or Moonbeam
• Deposit stablecoins into the money market.
• Collect APY

Doing hard and useful work:

In all markets, cooperating with the hand of the free market pays. If you’re willing to do hard, dirty work you will be offered great rewards. This brings us to our next strategy, it’ll pay more but requires more work and patience.

There are many liquid staking tokens on offer on Polkadot, vDOT, LDOT, stDOT. In short, users deposit DOT into the staking pool and get issued with liquid staking receipt tokens which represent their percentage share of the DOT staking pool.

E.g. if you deposit 1 DOT into stDOT now, you will get 0.9480 stDOT in return. It’s the same the other way around, if you unstake 1 stDOT you would get 1.0549 DOT in return. This ratio changes every ERA (day) as more DOT is earned from staking rewards and deposited into the pool. You can easily review the current ratio on each application directly. When a user wants to convert their liquid staking tokens back into DOT, they have two options. Either sell their receipt tokens into the pool or unstake and wait 28 days.

People hate to wait, this is our edge.

So we now know from this above example, if we can buy 1 stDOT for less than 1.0549 DOT we would make a profit. We would just buy the token, unstake it and wait 28 days.

We’ll have to do some maths for a moment, but bear with me.

DOT has a staking reward of roughly ~15%, so over 1 month you’ll make ~1.17% (calculated as (1 + 0.15)^(1/12) — 1) return just staking and holding a liquid staking token. Meaning for us to be better off than just staking DOT, we would need to be buying at discounts greater than ~1.17% after transaction fees.

All of these liquid staking tokens are listed in many venues giving us ample opportunity to look around. For example, over the last 2 weeks, stDOT on StellaSwap has been trading at a 3.7% discount to its redeem price! This is a big pool, you can trade thousands of DOT at this price. Running the numbers we see that if you earned 3.7% a month every month for a year that would net you ~55% return in 1 year. A crazy number, the power of compounding at work.

The only downside of this strategy is it’s hard work, you need to look through pools, figure out ratios and discounts then submit the appropriate transactions. It’s work, but it’s not complicated and there are endless opportunities like this for those willing to deal in liquid staking tokens.

Doing hard work strategy:

• Hold DOT on chain
• Review prices of liquid staking tokens and their ratios
• Buy liquid DOT tokens at a discount greater than 1.17%
• Unstake
• Wait 28 days
• Repeat

Chasing returns in V3 concentrated liquidity pools:

If I wasn’t a developer and I wanted to make serious money in DeFi this is what I would spend my time doing. But beware, with great rewards comes greater risk. I’m going to presume you know what concentrated liquidity is, if not you can read my previous article or watch the finematics video linked below.

When we provide liquidity in a V3 pool, we pick our price ranges and concentrate our liquidity. The tighter we set our range, the more trading fees we earn as more of our tokens are being bought and sold during each transaction that goes through the pool.

So if you can predict rough price ranges in high volume pools, you can collect obscene amounts of fees. Remember most of the V3 liquidity on offer on Polkadot is not tightly concentrated, its teams or project investors trying to provide initial liquidity to these pools and setting very safe ranges. This gives the highly active liquidity provider an edge as they can very nimbly adjust their ranges on a daily basis to ensure that they are always collecting a very large portion of the trading fees going through the pool.

I was running an atomic batch transaction trading strategy in a d20 pool and I saw another wallet using 2600 USD of assets to provide ultra tight liquidity, as I was very active in this pool he was making between 400–500 USD a week. Making that kind of return is an amazing way to spin up an account for a motivated DeFi operator who has a low bankroll.

Now bare in mind, this user needed to do 3 things.

• Find pools with high volume and incentive rewards
• Concentrate his liquidity to a very tight range and adjust his range multiple times a day
• Manage his impermanent loss risk

As our user was providing such tight liquidity, if the market was to move significantly this user takes on an impermanent loss. This is why you need to be extremely active and manage your risk appropriately. This isn’t a strategy for part-time market participants. You need to be very motivated to get this to work at the highest levels of efficiency.

Chasing returns strategy:

• Find a concentrated liquidity pool with high volume, incentive rewards and few others providing highly concentrated liquidity
• Use Bollinger bands or basic technical analysis to estimate a price range
• Providing liquidity to this price range
• Collect excessive shares of LP trading fees.
• Be extremely nimble moving into and out of positions.

All of these strategies can and do make money, just be careful to manage your risk on each transaction, keep a level head and always try to understand why you’re getting paid and not just how.

Thanks for reading, If you like Polkadot, decentralised finance and crypto, you can follow me on Twitter for more @OnlyDeFiGuy

Relevant links:

Interlay: https://docs.interlay.io/#/guides/lending

Moonwell: https://docs.moonwell.fi/moonwell/moonwell-overview/lend/supply

stDOT StellaSwap: https://docs.stellaswap.com/how-to-guides/wstdot

Finematics V3 video: https://www.youtube.com/watch?v=Ehm-OYBmlPM&t=354s&pp=ygUOZmluZW1hdGljcyAgVjM%3D

Bollinger bands: https://www.investopedia.com/articles/technical/102201.asp

Concentrated liquidity: https://docs.uniswap.org/concepts/protocol/concentrated-liquidity