Zero Risk Crypto Investment From Step Zero
This article is for the audience of the Serenity Fund (our website, medium, twitter and social media groups) to have an idea how you can start converting your USD into crypto currencies and receive risk-neutralised, passive investment returns.
Generally, people perceive crypto currencies as volatile and risky. Indeed they are, even Bitcoins moves with daily fluctuations of several percents on average. However, today’s crypto currency ecosystem is robust and comprehensive enough to mimic many traditional financial functions, such as lending, futures, hedging, etc. This gives rise to the possibility of products and services, or structured investments that are free of market volatility. And at the same time, they yield higher returns to compensate the inherent risks of crypto currency industry as a whole. We will elaborate more in other articles.
To embark on the crypto currency investments, you generally need the following three steps:
1) A platform that converts your USD into crypto currencies;
2) A cryptowallet that stores such currencies;
3) A platform that invests your crypto currencies.
You can think of you are investing in a new country, as a close analogy. E.g. Vietnam. You need to have a money changer account, that converts USD into VND. And you need to have Vietnamese bank account. And finally you register a stock investment account with a Vietnamese securities broker to invest your VND. In our case, it’s more like you are buying Vietnamese Treasure Bills.
This country you are investing into now is called Ethereum. For simplicity’s sake, we are not elaborating on this now. Here are the quick guides for each step:
1) A platform that converts your USD into crypto currencies
Each country has a different regime over buying crypto currency. In most countries it’s legal; even in China, there’s tacit permission to do so. There are probably thousands of services providers with scale today globally. For global users, there are a number of big, international ones: Coinbase, Bittrex (global), Bitfinex, etc. Our personal experience is so far good with Bittrex. Coinbase is also most people’s first choice.
Bittrex’s registration guide is here: https://bittrexglobal.zendesk.com/hc/en-us (Help Desk — Sign Up Tutorials) and a number of other things like 2FA.
In addition to open an account with Bittrex, you also need to apply for fiat trading permission, i.e USD transactions. The link is here: https://bittrexglobal.zendesk.com/hc/en-us/articles/360009688359-US-Dollar-fiat-Trading-Deposits-and-Withdrawals. You will be asked to provide additional documents like bank letter proving your address and bank account under your KYCed name, and also your source of funds (maybe not at the registration stage, but you will be asked at some point of time). Generally, there’s no limit in how much you can deposit with Bittrex each time, and they process within one day, usually.
In Singapore’s context, if you are using S$, you might be able to link your DBS bank account with Gemini directly, via a payment services provider Xfers. Or you can try Binance for peer-2-peer exchange, or using local services like XanPool. Usually there’s a cap on how much you buy daily or monthly.
2) A cryptowallet that stores such currencies
Now you have an account to convert USD into crypto currencies. The crypto currencies you purchase are parked under the platform’s custodian wallet, e.g. Bittrex’s central wallet for all their users, until you withdraw it. For the purpose of this investment, you need to withdraw your crypto currencies out to another place.
Different from traditional finance system where you can only open an account with a bank, you can open an account by yourself in the kingdom of cryptocurrency. For this investment, you need to open an account on Ethereum network. There’s a lot more to read on the history and logic of ethereum, but to-date it’s safe network with prove track records, with billions of dollars being moved daily.
The easier and probably the safest way to open an ethereum account is via Google Chrome and install a plugin called Metamask. Metamask is an Ethereum Foundation (the developer of Ethereum) product. https://metamask.io/
Installation and creation of an account is just as easy as installing any Chrome plug-in, and registering any kid-friendly website. But one point to note: as this account is not governed and protected by a bank, you are the only one who is responsible for keeping it safe. The only way to keep it safe is to keep its key, called the Private Key, to yourself. The Private Key is a 64-bit alphanumeric code. During the registration, the Private Key will be converted into Seed Phrase (or Backup Phrase), which is a group of 12 words (in sequence). You should always keep the Seed Phrase to yourself and not to anyone else. The Seed Phrase (or Private Key) is the only and ultimate claim to your account in Ethereum, and all the assets in it. Read this guide before you register. https://coinguides.org/metamask-ethereum-wallet-tutorial/ or simple google Metamask guide and read about it. If you do not trust your own safe-keeping, you can consider a custodian services. We will explain more in another article.
After registration, you will be given an address, a 42-bit alphanumeric code. This is officially called your Public Key, and this is your Ethereum bank account. You give it to people for transaction purposes, e.g. filling this in when you withdraw your crpytocurrencies from Bittrex. This address works for ETH and ERC-20 standards tokens. As an analogy, you can think of ERC-20 as SWIFT in banking systems.
3) A platform that invests your crypto currencies
It might have taken you some time to get fiat transaction approval and read about Metamasks and Ethereum. And now this is the last step.
As this investment is risk neutralised, you are either 1) buying a mainstream coin like BTC or ETH and hedge them; or 2) buying stablecoins, which are USD-pegged cryptocurrencies, such as USDT (Tether), USDC, DAI, etc.
We regularly review the investment strategies we have proposed, and update the returns (risked adjusted) periodically for each strategy. For our premium users, updates are real-time. As a summary, our strategies now include:
Pure Stablecoin Liquidity Mining: deposit stablecoins into https://www.curve.fi/, and become a market makers for exchange of stablecoins. The term Liquidity Mining means the returns is (largely) from platform rewards dished out by these platforms to attract users — think of e-commerce company’s discount coupons and cash vouchers if they want you to sign up their services.
Pair Liquidity Mining: deposit BTC, ETH and the equivalent amount of stable coins into on-chain (a term describes programs running on the Ethereum network) cryptocurrency exchanges, such as https://uniswap.org/ and https://balancer.finance/. For these platforms, returns are theoretically higher, as you will be the market makers for a trading pair like ETH-USDT, and suffer small loss from price volatility. You can further hedge the volatility in another platform.
Exchange Carry Trade: depositing BTC, ETH into exchanges like Binance or Bitmex, and hedge 100% of them. You will be earning a carry interest, which is positive for some cryptocurrencies.
Composite Lending Liquidity Mining: borrow and lend at the same time in lending platforms like https://compound.finance/.
We will be constantly updating strategies from time to time, and minitor product and services updates in each platforms. We will also explain in detail the logic and mechanism of each strategy in our other articles. Subscribe to our services and stay tuned.
(Serenity Team, 26 Nov 2020)