One of the biggest trends to watch in 2021 is decentralised finance or DeFi. The graph below shows the volume of funds locked up in DeFi over the last year. It hit a peak of $90 billion in May this year before the recent crypto rout dropped it to the current level of $65 billion.
The reason for these massive inflows to DeFi is the ability to earn mouth-watering returns of up to 20% – far higher than available through traditional investment avenues.
First of all, some explanation of DeFi is required.
DeFi is an outgrowth of the crypto universe where financial services – such as the ability to borrow, lend and earn interest – can be done without intermediaries and completely outside the ‘centralised’ financial services sector.
There’s no bank or broker directing the flow of funds into DeFi providers such as Uniswap, Oasis, Aave, Compound, Yield or Sushi. These are DeFi providers where you can ‘stake’ your cryptos and earn 4% or more on bitcoin, more than 5% on Ethereum (ETH), 7% and more on stablecoins like USD Tether, and more than 10% on Tron.
Crypto investment company Ovex offers clients an interest account paying 5.1% a year on bitcoin and between 9% and 10% a year on stablecoins such as True USD (TUSD), Tether USD (USDT) and Binance USD (BUSD). For clients depositing more than R500 000, Ovex will quote you a premium rate of up to 22%.
It is able to offer returns like these to bigger investors, based on two crypto strategies:
- Yield farming, where Ovex hunts around for the best returns on cryptos in the market, at the lowest possible risk; and
- Spot-futures arbitrage, which is a way to lock in profit differences between prices on bitcoin spot versus futures prices.
Ovex CEO Jon Ovadia says returns like these account for the massive inflows to DeFi platforms over the last year, though this is not without risk: “You are earning these returns either by ‘staking’ – which is putting your cryptos to work on the blockchain, and you run the risk of a drop in crypto prices such as we seen in recent weeks, which means you are earning a fixed percentage of a smaller capital value. There’s also the risk of cryptos being lost or stolen, which is why it is vital to deal with reputable providers such as Ovex to make sure these risks are properly managed.”
Another way to earn returns on cryptos is by lending through DeFi platforms, which again involves the risk of the borrower defaulting for any number of reasons.
There is a weeding out process underway in the DeFi space and some names are emerging as more reputable than others.
Spicing returns with spot-futures arbitrage
Ovex is able to spice these DeFi returns by arbitraging bitcoin, or what is more commonly known as ‘cash and carry arbitrage’. Ovadia explains that the company is able to exploit the difference between bitcoin spot and futures prices by shorting the futures contract and holding it to maturity, while buying bitcoin at the spot price. This way, arbitrage traders can lock in a theoretical 3-4% profit, though the arbitrage gap is notoriously fickle and prone to wild swings.
Find out more about Ovex’s Arbitrage Service.
Ovadia says while returns of 18% have been achieved historically for clients, this is not guaranteed. “However, we are able to guarantee clients’ capital using our own balance sheet, which was recently expanded by R60 million as part of a R250 million strategic investment round.
“There are very few places in traditional finance where you can earn interest of 20% a year, but crypto is an area where this is possible. A huge amount of innovation and development is taking place in the DeFi space and Ovex is at the forefront of that development. Our aim is to remain a leader in this space and offer clients returns that are superior to those available in traditional finance and to remove as many of the risks as possible.”
You can get more information on the Ovex interest account here.
Brought to you by Ovex.
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