Two Strategies for Working in DeFi
In this lesson, we establish a solid investment foundation and examine two primary strategies for working with decentralized finance tools, as well as with the entire cryptocurrency market. There are only two options: working with volatile assets and working with stablecoins. Each option has its own advantages and disadvantages.
Let’s break them down.
The first option is working with volatile assets. You buy assets that can both rise and fall in value. There is significant growth potential, but also associated risks.
The second option is working with stablecoins. You can limit your activity to stablecoins and avoid worrying about market downturns entirely.
Advantages of Working with Stablecoins
First, the principal amount of the deposit always remains stable and only grows. If you work exclusively with stablecoins, market declines do not affect you. It does not matter whether Bitcoin rises or falls — you operate with stablecoins, and everything remains stable.
Naturally, you can use the profit to buy volatile assets for your portfolio. If you do not want to risk your initial deposit, you can allocate stablecoins into decentralized finance tools to generate yield, and then use the profit — in stablecoins — to buy volatile assets. This way, your principal remains unchanged and stable, while the profit is used to buy assets that can grow or decline in price.
Next, stablecoins offer a high level of flexibility and strategy options. When working with stablecoins, a large number of tools with varying yield levels and complexity becomes available. This provides significant flexibility. It is not just “deposit and wait,” although that approach suits some people. But if desired, there are many additional options.
Also, market declines do not affect us. It does not matter what happens on the market or on Bitcoin’s chart — any drawdowns do not impact stablecoin strategies.
However, it is important to remember that stablecoins themselves carry risks. I explained this in one of the previous lessons: stablecoins may deviate from their target value of one dollar.
This also applies to stablecoins — they carry the risk of losing their peg to one dollar. Another advantage is that stablecoins provide stable and predictable returns. Of course, we cannot calculate an exact annual yield, but we can roughly estimate it depending on the stage of the market, how many new projects are launching, and how many free tokens they are distributing.
We can roughly understand how much we may earn over the year. Moreover, if we reinvest the assets earned through these strategies into volatile assets, the return becomes even higher. For example, we deposit stablecoins, receive free project tokens, sell them, and buy Bitcoin or Ethereum — the overall yield increases.
Disadvantages of Working with Stablecoins
The first disadvantage is relatively low returns. Even in the best scenario, at the most favorable stage of the market when many new projects launch and distribute rewards, it is possible to earn around thirty percent per year if we simply take profits in stablecoins. If we use the profit to buy volatile assets, the yield will be higher, but it is still significantly lower compared to what can be earned by investing directly in volatile assets.
The second disadvantage is the absence of profit from market growth. By working exclusively with stablecoins, we miss out on the potential appreciation of the entire cryptocurrency market — the growth of Bitcoin, Ethereum, and altcoins that could have been included in our portfolio. We give this up in exchange for stability, predictable returns, and protection from market downturns.
The third disadvantage is the risk of stablecoins losing their one-dollar peg, as well as the risk of high inflation of the dollar or even its complete collapse. These risks must also be taken into account. I don’t believe the dollar will face an actual collapse anytime soon, but it is important to understand that this risk exists theoretically.
What a Stablecoin Strategy Looks Like
Let’s say I have one hundred thousand. I allocate these stablecoins into different strategies and receive profit. After that, I have three options.
First, I can withdraw all profit and use it for real-life expenses — converting it to fiat and sending it to a bank card or bank account, essentially receiving passive income from my investments.
The second option is to use the profit to purchase volatile assets, building a portfolio of Bitcoin, Ethereum, and possibly certain altcoins if needed. In this case, the principal amount in stablecoins always remains unchanged. There are many flexible options here. For example, I can earn twenty percent per year and reinvest half of the profit back into stablecoins to increase my principal, while using the other half to buy volatile assets.
Use the second half of the profit to buy volatile assets that will grow together with the market. Thus, strategies involving stablecoins offer significant flexibility. Everything depends on what is comfortable and convenient for you, because each person’s goals and preferences are different.
The third point is reinvesting. You can reinvest all the profit to increase your principal. In this case, compound interest begins to work, and you earn more and more while remaining fully in stablecoins.
Advantages of Working with Volatile Assets
The biggest advantage is the enormous potential profit from market growth. Even simply holding Bitcoin and Ethereum provides real upside, because the cryptocurrency industry is still in an early stage of development. Compared to the traditional financial system and the stock market, the total market capitalization is still small — therefore, the growth potential is enormous when purchasing volatile assets.
The next advantage is protection from inflation and regulation (in parentheses: Bitcoin). Bitcoin protects me from inflation and potential regulatory restrictions in the financial system. With Bitcoin, I am protected from inflation, from the decline of the dollar, and from almost any economic instability. Personally, I do not see any asset stronger than Bitcoin right now, and I do not think such an asset will appear in the near future. Again, this is my opinion. You must arrive at this conclusion independently — not accept it as a fact. You must study Bitcoin carefully.
Next — a wide range of DeFi strategies. By working with volatile assets, we have access to a broad selection of tools and strategies, from low-risk, low-yield strategies to the highest-yield strategies with the highest risk.
The fourth advantage is the ability to preserve and grow capital over the long term. With dollars you can also grow your capital and earn money. Returns there are indeed high compared to the traditional financial system, where yields on dollar deposits are around two to five percent, as in the case of U.S. treasury bonds. In decentralized finance, stablecoin strategies can yield around fifteen to twenty percent with moderate risks — this is already significant. However, compared to a portfolio built from volatile assets, the returns from a stablecoin-only portfolio are still relatively low.
Bitcoin truly provides a real opportunity to preserve and multiply your capital over a long distance, constantly growing it, expanding it, and extracting passive steady income from it.
Disadvantages of Working with Volatile Assets
The principal is not static and can change depending on market conditions. This is what scares most people. Most beginners in crypto are afraid of drawdowns, afraid of market declines, afraid that their portfolio will become cheaper than the price at which they originally bought their assets.
This is a fact. Markets can indeed experience long declines and deep prolonged drawdowns. As I wrote here, this is what pushes most people away. This is why they do not make money. They panic, they sell, they cannot look long-term, and they cannot plan their investments several years ahead. Because of this, they not only fail to earn — they also lose money, since they sell all their assets in panic.
Therefore, the two main disadvantages are that the principal is not static and that deep long drawdowns can occur. In reality, if you can handle these two disadvantages, the advantages will outweigh everything listed here, because the main advantage is the potentially enormous growth of your portfolio in dollar terms over a long distance.
The next disadvantage is that it requires patience and psychological resilience. This applies to all long-term investments. If you do not know how to wait, if you lack patience, and if your psychology is not developed, you will act emotionally and sell your assets at a loss because of some news that “Bitcoin will be banned.” This is important. For some people this is a major disadvantage, for others it is insignificant, because they are psychologically stable.
The fourth disadvantage — some assets can completely lose their value. This refers to various altcoins. Later, in the following lessons, I will show a chart of Bitcoin relative to altcoins.
Overall, if you buy Bitcoin and Ethereum, you are already in crypto. Bitcoin and Ethereum are the lowest-risk assets. If something happens to them — if something bad happens to Bitcoin and Ethereum — then all other assets on the market will be worth zero. Therefore, do not worry: if you are betting on crypto, buying Bitcoin and Ethereum is the lowest possible risk. Probably only stablecoins have a lower risk level than Bitcoin and Ethereum.
Warren Buffett Principle
The next important point is a quote from Warren Buffett, which helps understand how markets work. The market (in his case he refers to the stock market, but this applies to any financial market) is a mechanism for transferring money from the impatient to the patient.
This is an extremely important and simple principle. Your entire investment strategy should be built on it. If you cannot wait, if you are impatient, if you panic, if you want everything quickly, immediately, and in large amounts — you will simply give your money to those who know how to be patient, who know how to wait, who are not affected by panic-driven behavior or emotional decisions.
It is a simple concept. All of the greatest investors in the United States and in the world follow it: patience and time in the market allow you to earn a very large amount of money. If you cannot wait and cannot stay patient, you will simply give your money to other, more patient market participants.
This happens constantly. It happens in the stock market. It happens in the cryptocurrency market. Money always flows from those who cannot wait, who cannot stay patient, who have no long-term investment strategy — to those who do have these qualities and who know how to look far ahead.
Time in the Market
Overall, time in the market will allow you to earn good money on its own. If you simply buy Bitcoin and Ethereum using the strategy I will explain later, you will be fine. Your capital will grow over time, you will have more and more money. But with DeFi this process can be accelerated — and not by speculation, not by buying altcoins with high potential and then moving everything into dollars or Bitcoin and Ethereum.
No. In DeFi, we earn because the number of our base assets grows. I will cover this in detail in the next lesson. To achieve solid financial results in crypto, you need a strong foundational base. If we break it down into four blocks, it looks as follows.
First — a clear financial goal.
Second — selecting a strategy for working with assets. At this stage, we choose the approach we will follow. If you are afraid of market declines, if you know you cannot psychologically withstand a drawdown — a long one, lasting a year, or a year and a half, or two years, during which your portfolio may remain in the negative — then it is obvious that you should choose stablecoin-based strategies.
In this case, you lose the potential for large asset growth, but your psychological state remains calm and stable. Alternatively, you can choose to work with volatile assets and earn significant money over a long distance and in the long run — but this also requires skills, knowledge, understanding, and psychological resilience for everything to be effective.
Next comes the selection of DeFi instruments that you will work with over a long distance, using either stablecoins or a portfolio of your volatile assets. And only after that — generating profit. You cannot jump from the first stage straight to the fourth, skipping the two in the middle. You cannot move to the profit stage without doing any of the prior work. Time is needed, and time is always the most important and fundamental factor in cryptocurrency.
In finance and in life, nothing happens quickly, instantly, easily, or in large amounts. This is important to remember.
Setting a Financial Goal
How do you set a financial goal? It must be clearly defined, literally down to the numbers. For example (this is just an example — you should orient yourself according to your income level, your capabilities, and how much you can regularly invest in cryptocurrency): invest twenty thousand USDT into crypto over a six-month period. Again, you choose the timeframe that fits you. If you want to enter the market more smoothly, you should increase the timeframe — for example, six or twelve months. Some people want to enter crypto quickly and complete this in three months.
Look at how much money you can allocate monthly for investments from your primary income. In this example, twenty thousand USDT over six months means the following: “I must set aside this specific amount each month so that after six months I will have this total amount in crypto, which I will then place into DeFi instruments to earn stable yield of fifteen percent annually. After that, I will use this yield to cover my basic expenses.”
This is also a valid financial goal, because cryptocurrency can be used in many different ways depending on a person’s needs. Not everyone needs to buy volatile assets. Not everyone needs extremely high returns. Not everyone needs complex strategies. Some people simply want to earn fifteen percent annually on their capital and gradually grow the deposit through regular investments.
Another example of a financial goal is more specific and focused on building capital. In this case, the goal is to earn two hundred thousand dollars through cryptocurrency over a two-year period, then fully move into stablecoins and earn fifteen percent annually, covering basic expenses through passive income. This is a bigger goal, and it requires larger investments, more time, more money, and more regularity — contributing funds monthly, buying volatile assets, and applying strategies for working with these assets over time.
Again, it is difficult to set a precise number here, because the market is unpredictable, and a prolonged decline may easily last a year and a half — exactly the period you might have set for reaching your goal. Therefore, time is not the most accurate metric, because no one can predict how the market will behave.
A more accurate metric and more concrete action plan is your regular investments — the contributions you make into cryptocurrency. This is the most important factor. I will explain this in the following lessons. Therefore, after this lesson, take time to fully outline your financial capabilities. How much money do I earn — from business, from work, from my primary activity? How much can I set aside for investments each month on a regular basis — not once, but every month consistently? How much can I realistically allocate?
Based on this capability, think about what capital you want to build in cryptocurrency — whether in stablecoins or volatile assets. It does not matter. Set a clear financial goal, write it down, determine a precise timeframe and a precise annual percentage target. You must understand that there will be no sky-high yields on stablecoins. Around twenty percent per year is a reasonable, solid rate you can earn in decentralized finance with moderate risk. Everything above that comes with increased risks — obviously, because the higher the return, the higher the risk.
Why Most People Fail in DeFi
The most important thing — you cannot skip the first three stages. Most people want to jump straight to: “I want to earn a lot of money, I want massive yields on my assets.” Meanwhile, they have no foundation, no strategy, no understanding, no financial goal. They do not even know whether they are working with stablecoins or volatile assets. They know nothing — they just want a lot of money. That is why it does not work for them.
It is extremely important to build a foundation for future investments, for working in cryptocurrency, and for working with the decentralized finance ecosystem. Therefore, the results you will achieve in decentralized finance depend on three critical elements.
First — financial goals. There may be several. There may be one major goal and a few intermediate ones. Everything depends on your personal needs. I cannot look inside your mind and see what you want, because everyone has different goals and interests. But financial goals must exist.
Second — your investment portfolio. What assets do you work with? What assets do you hold? What is their percentage allocation relative to each other? Perhaps you work only with stablecoins, and volatile assets do not interest you.
Third — the presence of a long-term strategy over a long distance. A minimum of two to three years — this is the timeframe in which, if you do not give up and if you make regular investments, you simply cannot lose. You cannot fail to earn money. This has been proven by me personally and by a large number of other people.
A timeframe of two to three years is the key timeframe. If you remain in the market during this period, make regular investments, and avoid mistakes, this is the period where rapid growth begins. You do not lose money — you earn money. Everything works well for you. Most people cannot withstand such a long time horizon. They want “a lot and quickly,” which is why nothing works for them.
This is exactly why, for most people, nothing works at all — because they have no foundation. Their only “foundation” is the thought: “I want to earn a lot, I want a lot of money.” A person does not understand why, what their financial goals are, how much they want to earn, or what capital they are aiming for. Everything is vague and absolutely abstract in their mind. And because the foundation is built incorrectly, nothing built on top of it will work.
A person will make foolish mistakes, lose money, make wrong decisions driven by emotions and panic, and eventually leave the market forever, completely forgetting about it.
Your Action Plan After This Lesson
Take a sheet of paper, a notebook, or notes on your phone or computer, and clearly determine for yourself whether you will work with volatile assets or with stablecoins. Later, you can modify your strategy as you gain experience, but at the initial stage you must clearly decide whether you are psychologically ready to endure drawdowns or not. “I am afraid, I will panic, I will sell my assets at a loss” — then stablecoins are the better option. Choose your strategy of working in cryptocurrency clearly.
When you gain more information, skills, experience, and a broader view of the crypto market, you can modify your strategy freely. But at the beginning, you must select one of these two options.
Of course, there is a third option — working with both stablecoins and strong assets. This is the optimal strategy, and the one I personally use, because it provides excellent results for me.
The second action that absolutely everyone must take after this lesson is to write down on paper your financial goals — what you want to achieve and within what timeframe. It may be two or three years. It may be twelve months. It may be six months. Set intermediate goals, clearly describing the amount you want to contribute. And the goal does not even have to be about earning money. For example: to contribute twenty thousand dollars into cryptocurrency over twelve months. This is already a good financial goal.
The next step will be allocating this contributed capital into tools that generate fifteen percent annual yield. Be sure to write down financial goals that are relevant specifically to you — not someone else’s goals, not “make 500x” or “become a billionaire from 100 dollars.” Your own financial goals that correspond to your personal needs.
These materials are created for educational purposes only and do not constitute financial advice.