In the Part 2 of Zero Risk Crypto Plays I describe how to extend the hedging strategy from Part 1 into yield farming on Raydium for even more lucrative returns. Returns of +100% APY with zero risk to your capital are there waiting for the taking. Continue reading for the exact steps on how to do this.
In Part 1 I described how to use the ftxpremiums.com site to find some solid returns through funding payments and how to hedge those plays to eliminate your downside risk. In this Part 2 we do something similar, but we’re going to combine farming on Raydium while using shorts on FTX.com to hedge our positions. The great part about Raydium is it uses the Solana chain – fees are dirt cheap, transfers are fast, and you can send tokens from FTX.com with zero fees. I’ll cover all the steps needed to do this, plus some extra tips on how maximize your returns.
Get a Wallet
The first step in this process is to setup a Solana wallet. I use the sollet.io wallet and Chrome extension, but if you try to sign up with sollet now you’ll be prompted to use Phantom or Solflare – either is fine, I haven’t used either, but have heard good things about Phantom. The wallet you use won’t matter, but through this post I’ll be showing Sollet, the other’s will be similar.
Follow the steps to create a wallet, save your recovery phrase, and install any browser extensions to make transfers easy. For example, if you go to the Phantom website, the first option you see is a link to install the browser extension. When you’re setup, move on to the next step.
Pick a Farm
Head to Raydium.io, and click on Launch App. You may be prompted to connect your wallet, ignore this for now and click cancel or close the pop-up window. Then click on the Farms link in the top menu area of the site.
As you scroll through the list you’ll see the list available farming opportunities. Generally speaking, higher APR returns are associated with lower TVL’s (Total Value Locked) – but not always. Newer (and sometimes riskier) tokens have much higher APR’s, but their TVL is quite low. I tend to stay away from lower TVL’s as these can cause higher price fluctuations when holders stake or unstake, or on large swaps – or, a large portion of the pool could be made up of a small handful of stakers. If they pull out, well… bad things happen.
For this example I’ll be looking at POLIS. A newish token, but a decent TVL and APR.
In particular, we’ll be looking at the POLIS-USDC option in the screenshot above. You could go with the POLIS-RAY option, the returns do look better – but I’ll explain later in the post why they may not actually be better. At the time of writing this, the POLIS-USDC strategy was actually netting higher returns.
If you hover over the little “?” symbol over APR, you can see the yield break down. Here, we get a few points from fees (fees paid out by the pool, collected from the fees on swaps), and the rest in POLIS rewards. At the time of writing, the APR is about 88%, or about 140% APY if compounded daily. Keep in mind we’ll be hedging, so our overall return will be slightly less – even though we’ll be getting paid on the hedge as well.
So, let’s start farming!
Buy Some Tokens
Besides USDC and POLIS, you’ll need some SOL as well – for “gas” fees. Let’s see how much we need.
For the farming we’ll be adding liquidity using an equal value combination of USDC and POLIS. This means the total value of each token we need is the same. If you click on the Liquidity menu item at raydium.io. Select POLIS in the first box, and USDC in the second. Then enter “1” in the first box.
This shows one POLIS is worth about $11 USDC, and would be the amount of USDC we’d need if we were going to farm one POLIS. I’ll show you a bit an easy way to figure out the amounts you need in total.
We’re also going to need some SOL tokens as well. This covers the transaction fees on the Solana network, but these are generally pretty low, so you only need a few dollars to get you started – say $5 max. You can always add more later.
We’re going to buy all these at FTX.com and transfer them to our Solana wallet. Why? Because there’s no withdrawal fees on FTX, you can get maker fees on your spot buys for 0.02% or less, and the transaction fees to get from FTX.com to your Solana wallet is literally peanuts! Every transaction I’ve made to date is 0.000005 SOL, or about 1/10th of a cent at current SOL prices!
Assuming you’re already signed up at FTX.com and your account is funded, click on the three horizontal bars in the top left area of the dashboard, click on Spot, type in SOL and click on the SOL/USD pair to load the chart.
I don’t want to go into too much detail here, but you can either buy your SOL (or any other token or coin) using a Limit type order or Market type order. Since the FTX fees are so low, it really doesn’t matter too much, but if you go with a market order you’ll pay the 0.07% taker fee. If you choose the limit order, and place a true limit order, you only pay the 0.02% maker fee. This will add up when you’re compounding and rebalancing daily, so I’m going to show how to ensure you get the maker fee.
Make sure you have Limit set, enter $5 in the USD field.
Now let’s figure out our Price. To ensure we get maker fees, we need to provide liquidity, so our order needs to be on the books before it gets executed. Take a look at the Orderbook section in your dashboard, specifically the Bid Price column.
The numbers will be moving pretty fast most of the time, but you want to choose a price equal to the first or second number. If the price is trending up, “your” price may fall down the list and not get executed – there’s always that risk, but in most cases your order will get filled eventually. Keep an eye on price action and adjust accordingly. Sometimes you’re not fast enough and end up paying taker fees anyways, it happens! When you have your price, enter it in the Price field and click on Buy.
Your order will eventually be filled and it will appear in your wallet and in the Positions section in your dashboard. Do the same for POLIS – though we haven’t figured out how much we need yet, so let’s do that now. Since we want to be directionally neutral we’re going with a full hedge, so theoretically half of our funds will be farmed, and half will be our hedge. However, USDC is a stable coin, so there’s no need to hedge it. So in our case, 2/3’s will go to farming, and 1/3 will be hedged. In the 2/3’s portion – half will be POLIS, and half will be USDC. Assuming you already have USD in your FTX account, divide the total by three.
For this post I’ll be using $150 to make the numbers work out even. So dividing by three gives me $50. $50 will stay as USD, $50 will be used to buy spot POLIS, and $50 will be used to short POLIS-PERP.
Go ahead and buy your spot POLIS the same way you did for the SOL earlier. Enter $50 in the USD amount.
Let’s set up our hedge right away, especially since we’re already holding spot POLIS. You’ll need to do this in a sub-account, so if you don’t already have one setup, do that now, transfer your funds ($50 USD) to the sub-account and short the equivalent amount on POLIS-PERP. You can find those in the same place as you found SOL and POLIS, but instead of selecting Spot, select Futures.
At this point you should have a few dollars worth of SOL (for transaction fees), $50 worth of spot POLIS, $50 USD, and $50 worth of POLIS-PERP shorts.
Now lets farm our spot!
Send Tokens to Your Solana Wallet
Before we can farm, we need to get our tokens to our Solana based wallet. Again, I’m showing the steps here for the sollet wallet, but the others will be similar.
Go to your FTX wallet, make sure you’re looking at the account where your spot SOL, USD, and POLIS are sitting, then click on the Withdraw button for your SOL.
In the popup window, click on the Max button to add all your SOL, or if you hold more enter the amount you want to use for fees, paste your SOL wallet address, and your 2FA code if you have it enabled, then click on Withdraw to transfer your SOL.
A quick note on getting your wallet address. You only need to copy your wallet’s main address. In the sollet wallet browser extension, you can hover over “Main Account” and click it to copy the address.
The phantom extension should be similar.
Repeat the same procedure for your POLIS. Use the same wallet address as above for the SOL.
For USDC, you’ll withdraw USD, but choose the USDC option. Click on the Withdraw button for USD, then choose USDC, then choose the Solana SPL option.
The withdrawals on FTX aren’t the fastest, but is usually in your Solana wallet within a few minutes, sometimes a bit longer. Not bad for free withdrawals! Another reason I love FTX!
Just one more step before we can actually farm! Head over to the Liquidity section at raydium.io. If your wallet is not already connected, go ahead and do that now. Click the Connect button in the top right and approve the connection. We now need to create a liquidity token. In the first box make sure POLIS is selected, and select USDC in the second box. Click on the MAX button next to either one to add your USDC and POLIS tokens. There should be a Supply button at the bottom. If it shows instead Insufficient xxx Balance, it just means you have slightly more of the one token you clicked “MAX” for than the other. This is due to exchange differences between the farming pool and FTX. Try clicking MAX on the other token instead, or reducing the amounts slightly until you’re able to see the Supply button.
Click on the Supply button and approve the transaction in your wallet.
Now click on the Farms menu item on raydium.io, and look for the POLIS-USDC pair and click on it to expand it.
Click on the Stake LP button to open the Staking window.
Click on MAX, then on Confirm.
Approve the transaction in your wallet, and now you’re farming POLIS!
Total Return on Farming
The great benefit of this method vs the previous method in Part 1, are the higher overall returns. Not only are we getting returns on the farmed tokens, we’re probably also getting returns on our shorts. I say probably because current price action could be showing negative funding on the perp. We know half of our capital is being farmed at ~88%, and the other third is getting funding payments from our hedged play (shorts on FTX). Have a look at the funding rates for POLIS:
It looks like the shorts are paying (long-term) about 42%, so our total ROI is (88% x 2/3) + (42% x 1/3), which is about 73% APR, or about 107% APY. Not too shabby for a zero-risk play!
Earlier in the post I mentioned this paid better than the RAY-POLIS pool which had a much higher APR at about 132%. In this case though, we would need to hedge both POLIS and RAY, and at an equal amount to the farming pool amount, ie half in the pool, and half as shorts. Looking at the RAY returns:
…we can see RAY generally is negative, meaning you actually pay interest on your shorts, and it’s higher than the POLIS funding payments, meaning we could be net negative on our funding payments overall depending on the time frame.
So our total ROI (best case) is something like (132+10)/2 = 71% return overall. Not too bad, but for the extra complexity and juggling to rebalance, it’s not worth it based on these numbers. And that’s the best case scenario! In the shorter term this would be significantly lower.
Keep in mind each of these farming options will vary, so it’s best to do your own calculations and figure out which farming options on Raydium are giving the best returns when you’re deciding to jump in and farm.
Harvesting, Compounding and Rebalancing on Raydium.io
While compounding and rebalancing are optional (if you want to use your rewards only as passive income), you will at some point want to harvest your rewards.
Back at raydium.io in the Farms section, clicked to toggle on the Staked Only option – this filters the list to show you only the farms you’re staking in. Click on the pair you want to harvest to expand it, and click on Harvest.
This action will convert your rewards to your tokens and put them into your wallet. You’ll likely need to approve the transactions in your wallet, depending on your wallet security settings.
Here’s my sollet wallet before harvesting…
and after harvesting….
You can see the POLIS rewards on 4.3 POLIS in a little under 24 hours is 0.0135 POLIS, or about 114% annual return.
What you do with those next will depend on if you want to cash in the rewards, or compound them. If you want to cash them in, send them back to your FTX account and convert them to whatever you want, USD, BTC, ETH, totally up to you. If you want to compound, read on!
Re-Balancing and Compounding
As you harvest your rewards you’ll most likely want to stake those to capitalize on the extra returns from compounding. As we do this, we also need to rebalance to ensure we’re still fully hedged, plus we’ll need to extract some USD from the rewards to go back into the liquidity pool to match our POLIS.
The easiest way to figure this out is to divide your rewards by three, 1/3 POLIS, 1/3 USDC for the farm, and 1/3 for the hedge.
One option is to convert 2/3’s of the POLIS right in Raydium in the Swap section to USDC, and send half of that USDC back to FTX for the hedge. However, the slippage fees and the exchange rate will likely not be that great on Raydium, and will eat into your overall returns. It’s actually cheaper to send 2/3’s of the POLIS rewards back to FTX, convert to USD (remember to try and pay only maker fees), then send half of that back to your Solana wallet for the liquidity pool, and the other half stays at FTX to add to the FTX sub-account for adding to your POLIS-PERP short.
To complete the process and compound, head back to the Liquidity section at raydium.io and add liquidity tokens exactly as we did previously, click on Supply, then go back and stake the LP tokens – all the same as we did before. This will add your rewards to what you’re already farming, effectively compounding your gains.
How often you do this depends on the time you have available – my recommendation would be once per day – more often than that is not necessary as the difference between daily compounding and hourly compounding is insignificant at these APR levels. Even if you missed a day or two it’s not the end of the world.
Final Thoughts of Hedged Farming on Raydium and FTX
Keep in mind nothing in crypto is risk free, and anything can happen. As far as most crypto plays go however, this is by far one of the safest ways to play it, and with a stellar return compared to just lending out your stable coins on an exchange for 4 or 8%. On top of that, the whole Raydium, Solana, and FTX ecosystem are all part of the same “team”, and FTX.com is the only exchange I trust.
As always, none of this financial advice, play only with you can afford to lose, blah blah blah, entertainment purposes, etc.
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9 thoughts on “Zero Risk Crypto Plays – Farming Hedges That Pay – Part 2”
Very interesting strategy but have you thought about the impermanent loss in the POLIS that sits on the farm?
I’m glad you brought it up. I didn’t cover it in the post as the post was getting pretty long already. In reality though it’s not a huge issue, and the high rewards more than make up for the losses. As an example, if the price of POLIS were to double, we would incur an impermanent loss of 5.7%. So not that much relative to the returns. Plus if we’re compounding, we’re dollar cost averaging our pool ratio towards the higher rate. It does eat into our total return, yes, so that’s why it’s important to choose a token that’s relatively stable. Probably the biggest issue is the hedged short. We’re making bank on a falling price, but as the price increases that short may start taking a toll. The funding rate will probably get better, so that helps to offset it, plus you could consider not compounding and hold all the rewards as POLIS to further offset it.
Ultimately, it is a strategy that needs a price to be relatively stable, and it’s important to keep an eye on price action – and maybe even cut the hedge if the price starts to run up. Otherwise, in almost all cases the rewards far outweigh the impermanent loss.
Hey Nick, when through the process to check it out. Now can’t figure out how to send funds from Raydium back to my wallet. Thanks.
Are you referring to Harvesting, or Unstaking?
When you harvest it should show in your wallet.
If you want to unstake, click the “-” button to the left of the “Stake LP” button, then go back to Liquidity menu item, and in the bottom block click on “POLIS-USDC” to expand it, then on “Remove”. This will put all your staked tokens back in your wallet.
Hello, thanks for your post! You might want to check francium.io for the auto harvest / reinvestment and leverage process.
Nick question with your tutorial started with Atlas. But i got stuck. selected Stake LP of Stake. But the site does not see my Atlas coins in my Phantom wallet. Do you have any ideas?
Did you get this work? I know sometimes there’s a delay and you need to connect/reconnect, but I’ve never tried with Atlas, so I’m not sure, to be honest.
i’ve solved it yeahh sorry fo the invonvenience. I missed a step. Liquidity step putting atlas and USDC together.
Nice guide! I got myself in to this and it seems very interesting, also the coin long/perp short you explained in part 1.
There are at the moment very few farms with reasonable returns which have a corresponding perpetual, and often the rates of those perpetuals are not so great, even negative. Am I missing something or is this just the way the market is right now? I only managed to find one that is interesting, and the rates combined are not that great.
In the meantime ill look for other farms on other platforms and try to find corresponding perpetuals to short.
I hope you will make more tutorials on derivatives/hedging with more risky and profitable applications, if you know any of course.