If you consider yourself a cryptocurrency enthusiast, then like most others you probably think that bear markets are no fun! They’re slow, uneventful, and full of red candles. Be that as it may, periods of capitulation in bear markets offer some of the best opportunities to accumulate holdings until the arrival of better and more exciting times.
Luckily for you, Crystl Finance has built a product that allows DeFi users to make the most out of any bear market by combining DeFi yield farming with an investment strategy that has proven itself again and again: Dollar-cost averaging. By applying the concept of DCA, Crystl Vaults are able to bring you Maximized Passive Income on your crypto assets in a way that is seamless and completely hands-free.
Disclaimer: The information on this article is not financial advice and should not be interpreted as such. You are fully responsible for your own investment decisions.
DCA, Your Best Friend
When it comes to investing timing is everything. However, having perfect timing in the volatile cryptocurrency market is easier said than done. This is precisely the reason why many investors pursue DCA as a strategy to minimize the impact of timing and volatility. Rather than making a purchase in bulk, dividing orders into smaller quantities over a given period can result in a better “entry” than trying to time the market.
How Crystl Vaults DCA
One popular way that users love to put their crypto assets to work in DeFi is through yield farming. By supplying their crypto tokens as liquidity to a DEX like VVS Finance, users otherwise known as yield farmers are able to earn interest on their cryptocurrency in the form of trading fees and incentive rewards. In the prior example, yield farmers on VVS Finance earn $VVS tokens as incentives. A specific example follows:
In the image above, observe that providing CRO and ETH as liquidity on VVS Finance yields an annual return of 13.82% in $VVS tokens. In other words, if you were to invest $1,000 into this staking option and immediately liquidate (sell) your $VVS tokens you would end up with an additional $138.20 after a year. Of course, this calculation assumes that all parameters such as the price of CRO, ETH, and VVS remain entirely still for one year. Now let’s take a look at the equivalent Vault on Crystl Finance.
Note that the annual return on Crystl Finance is higher, sitting at a value of 14.56% compared to the prior 13.82% figure. The reason for this difference is simple: compound interest. In order to understand where the compound interest comes from, it is important to understand how Crystl Vaults operate.
Crystl Vaults are investment instruments that automatically harvest rewards on behalf of yield farmers and reinvest these rewards back into the underlying deposit on the farm. Following the illustration above, consider A and B as CRO and ETH, and C as VVS tokens. Crystl Vaults offer an automated solution that harvests VVS tokens daily and reinvests these by selling VVS for CRO and ETH that is re-deposited back on the farm. The result is that with each day the user is able to earn slightly more VVS than the previous day. In other words, compound interest! The reason why interest rates on Crystl Vaults are higher than traditional yield farming is due to the fact that they automate the reinvestment process.
Having understood how Vaults work, consider the fact that cryptocurrencies are volatile and constantly fluctuate in price. On some days when CRO and/or ETH are cheaper, the Vault will be able to purchase slightly more CRO and/or ETH tokens than usual (by selling the VVS rewards). Of course, on the other hand when prices are higher the Vault will end up selling VVS and purchasing slightly less CRO and ETH than usual. If this sounds familiar, that’s because it is! This is DCA in action.
Winning In A Bear Market With Crystl Vaults
First of all, give yourself a pat on the back for getting through all the technical information above. Next comes the realization why Crystl Vaults are such a fantastic instrument for bear markets!
If there is one thing bear markets are known for its cheaper prices and lower lows. Crystl Vaults allow you to benefit from bear markets by helping you to accumulate your favorite cryptocurrencies while they are cheap! It’s important to understand that metrics such as APRs and APYs are dynamic! They are computed from parameters available at the present time and they do not take into consideration future prices! In the previous example, the CRO-ETH Vault on Crystl Finance is displaying 14.56% APY relative to today. In the short term you may very well be accumulating very close to this interest in CRO-ETH as compared to your initial deposit, but what about in the long term?
Lets imagine that today CRO is worth $0.20 and ETH is worth $2,000, but one year in the future CRO is worth $1.00 and ETH is worth $3,000. This would mean that any interest you accumulated between these points in time has multiplied significantly! In fact, the longer your deposit remains in the Crystl Vault accumulating interest throughout the bear market the more profound the effects will be when prices recuperate. Relative to today that APY may be 14.56%, but in the future the actualized return could be magnitudes higher in dollar value!
Friend, Not Foe: Impermanent Loss
One of the most common misconceptions about providing liquidity has to do with the concept of impermanent loss. While its true that impermanent loss can result in opportunity cost from not realizing gains that could have otherwise been had if the assets were held outside liquidity, it is important to recognize it as such. Losses from opportunity cost are not the same thing as capital loss. This is no different than choosing to buy a token at one time, only after realizing in hindsight that there was a better entry in the past.
Although impermanent loss can result in lesser realized gains during bull markets, the opposite is true for bear markets! Impermanent loss protects your investment by diminishing value loss when one of the assets provided as liquidity trends down relative to the other. This is another great reason for using Crystl Vaults that works in your favor during bear markets which are so notoriously known for lower lows! If you are worried about your timing, pairing your asset in liquidity (for example, with a stablecoin) can reduce your dollar-based losses.
Hopefully you have learned something new! On behalf of Crystl Finance, we thank you for reading this article written by Crypto Light. Feel free to visit our Website to discover a multitude of Vaults available on Cronos, Polygon, and BNB. Also, keep an eye out for our Ultra Farms which allow you to maximize your passive income in single tokens rather than compounding liquidity.