Step Lending Strategies
We recently posted a series of tweets about the potential strategies one could use when using the new STEP/xSTEP Solend pool. These strategies all have forms of risk with some more risk than others yet its worth considering as a part of your DeFi investment portfolio. Lets get into it
Simple Unlocking Value in xSTEP/STEP
- Deposit xSTEP or STEP
- Borrow a token like SOL or USDC
- Put the borrowed tokens in a yield farm/staking platform with a higher APY than the borrow rate
A simple way to maintain your price exposure to STEP (if STEP goes up you still benefit) while also earning additional yield on your borrowed amount.
The Leveraged xSTEP yield
- Deposit xSTEP (which has an intrinsic APY itself, usually around 10%)
- Borrow STEP
- Stake that borrowed STEP to xSTEP
- Re-deposit xSTEP
- Borrow more STEP again
This strategy is a simple way to take a leveraged xSTEP position, if you leverage your xSTEP 2x or 3x you are earning not just any supply rates on Solend but also the inbuilt APY of xSTEP. This strategy also has no price risk as the asset you are depositing and borrowing is both STEP so it makes liquidations highly unlikely. You could also play this in reverse by depositing STEP and borrowing xSTEP is the supply APY of STEP is higher than xSTEP.
Hedged Step Farm
- Deposit into a Step Farm like SOL/STEP at https://app.step.finance/#/farms
- Deposit into Solend a collateral asset like USDC
- Borrow both STEP and SOL in the amounts of the amount of tokens in your LP on the farm
- Sell the STEP and SOL into USDC.
- Your LP is now hedged and any yield is ‘free’ in that you don’t take price risk if the tokens drop in value in USDC terms. If the tokens appreciate in value in USDC terms your LP balances that out.
This is a bit tricky to setup and does carry some small price risk as it also depends on your collateral asset. However it is a quick way to get cheap short exposure to the Step farms
The rates arbitragoooorrrrr
- Deposit any asset into the Step Solend pool
- Borrow another asset with a low borrow rate (eg currently SOL and USDC at at close to 0% for borrowing costs) like USDC
- Deposit the USDC into another Solend pool for USDC (Invictus at 8% or Solend main board at 5%)
- Free money. If you ever need to close your debt position on the Step pool you simply move back this USDC to pay it off.
This is a simple and easy strategy to do. You could even take the borrowed USDC and put it somewhere in another protocol to earn an even higher yield (maybe a Sunny or Quarry LP yield farm). Or even a Friktion/Psyfi/Katana Covered Call Vault
The Delta Neutral Leveraged Farm
- Borrow an asset for a low borrow cost on the Step pool (lets say USDC)
- Use the USDC as a deposit asset in a Francium, Tulip or Larix leveraged yield farm. (lets use the Francium example)
- Find a high yield farm that accepts the USDC as one side of the pair
- Select ‘Pseudo Neutral Farm’ strategy on Francium UI to leverage this 3x and set stop loss if necessary
- Ensure you monitor your position that the price of the leveraged farm is within your liquidation points (you can see this on the simulator on Francium and Tulip).
This is a higher risk strategy but it involves sourcing cheap capital from the Step Solend pool and using it to take higher risk higher reward positions in some leveraged farms.
Feel free to comment on your own best ideas or strategies using the Step Solend pool we will be sure to add!