Risk Level: Advanced
DeFi makes it possible for people all over the world to invest in stocks, without troublesome account opening, KYC, and verification procedures. Tokenized stocks now trade on many platforms, so that users can gain equity exposure in their crypto portfolios!
DAOventures brings this opportunity to our investors, with a huge boost to performance in the form of yield farming bonuses! As an added benefit, this strategy only has half the volatility of the stock market!
The Meme: Stonks
Stonks is a deliberate misspelling of the word stocks, to talk about investing in financial markets (though in an ironic way). It’s what the internet thinks of corporate America and Wall Street’s business affairs, but has come to generally represent profitable activities.
FAANG: The Trend of Big Tech
Tech stocks have been doing extremely well the past few years. Think of the apps you use most frequently. Wall Street analysts created an acronym for a 5-stock portfolio of the best performing tech names — FAANG, or Facebook, Apple, Amazon, Netflix, & Google. Known for their disruptive business models and addictive nature, these high growth companies are all household names.
This strategy gives users exposure to the FAANG basket of stocks. Except on steroids, and only half the volatility.
How do you rate the chances of Amazon stock doubling within the next year? Google going 100%? Possible scenarios, but the probability is not very high.
Let us introduce this strategy, using Mirror Protocol. Mirror allows users to trade synthetic stocks, or mirrored assets, represented by cryptocurrencies. For example, mAAPL is a cryptocurrency whose price is pegged to Apple shares. It is not a stock, you don’t receive dividends nor can you vote on company decisions, but you can trade it freely to capture price movements.
Mirror gives us an incredible yield farming opportunity, to become liquidity providers of mirrored equities paired with stablecoins. These pairs include:
- mFB-UST (representing Facebook/USD)
- mAMZN-UST (representing Amazon/USD)
- mAAPL-UST (representing Apple/USD)
- mNFLX-UST (representing Netflix/USD)
- mGOOGL-UST (representing Google/USD)
On many of these pairs, liquidity providers can receive 90–110% APR in the form of MIR, the governance token of Mirror Protocol!
We have constructed a market weight portfolio of the above 5 pairs, based on the size of each tech company as a proportion of the total market cap of the 5.
- 15% mFB-UST
- 25% mAMZN-UST
- 30% mAAPL-UST
- 05% mNFLX-UST
- 25% mGOOGL-UST
Because each LP above is paired with the UST stablecoin, volatility is greatly reduced. For example, a drastic 30% drop in stock prices would only result in a 15% drawdown on our assets, something that we are more than capable of riding out because of MIR rewards.
Incentives earned from yield farming these pairs would be sold once a day and used to buy back more LPs so that investors grow their portfolio value over time. This automatic compounding is done by our smart contracts.
The portfolio will be rebalanced quarterly to reset the strategy back to its standard allocations and weights laid out above, so that you will always maintain an ideal allocation to bitcoin!
Providing liquidity comes with the risk of impermanent loss, where your holdings in an outperforming asset within a pair decreases if there is a pronounced divergence over time between the values of both components. This strategy comes with significant risk of impermanent loss!
Because it is still an early stage innovation, DeFi smart contract vulnerabilities may lead to investors losing all their capital.
DAOventures is a DeFi robo-advisor and automated money management platform. Imagine “Robinhood for DeFi”. It is our mission to make DeFi simpler, accessible & inclusive. We believe in creating a simpler, more accessible, and more open world that is permissionless, inclusive, and guided by our DNA of continuous learning, integrity, and transparency.