Earning DeFi Profits Via Cash & Carry Arbitrage
There are two foundational premises of this topic. The first is DeFi Yield, and the second is Cash and Carry Arbitrage aka Basis Trading. Before we delve deeper into analyzing the confluence of these two, let us look at what these two terms mean separately.
DeFi yields or profits from trades in crypto and DeFi is an avenue that helps you earn more crypto assets with the crypto assets you already have. It is where you lend your funds to others through an auto-executable smart contract-guided route and earn fees in crypto in return, essentially increasing your holding size. People involved in such profitable trading keep moving between different lending marketplaces to maximize their returns. They also deploy complicated strategies to optimize their returns.
Cash and Carry trading in crypto — on the other hand — implies buying spot crypto, which is taking a long position, and establishing a short position at the same time through derivatives like options or futures contracts. How to earn more crypto assets by deploying your existing crypto assets to such strategies is the topic we will talk about here.
How to Earn DeFi Yield Via Basis Trading?
The reason why cash and carry trades or basis trading has gained traction as an instrument to secure DeFi yield is the volatility in crypto prices — the nature of the emergent crypto market. As we have already seen, basis trading thrives on the difference between an asset’s spot price and future price. The basis becomes stronger when the spot prices rise in comparison to the futures prices. Such a case happens when the demand is robust with the supply being weak or limited. On the other hand, it translates to a weakened basis when the demand is limited, with the supply being largely present. It causes the spot prices to fall in comparison to the futures price.
As cited earlier, when you opt for cash and carry arbitrage or basis trading, you buy spot crypto while setting up a short position through derivatives that could include options or futures contracts. At its core, going short or long on a futures contract is nothing but locking in the forward buying or selling price. The underlying assumption is that you will hold the contract till its delivery date. The futures price is the sum of the current spot price and the carrying cost for the tenure till the delivery. Basis represents the cost of carrying the futures contract during this interim tenure.
The basis is crucial in assessing the hedging strategy value and locating efficient arbitrage opportunities. Whether the basis is strengthening or weakening works as an indicator for the traders to determine whether a crypto asset should be bought or sold.
Overall, successfully profiting from crypto trades through basis trading would require an innovative solution that focuses specifically on the concept.
Sentient: Precog Finance’s Derivative Trading Solution
Precog finance, run with the vision of revolutionizing the DeFi crypto derivatives trading market, is about to launch a specific basis trading solution: Sentient. The advantages of such a designated solution are many.
First of all, we empower users to try out the potential of a range of assets. You can invest using Ether, USDC, USDT, and many more currencies.
Basis trading is a strategic deployment that requires a clear and holistic understanding of the crypto market, both in its past trends and future projections. Irrespective of the trader’s experience, comprehending the market scenario in its entirety requires time and other physical research resources.
Sentient makes the job easier by deploying advanced algorithms generated from machine learning and AI technologies. What is even more enticing and assuring is that Sentient does not only depend on the machine-run algorithms. We have an expert team that keeps correcting and optimizing the protocol taking cognizance of the changing market conditions. This team of experts involves financial engineers, ML and AI specialists, and people specializing in algorithms.
The objective of the Sentient platform is to maximize the profitability of our users. As a decentralized protocol, the Sentient platform systematically implements new strategies in consultation with the governing community of users. The aim is to keep improving capital efficiency. The DAO tokens, to be issued soon by the platform, would empower investors and token holders to participate in this voting.
Sentient’s Basis Trading Benefits
The first and foremost benefit is that our structured efforts towards basis trading offers are excellent annual returns given back as pure profits. Moreover, our staking program would allow stakers to earn Bitcoin apart from our native PCOG tokens.
Sentient’s potential would receive a further boost from Cerebral, our soon-to-be-released decentralized crypto derivatives platform. A full-fledged platform would mean improved user experience and the availability of additional underlying asset types, including NFTs.
Being Ethereum-based makes Sentient more efficient alongside the boost received from our 24/7 expert team working to optimize the solution.
Additionally, we employ unique tokenomics to sustain the value growth in our native tokens. We pay the profit in PCOG tokens, ensuring a continuous circular motion of the coin in the trading environment. This movement secures the increase in value/price for PCOG tokens. Unlike other protocols, we do not pay yields in the same token that customers used for investing, as we believe that paying through high-value sustaining PCOG tokens is always a more efficient route to realize more profits.
Nearly one-tenth of the trading profits goes into buying Bitcoin/Ethereum hash rate tokens. Held by the treasury smart contract of the protocol, these tokens help generate income in BTC and ETH, of which 60% is available for PCOG stakers to claim.
Overall, the structural solution of our protocol ensures that you get the best possible DeFi Yield from the market. Over and above, it ensures that the system sustains the value growth and keeps its economics thriving. The arrival of Cerebral would mean further augmentation in the leading position of the solution among our competitors.
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