Using a collateralised lending strategy can be a good way to earn on otherwise idle assets. Following is a strategy to earn a stable coin yield using Aave and Orion Money on Polygon. Depending on how aggressively you choose to manage it, it can yield in excess of 7.5%. Please note this is for educational purposes and none of the following should be construed as financial advice.
The key to this strategy is both the low gas fees of Polygon, which allow you to manage the LTV (Loan to value) and the interest rate differential between the borrow and earn sides. You do need to make sure that the LTV is in your comfort zone however as if you let it blow out to 75% you can be liquidated. I tend to aim for around 55–60% LTV to maximise the returns, assuming I can be around to keep an eye on it. If I anticipate this is not the case, I will lower it for the days I am offline.
Bridging BTC to Polygon
First you will need to get your BTC onto Polygon and there are a number of options available to do this. If you are happy to use Cefi you can send you BTC to an exchange such as Binance where you will be able to swap (often 1:1 but usually for around a 0.2% difference plus trading fees) for wBTC. Send the wBTC to your Ethereum wallet then bridge it to Polygon via the Matic bridge.
If you would like to avoid the Cefi touch points and keep it all decentralised then head over to the ren bridge. There you can send your BTC and have it mint renBTC to your Polygon wallet directly. From there you swap for wBTC on curve finance (or your favorite Dex) and you are ready to get started.
Start earning
When you have your BTC (wBTC) on Polygon you can head over to Aave and deposit making sure it can be used as collateral. Calculate an LTV you feel comfortable with (keeping in mind the maximum borrow LTV is 70% and the liquidation level is 75% LTV) and borrow accordingly. You can always check the health on your dashboard which shows you health factor (which is the liquidation level divided by your current LTV e.g. at 55% LTV it would be 75/55 = 1.4, rounded to one decimal place).
Currently the borrow rate is slightly cheaper for USDC but you can also choose both USDT and DAI for the next step. Head over to Orion Money and deposit it there to earn 15%. Now you can watch your earnings multiply on Orion while keeping a close eye on the Aave dashbord and either increase or decrease the borrowed funds to keep your LTV close to your target.
Risks
Compared to leaving your BTC in your cold wallet there are a number of risks you need to be aware of. Firstly systematic risk, i.e. the chance of you sending btc to the wrong address, losing your keys or any of the risks induced by you managing your own crypto. Next contract risk on either of the bridges, Aave or Orion Money and there is also risk with the centralised nature of wBTC itself. Take some time to DYOR research in these areas prior to investing anything you cannot afford to lose!
Let me know if you have any feedback on this article but in the meantime, enjoy your crypto journey!
