3 Ways to Use Fixed-Rate Loans as an Advanced User

Levelling Up: Strategies for advanced users to leverage Term Finance to access fixed-rate loans
July 20, 2023

Last week, we introduced 3 ways to use fixed-rate loans for passive users who want to enjoy security and certainty with Term Finance. This week, let’s explore some of the advanced strategies that more active traders can utilize on Term. 

Hedging Strategies with Term

Pennie the Pessimist

Pennie is constantly looking for black swans in the crypto markets. She thinks there is a problem with a major ETH staking platform that will lead to a large market fallout in a few months. Pennie wants to short ETH to express this view but doesn’t want to be subject to the volatile and high funding rates associated with selling short via perpetual swaps (perps) . She looks to Term where she can obtain up to 4x leverage and lock in predictable funding costs to carry the trade through term and avoid the potential of getting short-squeezed by the perp markets. Pennie puts up USDC as collateral and borrows ETH for 3 months which she then sells for more USDC. Her funding cost for her short position is secured for the next three months. Now Pennie can just wait for ETH to crash, buy back her borrowed ETH at a cheaper price and profit! All thanks to Term's fixed-rate lending protocol!

Filip the Farmer

Filip is a diligent farmer. He doesn’t want to be exposed to movements in the price of cryptocurrency and keeps his base portfolio hedged to USDC and just likes farming yield. Filip has spotted a new DEX offering a 15% yielding ETH/USDC pool. But Filip doesn’t have any ETH in his wallet. He could buy some, but then he’d be exposed to its price movements. He could borrow ETH, but he’s been burned before on Aave and Compound when he was hit by high double digit rates during liquidity squeezes in the past. With Term, he can deposit his USDC, borrow ETH with a fixed funding cost for 3 months and farm that pool for the juicy yield. It ain’t much but it’s honest work!

Ehan the ETH Maxi

Ehan has been in the ETH community for a long time. He has been watching the ETH burns and thinks that ETH will gain dominance over BTC as ultrasound money. Ehan wants to trade his view on the ETH / BTC ratio but rather than doing it on an exchange, Ehan realizes he can earn some nice yield as well doing it on Term.  To accomplish this, Ehan buys and wraps his ETH into wstETH to earn the staking yield available on Lido. He then deposits this wstETH into Term and borrows wBTC at a fixed funding cost via auction. Because he is able to obtain a borrow rate below the ETH staking yield, he picks up interest while holding the trade! Finally, with borrowed wBTC in hand, he sells the wBTC to recover a portion of the funds spent in acquiring wstETH posted as collateral to initiate the trade. Through Term, Ehan has established his long ETH / short BTC trade while earning some positive carry as well. Because he is able to recover a significant portion of the capital required to initiate the trade through his sale of bitcoin, he is able to leverage his returns and sleep well at night knowing that his funding costs are fixed!

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