Boring Things in DeFi that Actually Make Money | Terence An, Hyperplex | ETHTaipei 2025

[Music] Hey guys, I know it's a riveting title, so um I'm really glad anyone showed up. And yeah, my name is Terren. I used to work at an HFT. I used to work at Hudson River Trading as a trader. It's one of the largest HF HFTs in the world.

I really enjoyed it. I just I don't know maybe it's like some gambling side of me but I just enjoyed the aspect of trading and uh but at the same time I thought DeFi was a very noble goal and I decided to leave HFT behind to hopefully do something where um it has a meaningful impact but I couldn't leave trading behind. So I still do a lot of degening on chain. Uh so yeah, these are my genuine opinions on where you can make money in DeFi, how to systematize it, how to think about it. And a lot of these things I do actually do myself.

Um last year I did a little over 280 million in notional volume on chain just in my personal account. Um so I hope you don't take these words lightly. I do make serious bets on all the things that I'm going to talk about. So yeah, I I this is just a very genuine authentic approach to um how to invest in DeFi. Cool.

Uh I also work on two protocols now, Berve and Hyperplex. And we'll touch on that a little bit, but that's not the point of this talk. This talk is mostly just literally how do you make money? Uh, and the first thing is you have to accept boredom that in the long run you're if you always betting on things that just go up like 500x or drop zero, you're never going to make money in the long run. And excitement really is your enemy.

And not just is boredom important, but laziness. Um, Mr. Buffett himself has spoken multiple times, you really want a system where you can kind of just sit back, relax, and let it handle itself. Uh and the final quote is, you know, you really want investing to be similar to just watching grass grow or watching paint dry. We want to sit there, do nothing.

And if you really want excitement, you know, find it in other places in your life. The problem with DeFi though is your grassy lawn is right next to your Las Vegas. And so sometimes it's hard to tell which is which. And turns out you can actually turn your Las Vegas casino into something that is just dry paint. Uh and that's what we'll get into.

So today's talk is first we're going to just where are the opportunities to make money in DeFi to begin with. You know we have to start with something. Uh how do we make them boring? How do we get lazy about them as in how do we build that system around them? And then we'll realize it actually is really really hard to make money in DeFi.

But as long as you're thinking about it the right way and also as the future of DeFi grows, it actually gets easier and easier. Um, so yeah, let's get into it. First, people here, a pretty smart crowd, so I thought I'd start with a quiz. Uh, just to get everyone on the same baseline, what do you think is an acceptable yield to get in DeFi? like if you're doing any sort of investing where should you draw your baseline your point of comparison to and maybe for a lot of people it's just like as long as I'm not losing money that's already a great start and I totally understand that if you're some people you know peg themselves to the ETH staking yield that's very reliable that is you know the cornerstone of DeFi where it all began so I also think that's reasonable USDC lending on a seems pretty safe that yield uh if you're from TRFI you're probably thinking, "Oh, Fed funds rate, easy.

Why are you even asking this?" And that's a very reasonable answer. Or maybe you're just a BTC Max and you're like, "Whatever BTC does, I should be doing." Again, it all depends on what you're looking for out of your portfolio. For me personally, I think 3.

1% on USDC lending on a is the most reasonable. We don't have a Fed funds rate for a lot of reasons in DeFi. You know, illquidity reasons, RWA is not that accessible. And so for me, the most risk-free thing you can find is going to be just lending on Ave. It's almost never borrowed out.

In fact, it never has been. So I think it's very reasonable. Cool. So we're going to start comparing everything we do to that 3.1 quote unquote risk-free rate.

Let's dig into a little more difficult question. I'm going to give you an example here of some rates you can currently find on DeFi. These are like real numbers I just pulled and you're going to tell me what that means in terms of the risk premiums the market is pricing. So right now staked Athena USD is earning 6%. Lending that same USD and not staking it is earning 3.

56%. And if you want to borrow USD you're actually paying more than the staking rate you're paying 6.1%. And what does that mean? Does that mean you know the borrowers on a are just idiots?

possibly um does that mean the 7day staking ill liquidity is worth two point here let me stand on the other side is worth 2.44% for 4%. Does that mean Athena has an implied DPEG risk that is somewhere around 3%. You know, all of these are very reasonable opinions. Um, the points are going to be worth something.

The yield will eventually come down to something. And if I were to take my best guess at what the market is implying right now, it is that no, the borrowers aren't being stupid. The ili liquidity risk is somewhere around 2.44. And indeed, all of these things are somewhat true.

There are always caveats, but for the large part, I would say these things. I would agree with these things. And whenever you're trying to figure out why, where these numbers come from, why I'm saying the market is implying this, you have to make a comparison between a strategy that is just marginally different than a different than another strategy. So, for example, if we're trying to figure out what the unstaking illquidity risk premium is worth, we have to say, okay, lending USDE has no illiquidity. I can always draw withdraw it.

Staking USD has ill liquidity and so the difference in their yield is literally going to be the illquidity premium which comes out to be 4.44%. The next one's a little bit harder. Um what we're trying to measure what is the chance of a DPEG and so we have to have one strategy where you're doing the exact same thing but there's a chance of DPEG versus another one where there is no chance. And that comes down to staking USDE using borrowed USDE versus actually owning it because if you borrow it and there is a DPEG, you know, you come out scot-free, you actually make money in that scenario.

And so you just calculate it's like, you know, high school probability question. Uh you calculate what is the probability that there is a DPEG by setting the two sides equal to each other. the six point the 6% yield times the risk of prob DPEG plus the other side and you get it's like a 2.9% so roughly 3% chance of a DPEG and finally this last one is even trickier because there's no really marginal comparison here so the only comparison you can really make is back to that risk-free rate where I just lend USDC for 3.1% versus staking USDE but this time we know what the different risk premiums are so we subtract them out so if I'm staking USDE, I know I have ili liquidity risk and DPEG risk, but I'm earning points.

So, I subtract out the ili liquidity we just calculated, the dep risk we just calculated, and what I'm left over with is the points. So, yeah, it's pricing points at maybe 2.45%. That seems a little high for me for like a stable coin. I don't think stable coins just like handing out free dollars outside of their usual yield.

I think that dep risk seems a little high though and so you know the market just seems a little bit wrong in both directions. Um, and that is the point that anytime we want to make def money in DeFi, we have to look for where the implied numbers are wrong, right? And so it takes time. You have to sit down, grab a piece of paper and pencil and just do these calculations and figure out, all right, who's mispricing these probabilities? And like it's wrong all the time.

In fact, especially in certain protocols, but we'll get into that later. Uh, for example, when USDE was kind of like popping off and doing like 20% for a good month, you know, like does that mean the risk of a DPEG was 17% back then because the risk-free rate was still 3%. Like no, it's just the market was inefficient. Not enough people were piling in. It was a new protocol and people were scared and so there were some inefficiencies.

Um, even now with like very tried and true protocols, you have Pancake Swap and Curve on the bottom. It might be hard to see, but the point is curve and panking swap are providing basically the same thing. One is a stable swap over stables and the other is a concentrated liquidity position over stables. Your risk profile is basically the same, but a lot of people don't realize that and so you would earn way more for doing the same thing on Pancake Swap versus doing the same thing on Curve. Okay, cool.

So, here is probably the toughest question of this entire thing. And once we get through it, I promise you no more quizzes. This one we have a lot less information but the numbers are wild. So if you have usual USD which is pretty notorious in recent news. Uh a concentrated position on usual USD between their stable versus USDC is earning 26 12% right now.

You can go on vfat.io find this yourself. You know I'm not jerking anyone's chain. Um but if you just stake USDO you would only earn 8%. And if you deposited on curve the stake version with the unstake version, you would earn almost nothing.

Uh so again, here are your options. You know, which do you think are true? And in this scenario, I do think the curved depositors are being really stupid. There is no reason you should take on that kind of illquidity risk with the stake token and also the DPEG risk because USDO is not like immediately redeemable on chain either. And so like you're taking on a lot of risk for almost no yield.

I think that is the dumbest thing I've seen in a long time. Um, the other aspect though is for some reason the USDO uh stake version has both DPEG risk and illi liquidity risk baked into there, but the concentrated position only has DPEG risk. And so if anything, these re yield numbers look reversed. And at this point, nobody should be staking USDO. you should just be providing into the LP until the LP goes down because an LP is not going to lose more in a DPEG environment than the actual token itself like that is not true but I don't think you know not a lot of people think about it that way and ends up you get weird yields that you can take advantage of all right so the other question is are these yields boring enough because a lot of people just see the 26 1.

5% and they think that seems really numbers aren't supposed to be that high. I'm just going to stay away from it. And unfortunately, a lot of people miss out on money for exactly that reason. And instead, the question to ask yourself is not, you know, what how high is this yield? Does the number look scary?

Instead, you should ask yourself, how much does it swing my portfolio? You really have to think about your entire investment portfolio as one big piece. Uh what losses are acceptable to you if things go wrong? How confident are you in this opportunity? And how often do you need to check in?

Like if it makes you anxious where you can't go through a dinner without like checking your phone 50 times, then okay, maybe you've overallocated. Maybe it's just it is too exciting. You should really bore it size down or something. And classically, people refer this as the sleep test. If you can sleep well at night, you know, that's more important.

Make sure your health is okay. And if you can sleep on it, then you're probably fine. Okay? But if you're if you can't sleep on it, how do you fix that? How can we make this whole setup a little more boring?

And for me, it comes down to four things. The sizing, the diversification, hedging, and attention. And even more important is how I systematize all of these things so I don't have to think about it once the strategy is live. Because I really love this quote from Atomic Habits where if you you don't rise to the level of your goals, you fall to the level of your systems, right? At the end of the day, when things really go down, you're not going to be a reliable person.

We're all emotional. We're all humans. But what doesn't mess up is the math, the programming, the setup that you have made beforehand. So, how do we make that set up? Well, when it comes to sizing, I think you know pretty reasonable piece is first estimate as this thing is going to be a part of your portfolio, how much again, how much does it swing your portfolio?

What is that portfolio variance? If I'm putting, you know, 50% of my portfolio into, I don't know, peanut, and peanut has a chance of swings like 30% a day, well, my entire portfolio is going to swing 15% a day. Am I okay with that? And that's only on average, right? There's going to be days where it swings like 45% down.

Am I going to be able to sleep through that? Once you have an estimate of variance, though, the really nice thing is you can start applying the Kelly criterion. And, you know, lots of people have talked about this. You can make an entire talk just on the Kelly criterion. If you don't know what it is, you should definitely go on Wikipedia and search it up immediately right now because I wouldn't start investing without understanding that piece.

And it's just a formula that says, okay, if you're going to make a bet, how big should that bet be relative to your entire portfolio? Right? If you're flipping a coin that might double or nothing, how large of a piece of your entire portfolio should that be? and it literally tells you, hey, you should make it 90% of your portfolio or 5% of your portfolio. Uh, not a lot of people actually bet perfectly on the Kelly criterion.

I personally bet like half Kelly and that's very reasonable. You kind of find your own personal preference when it comes to that. All right, so diversification. A lot of people have talked about this. You know, this is everyone really knows about it.

The S&P 500 kind of teaches it to you from the first days you invest. So, I'm not going to go over this, but like, you know, multiple strategies, multiple tokens, protocols, chains, just spread it all over the place. So, no single point of failure. Um, but what some people often miss is you should also diversify across different time horizons. So, different liquidity profiles.

Some things should be locked up for a year. They're good opportunities. You're willing to wait a year. Some things for a month, a day. You know, at the end of the day, you need to eat.

You need to pay your rent. So, just make sure you always have some cash on hand. um and diversify in that direction. Cool. When it comes to hedging, a lot of people think about this and just hear like, oh, this is just like a stop loss or something.

But really, there's two ways to hedge. One is I want to remove noise from my investments. And so, if I'm trying to, you know, invest in just DeFi sector as a whole, I might say, "All right, let me buy into arbitrum and short OP." because as far as I'm concerned, they're really similar things, but there's a little bit more DeFi activity on arbitum. No hate on either of those two.

I have no idea if that's still true, but I'm just giving that as an example. And so, you're hedging out this chain factor. You're hedging out this entire market delta and just leaving yourself with this tiny exposure to the excess of DeFi on arbitral. And you know, that's a good factor hedge. And so, you should think of it one is to reduce noise.

And of course, the other is indeed stop losses are important. At some point, you're just like, I made the wrong prediction. I need to accept my losses and walk away from this. And finally, what not a lot of people talk about is attention. Just like there is a good way to pay attention to your portfolio and a wrong way to do it.

There's a good way to be lazy and a wrong way to be lazy. If you're checking into your portfolio every single day, if you're doing it on a schedule that you're consistent with, there's nothing wrong with that. Check two, three times a day, that's fine. you have a schedule. But if you're checking in out of concern all the time, that's a very different attitude.

And so you might be checking the same amount with a very different attitude. And if you're checking in to rebalance according to your set strategy, oh, perfectly fine. If you're there to alter your strategy, something has gone wrong. If you have a plan, always stick with it. If you find yourself making decisions every time you're checking your portfolio, that is the worst place to be because under stress, you're not going to make the right decision.

And so this component is what I think DeFi really has a good place with because now that smart contracts can handle a lot more complexity than you know what your prime broker at Chase or whatever bank I don't know banks in Taiwan I'm sorry but like you know at whatever bank your banker isn't really going to handle like if this then that if this and that but DeFi totally can and that's the beauty of why I think um DeFi has so much potential. Cool. So again, it doesn't matter which strategy you're applying. These are just some general guidelines I gave for whatever strategy you want to apply. But the point is you can systematize it for all of these.

You can always take these same four approaches. They're going to look different under different circumstances, but at the end of the day, the principles are always the same. And I'll give you a case study. So this is a strategy that exists right now. I am currently doing this.

I think other people should, too. Um, so you're probably eating into my alpha if you do listen to me, but it's totally fine. Uh right now if you're on Barra chain you can look at Doomite and the supply interest rate for Barra is around 69%. Incredibly high. I haven't ever seen it go down below 40%.

Probably a bunch of VCs or bag holders are shorting their exposure to I mean are hedging their exposure and so they're shorting on Doomite which I think is very reasonable for them but 69 is great for us. uh ETH on that side the borrow interest rate is 1.2 I just realized the number okay um ETH borrow rate is only 1.26% and the USDC deposit APR is 0.74%.

So a very reasonable strategy to do here is realize, oh, ETH and Barah are pretty correlated just because the whole market is pretty correlated. In fact, there is some asymmetric behavior, but it's asymmetric in Barra's favor. And so if I just long Barra, short ETH, maybe, you know, they stay correlated and nothing happens on the exposure side, my delta is completely zero, but I am just farming 69% on yield. So that is fantastic. So the strategy is I'm going to long bear short ETH on Doomite and add USDC as a buffer.

I estimate what this divergence is on a day-to-day basis. It's never really more than 5%. On in the worst case scenario, it's been 20%. And because the loan to value of this money market is 15%, that leaves me with like a 35% buffer, which you can, you know, one over 35 is around like 2.8.

So I'll just loop it 2.5 times. Um, set yourself a time horizon. you know, never just leave a strategy indefinite. That's like how you set yourself up to failure.

That's a bad way of being lazy. And if you do that, it comes out to be roughly 14% upside. 14. You want to measure that because it'll go into the Kelly criterion. Um, so, you know, I figure out what this variance is going to look like to try to find an appropriate size.

The daily ves around 7.5% for my entire portfolio. if I were to just do this with my entire portfolio. And so half Kelly suggests I should put 40% of my portfolio into this. I didn't do 40, I did less um because I'm a chicken, but at least I did a little bit.

Uh when it comes to diversification, you don't really want to diversify too much. The only uncorrelated asset here is USDC and that works perfectly fine so that um it acts like a buffer. The hedge again, you know, I'm just hedging with ETH and so I don't have any delta exposure. And finally, the tension is I just want to reduce my exposure if the variance does go up. But if it doesn't, I can kind of leave it as it is.

And whenever there is a divergence, for example, Barra going up here, I'm going to bet on a reversion to the mean there on their correlation, I'm just going to sell some Bara and buy it back when it reverts. uh that doesn't always happen but in this scenario if there is positive alpha on beer it works out in my favor. So anyways this is a very reasonable thing. We've gone over the four aspects of making this into a real system. We've measured our variance and uh yeah I feel really comfortable doing the strategy and I hope you do too.

Now anyways when it comes to DeFi you know a lot of us are builders. So can we build something to make this easier? Because honestly, those four steps take some effort, maybe more effort than you want to do right now. I don't know if people are on their phone to do this. Uh, which I'd love if you are.

If you're not, not a big deal. Um, but yeah, you should check the yield out for yourself. Anyways, like if I were to build a protocol to help make this easier, what can that be? Uh, it might be just find more correlations. There's lots of opportunities like this.

Maybe find make it easier to find. Um, can something bundle these transactions together for me so that I don't have to do all this like shorting and all these looping transactions? If you've done it yourself, it's kind of a pain. Can something just calculate the Kelly for me? Can I get more cross margin than just my 2.

5x loop? And is there a way to scale this up or down easily? Well, no one's really built a great way to do this, but per protocols actually do this really well, and I've been doing it on Hyperlquid for a while on different tokens. And the point is they kind of do your bundling loop transactions for you because when you short, you know, they deposit the cash into your account and they also give you some pretty generous cross margin. So yeah, don't overlook using per markets for more than just per but farming this basis difference.

Um, another thing people ask is just like, well, okay, this seems kind of complicated. Can someone just build a vault and do this for me? And the sad part is like yes and no. It can do a lot of the strategy for you. can do all the transactions for you, but when it comes to these four aspects, like it's really on you to figure out how it relates to your own portfolio.

And so vaults are not going to be the end all be all. You really have to consider what is the vault doing and how does it, you know, work in the rest of my portfolio. Okay. Um, so that was the looping example. It's not dead simple, but it wasn't super complicated.

What is super complicated is LPing. Sadly, like LPing is beautiful because it's uniquely DeFi and there's so many opportunities there like we saw before, but there's not a lot of systems built for it and because the problems are so many that it's already hard enough to find where the opportunities are. Like the yields on VFAT are different than the yields on DeFi Lama and yields on different aggregators. Um it's hard to pick a concentration range. You know, you have to estimate your variance for sizing.

How do you even do that? there's not good calculators for it. How do I diversify? And then beyond that, we haven't even addressed the other hard problems, which is like, okay, are there even hedges for my LP exposure that I can do and not some, you know, advanced market maker behind the scenes. Um, can I reallocate automatically whenever yields drop and rewards end because that happens all the time as well.

And is there a way to compound without all these insane fees that certain protocols charge you? And thankfully there are a lot of protocols who are building exactly that. You know, I'm working on BERV, but there's plenty of other protocols that do this. Um, if it sounds like this is a better curve and that's what BERV stands for, I didn't say it. It's just what it sounds like.

Um, but BER itself is a up to 16 token multiple. So super aggressive on the side. It helps with the diversification. But what's interesting is you can just pick whatever tokens you are, you know, comfortable with. And so instead of picking all 16, you can pit eight, you can pit four, doesn't matter, and you're only exposed to those risks.

The hedge is that we decided, hey, we'll just build in a hedge. If things drop for your position more than you're comfortable with, then we just cut it out. Um, yeah, simple as that. the attention. And the point is, you know, we built a protocol because if you're LPing for like eight different stable pegs at the same time, it's really annoying to actually go into all, you know, all the pairs between these eight tokens, which uh comes out to be what, like 28 pairs.

And so, yeah, you just want somebody to size them all up and down for you at the same time. And also, we have built-in rehypocation, which I'll talk about uh in a little bit, but this is how it looks like. We show you the graph. This is just a 5x5 to keep it simple with like five tokens on each side. You can pick like three of them or whatever you want.

Easily surfaces the yields for every single pair and um has enormous capital efficiency gains because it's a multi-ool. Anyways, when it comes to rehypothecation, I don't know if you've caught up with it on DeFi Twitter, but it's just the new ha thing for AMMs where we take all these idle assets and put it somewhere yield bearing. nothing crazy because you know like your token that's sitting in AMM is not being used 90% of the time might as well just put it on a throw it into Lido and yeah both of the protocols I work on do this but there's plenty of other protocols who have started picking up on this and so I think that's great for DeFi um besides that Hyperplex is generally just this LP compounder uh which is the more interesting part of Hyperplex for me but overall it's an LP optimizer and when it comes to compounding one thing people do wrong is that people kind of compound all their positions uniformly. You should really just be compounding your winners and neglecting your losers because whatever is earning right now is probably going to be earning more in the future unless you have like a really strong prior distribution on where your fees are coming from. Um and in that sense, balancer is kind of doing the wrong thing.

Balancer comp is selling off whatever token is growing and buying back whatever token was not growing. And yeah, I just don't think that's the right approach when it comes to farming fees. So I would not use it to farm fees, but maybe you just want to hold a portfolio. I get it. Um, but other protocols have kind of understood that, hey, you really want this distribution when it comes to LPing.

Trader Joe was pretty early to it, but they're I didn't really like their distributions. Bunny is a really cool protocol. If you haven't checked out, they have this like liquidity shape-shifting built into UniV4 that's built on this premise. And I really like the compounding solution because the point is the fees themselves slowly discover what is the true uh population of like your fee earning ticks through wellvenco telly if you remember from stats class that's like the reason why bootstrapping works and it's also the reason why autoco compounding this way is a really smart idea. Okay, cool.

My point is, you know, it may be it may sound really hard. Building systematizing an investment strategy is difficult. Um, you can definitely do it now and in the future because of all the things that people are building, it's only going to get easier. And so, I hope everyone's very hopeful about the future of DeFi. And I want to leave us with Amara's law, which is we tend to overestimate the effect of technology in the short run, but underestimate it in the long term.

I think we've already done enough of the overestimation. You know, the hype has really gone down lately and we're in that phase where I think people are underestimating how far we can go and how far DeFi has already come. Uh, cool. So, here's how you can stay in touch, reach out and if you have any questions, let me know. Okay, we have one minute.

So, so maybe just one question. So, how is the unstaking liquidity calculated? This based on the opportunity cost or um yeah, any formula. Yeah, exactly. You hit it on the nail.

You hit the nail on. It's just if I were to do this, I can't do that. Okay, got it. Thank you. Cool.

Do we have another question? By the way, I think the title is not correct. It's really interesting. I think I'm gonna review all my strategy with with your framework tonight. Yeah.

All right. Any last question? All right. If you want to discuss more strategies with Terren, you can add him on is it your Twitter? Oh, the last one.

The last one. Monk's umbrella. Okay. Yeah. So thank you Terren for the talk and this is also a wrap for today's talk and uh rest up tomorrow we have more vitalic more music more panels and more talks so you should come back home sleep early and we will see you tomorrow.

Thank you. [Music]