How to make millions of dollars without (almost) having to put any money

Introducing Defi

Financial tools are notoriously famous for the low return they offer. Savings accounts and certificate of deposits offering up to something close to 4% according to financial aggregator nerdwallet.

New options such as defi offer way greater returns, averaging 60%-80% with known returns even higher than that. A 100% return basically means that you are doubling your money.

Defi is expected to be a 450 billion dollars market by 2030 according to forbes with analysts considering it is way far from its potential considering the global bonds are over one hundred trillion dollars.

Defi is a shortened way of saying decentralized finances. Finance is the science of using money to generate money like lending or investing, while traditional finances rely heavily on financial institutions such as banks. Defi tries to do finances as far as possible from the banks.

To understand defi we need to understand tokens and protocols, we discuss this in the subtitle How does this Defi thing work? How do people make money with this? , feel free to jump to it or read about the several of the drivers behind defi adoptions and why you still should be careful in the defi world.

If you just want to know about how people make money with this jump to the subtitle Tools for increasing your profitability. In there you learn initial concepts and he will be able to send us your email so we can send you a notification as soon as we have the new post in this series.

If you are interested in any of the software we will be building to help you make money you can go directly to the 6th subtitle in there you can send us your email and we will notify you when we have updates of the softwares we will be working on.

A huge part of the content of this post came from the work of Alexandra Damsker in her book Understanding Defi, highly recommended book.

Finally, as you may have guessed by now, defi is an investment, like opening a store, having a certificate of deposits or any other type of economic activity, this means that you should be responsible with the money you put in and be always alert.

Why should we use defi more than we use banks?

One of the main drivers of the defi industry and adoption was a certain disdain for banks inside of the defi community, the main reason is that banks use our money to make a lot of money without giving back a fair percentage of the profit.

Another thing driving people away from banks is how the law treats banks compared to how it treats regular citizens. If a common guy or girl can't pay the mortgage, he will lose his house. We have seen on multiple occasions that if a bank has been doing irresponsible things with other people's money, governments will bail them out.

One of the best examples would be the banking crisis from 2008 where the irresponsible behaviour of the financial institutions created global financial crisis, resulting in a $700 billion Emergency Economic Stimulus Plan in 2008 (the “bank bailout” plan, later extended to General Motors and Chrysler) and another $780 billion stimulus package, the American Recovery Investment Act, in 2009. risky and poor lending practices ended up hurting everyone but the banks.

A more recent example is the issue we had with the silicon valley bank(SVB), where there weren't just bad practices of a bank with saving accounts of many tech entrepreneurs storing amounts thought to be way bigger than $250.000.

With the silicon valley bank wasn't just the bad practices but also the fact that Greg Becker, the former CEO of SVB, was head of a powerful lobby to remove SVB from the regulatory “burdens” imposed by Dodd-Frank and other regulations, saying stress tests and increased oversight added expense and were unnecessary. Until it failed. He sold his stock in SVB weeks before it failed but personally called clients the day before the bank failed “to assure them their money was safe.”

But scams also happen in defi, no?

Sadly this is true, and that is one of the reasons why we decided to start writing this series of posts where the alchemy145 team will be discussing topics related to Defi, investments we will make, software we will be building for helping, and our view of topics. Average returns are quite high but it does not change the need to move with caution.

Some of the famous cases weren't actual scams but bad designs like Anchor, an investment protocol where people only stored the tokens in there without a clear way of adding value to these tokens.

Another famous case was Voyager, where a crash in token prices due to Federal Reserve rate hikes created a liquidity crisis for hedge funds and tokens sites with excess exposure to digital assets. Many of those firms defaulted on loans, creating a cascading effect that infected the broader industry and lenders like Voyager.

Other of the places where you should be careful is where you store your tokens and the exchange you use for moving them around. FTX, a case you may have heard of, this was a venture capital backed exchange which used customer funds to fund billions in bets by Alameda, a private, affiliated fund—almost 70% of its loans to Alameda were paid by FTX customer funds. When clients heard of this there was massive withdrawal of deposits, with FTX using these funds in things they shouldn't, there was no funds to give back the money to the clients, the company filed for bankruptcy and left the million users they had at the moment wondering how could they recoup their money.

The FTX case is a reminder of several things, one is that even when you see a defi project backed by really huge institutions like sequoia who did early investments in DoorDash and AirBnb, you still should be careful. The other important thing to have in mind is that even when you see the founder on the cover of Forbes , you still should be careful.

How does this Defi thing work? How do people make money with this?

We have been highlighting words with bold type like this, but we decided to stop doing it for this section because we believe you should read it completely, enjoy.

To understand defi we must understand the protocols. These are financial tools, which mean we will put money in the hand of others, this other person is expected to return the money back plus some interest. In Defi all of this is governed by protocols, which are programmable rules that define the action that will trigger money passing from one side to the next one. We will be checking several protocols to get a clearer idea of how this works and how to make it work.

Most of these protocols required programable money, this programable money are called tokens. Once the rules are fulfilled, money goes to the borrower and the same protocol determines when these tokens return to the lender.

In the current iteration of DeFi, the loans that are made often don't end up in an enterprise that increases in value or generates real revenue. They tend to be extremely short-term loans, ranging from minutes to weeks.

So the important part is to determine where to put your tokens. If it is not clear how the tokens you lend generate value, that protocol is not going to work. So the important part is to determine where to put your tokens. If it is not clear how the tokens you lend generate value, that protocol is not going to work.

Type of protocol #1: Staking

You deposit a token into an account on a platform, where it then is used to supplement chain validator accounts or nodes. It gains a certain amount based on the APY. APY is the annual percentage yield.

To understand blockchain validation, we must first remember that in the traditional financial system, there are accounting ledgers that record all sales and purchases. This way, both traders and investors can know the true status of a business or operation.

In decentralized finance, this truth is stored in multiple tokens, such as those you own. This prevents transaction falsification. To know the truth, the record of many other tokens are verified.

When the validator node your tokens are linked to is selected to validate and receives a reward, your tokens also receive a reward. The payment for additional tokens is deposited into your account.

Type of protocol #2: Lending Protocols

Here, you are doing the basic financial tool function: loaning out your money for it to be returned with interest. This is different from staking to the chain. You aren't earning a return in exchange for supporting a chain. You are earning a return in exchange for loaning out your money to a specific borrower. You don't know who the borrower is; the protocol matches your loan with a borrower. But you are earning a return for regular lending services.

We will need to subdivide this protocols a little more to explain it a little better.

Type of lending protocol #1: Liquidity Provider on a Swap or Decentralized Exchange

A swap exchange is a decentralized exchange that is an automated market maker (AMM), a type of exchange that runs on a matching algorithm instead of matching by brokers.

A market maker is an algorithm or a real person getting buyers and sellers closer. Nasdaq, yes that Nasdaq, is an example of a market maker.

This is common, and is one of the earliest financial innovations in blockchain. Ordinarily, if you want to trade one token for another, you'd have to find someplace, like an exchange, to trade. Exchanges generally are like stores; you have someone who wants to open one up, so they get a bunch of cash together and buy a bunch of inventory to sell. If you want to exchange tokens (and get a transaction fee on each trade), you need to have a stockpile of tokens to trade. But that takes a pool of cash. And a central person or group to contribute that cash, buy the tokens, and orchestrate the sales.

Instead, we had Uniswap, the first decentralized exchange, that went a totally different way. Its developers said, “We want this to exist, but we don't want to raise a bunch of money and buy tokens—we have no idea what people have or what people will want. And we don't want to run this. And we have no idea how to price any token anyway.” Normally, most people would stop here, decide startup life wasn't for them, and grab a beer and a bunch of lottery tickets.

But not our intrepid Uniswappers. They looked around and saw a bunch of wallets with tokens sitting quietly, bothering no one but earning no money. So they came up with a cool plan: send us your tokens, and we'll loan them out to others and you'll earn interest on them.

The average return for a liquidity provider is around 1%-6% APY. That's significantly better than 0% just sitting in a wallet, and likely better than a standard interest-bearing bank account (depending on the Federal Reserve's overnight rate at the time).

Type of lending protocol #2: Borrower-Lender Platforms

Borrower-lender platforms are more like traditional finance tools: one side loans assets to the protocol, and the other side borrows those assets. The parties are anonymous to one another. Borrowers don't need a credit score or other identifying information. Instead, they offer collateral.

If the value of the collateral drops, there is usually a condition that it is force liquidated (sold) when it reaches somewhere around 100%-115% of the value of the outstanding loan (these percentages all vary by protocol, of course).

You may wonder why someone would take out a loan in tokens when they have to offer collateral in tokens. Usually, this is because they think another currency will shoot up in value, leaving them with a profit after repaying the principal amount and interest, and then they still get to reclaim their original token collateral.

Average returns range from 2% to 10% APY. Outrageous returns are often offered in these protocols. Most of these have failed. Always make sure you know how your return is being made.

Type of lending protocol #3: Yield Farming

Average returns for this one are 60%-80%, but they have been known to be much higher. Yield farming, also known as liquidity mining, is a method of maximizing returns from the various lending protocols. Either through your own research or using an automated aggregator, you use several strategies to increase your returns.

Going through your favorite platforms, you continually move your assets from one interest-bearing protocol to another. The interest rates can fluctuate daily or more frequently, so this can entail some work. You need to account for gas fees, as well, as every move will have some loss to gas.

Another option is using an automated aggregator tool, which goes through the search for you and automatically moves your assets.

I want to start investing some little money to see how this works. Where can I find protocols ? how to invest in defi ?

If you want to receive the post about our analysis, where to find protocols and how to invest, let us your email in here and we will notify you as soon as we have these post ready.

This is the first post, actually a guest post, from the alchemy145 team about defi. We will be writing more posts to make your defi experience more secure.

Writing good posts takes time, multiple teams need to check what we write, we need to gather all of the evidence, and experience things ourselves.

But the end result is awesome. We had discovered a lot of cool ideas to make your money generate great profits, like saving accounts making you more money than saving accounts in the United States, clear numbers to have a clearer idea of how much on average defi generate and tools for making your journey even easier.

Tools for increasing your profitability

The alchemy145 blog is part of the alchemy145 team, we are a group of software developers and we want our community to receive news about our tools as soon as we have them.

It's not about choosing one or the other, you can let us your email in any of the form you are interested in, and we will let you know of news about our tools, as well as dates when we will be launching the first versions of these tools.

Tool # 1: Storing your money where you receive the greatest APY

Moving money around is quite expensive and more complicated than it should be. This makes millions of citizens from many countries in the world not take advantage of banks and defi around the world offering great APY just for having your money in their savings accounts, money that you can withdraw whenever you want.

At the moment of writing this post you could get a maximum of 4% annual, with many offering 0% while in South America you get between 9%-11% 9% or 15% with other tokens currently available. This percentage changes over time making it bothersome to move money around to take advantage of this.

Automated money movers fix this. If you would be interested in hearing more about this tool, send us your email in this form and will tell you news and dates of future releases.

Tool # 2: Loaning money to a wide variety of business activities

A lot of this money is being currently used in trading operations where gains come from valuations of other assets.

Nothing wrong with this, but there are huge untapped opportunities to use the billions of dollars to finance many other types of business opportunities. A good example of this are online stores. At the beginning every store is a theory, a hypothesis where given a type of product and a distribution channel like ads or appearing in some influencer or blog, we can generate sales.

Once the theory is proven, a store becomes a money making machine where given an amount of money it will return a higher amount of money. For the store owner, doing these operations using loans makes a lot of sense because it frees up its own money for other experiments or business operations.

Not just that,this influx of capital is the difference between a store selling a couple items and dominating a business segment and creating a brand, so the speed at which he could get more money is really important.

For the owner of the capital is putting money to work, but also, the dopamine from sales notifications, from discovering a business opportunity, from hearing a sales pitch where he could participate and all of this without needing to know the nitty gritty details of the effort associated. Or a completely automated experience if he prefers it.

Send us your email in this form and we will send you news and date releases of this project as soon as we have them.