Opportunity Cost

• The traditional rules of finance say if you use your money to buy and hold Bitcoin, you can't use that same money to buy Cub and BUSD and invest in that Farm to earn Cub.
• It's because of opportunity cost, money spent on opportunity A, can't be used for Opportunity B.
• Its the same in real estate, if you buy the 24 unit apartment building with your inheritance from your dad, you can't buy the beautiful home in the suburbs with that same money.
• It is beautifully explained by the classic fish or steak dilema at the restaurant. If you can only order one meat dish, ordering fish means you can't have steak.

But decentralized finance, specifically decentralized lending gives a way to circumvent this.

What if you could pay for something, get the receipt, then grab your money back and buy another thing of equal value, get the receipt and then run home with both items??

Perhaps both establishments would call the Police, but technically you have a receipt showing you paid for each one, so...
But decentralized finance allows us this fantasy, almost, so let us learn more.

decentralized finance introduced lending platforms as the first form of decentralized finance.

• These platforms allow you to deposit cryptocurrency within special accounts called vaults, then borrow 75% of the deposited value back as stable coins.
• This borrowed stable coin allows you to invest in a second opportunity, effectively circumventing the opportunity cost of the first asset.
• This requires care to pick the deposited asset carefully and the percentage borrowed also.
• While Bitcoin and Ethereum are the most often deposited assets in such vaults, they are also the most volatile and result in the most liquidations; which is the forfeit of the deposited assets if their value falls to low.
• While many lament this liquidation as a great crisis, it merely means you are left with only one asset instead of two. Which is far from a disaster, as long as you invested your borrowed funds wisely.
• Lets look at a concrete example:

You are an investor who would like to invest in Ethereum and Cubfinance.
You have $10,000 invested in Ethereum.
You want to keep your Ether, but you have also heard of a wonderful opportunity called Cubfinance.
You decide to deposit your Ether into a vault on the lending facility called Venus on Binance Smart Chain.
You then borrow 70% of its value or 7000 of the stable coin Vai; $7000.
You then use the Vai to buy $3500 worth of Cub and $3500 worth of BUSD.
You then complete the process of depositing your liquidity in a Cub-BUSD trading pair on Pancakeswap, receiving LP tokens, then depositing your LP tokens in the Cub-BUSD Farm on Cubfinance.
you are now earning yield on Cubfinance and hodling your Ether on Venus.
You have circumvented opportunity cost and invested both in Ethereum and Cubfinance.

Caution:

This is a risky strategy, as if Ethereum price drops 30 percent, your Ethereum in Venus would be only worth 7000 and it would be sold to pay off your debts.
Now you would be left with $7000 in your Cubfinance account.
Some would see this as a loss of 3000 and indeed it is on paper, but if your Ethereum had been held in your wallet it would have dropped in value to 7000 anyway.
So you could liquidate your Cubfinance investment and sell it, buying back the same number of Ethereum tokens you had in the beginning.
So if you act quickly will have no net loss.
Conversely you can sell just enough of your Cubfinance position to buy more Ethereum and deposit in the vault to prevent liquidation.
There are many options. It just requires you to understand what you are doing.

This is after all not financial advice, it's education.

You should read articles like this and then you do your own research before investing any money, if you are wise.
Remember investing with these financial tools is risky and made safe only by education and thorough understanding.
Plus investing in this leveraged fashion on Venus vault requires daily attention to the price of Ethereum and your vault.

This is decentralized finance, we are on the cutting edge of change and transformation. So only invest what you can afford to lose.

@shortsegments

Posted Using LeoFinance ^Beta