My Defi adventure 2: Contract failure and volatility

This post is a sequel to My Defi Adventure.

Encounter of Token Contract Failure


I have had a taste of smart contract failure in transfer when I tried sending some SNX tokens to Celsius network from my Metamask yesterday. 


There was enough ETH in my wallet for gas fee but surprisingly the transaction failed. For the first attempt, I thought it was because I have locked my Metamask too early and closed the browser (transaction was pending when I locked it as I was in a hurry to go out). In the second attempt some time later, the pending status was dragging due to low gas fee, so I sped it up and it immediately ringed me a failure message *slap*. Third attempt, I tried sending to Gemini (another platform) instead and again received a failure message *slap slap*.


By rule of elimination, I suspected it's an SNX smart contract failure (the token is probably locked or paused).  This is suay or what?!




In the end, I swapped all my SNX into ETH (on Uniswap) and incurred some more gas fees. T.T


Thanks goodness the swap went through. This transfer saga slapped me upside down without me knowing the real reason. All these digital wallet stuff and transfers are really not for the faint-hearted,  we could see from all the issues that others have encountered here.


My ETH transfer to Celsius has no problem. Was it a problem with the SNX token source (it's bugged)? Is it cos of my first failed transaction? 

If anyone has an inking on how to solve this SNX transfer issue, please drop a comment below.



Volatile APY eats farm yield



In my previous post, I talked about my Aave "ponzi" experiment on Polygon network. Aave is a crypto lending and borrowing Defi platform. Depositors can earn interest (%APY) and rewards (%APY in Aave or Matic) and borrowers can currently earn MATIC token rewards (despite having to pay interest). So here comes the interesting part.


Theoretically, there would be minimal risk when you deposit say MATIC and borrow MATIC to re-deposit. There you will earn magnified rewards without worrying that your collateral value will fall below health factor threshold eg. touch liquidation point, since your collateral and borrowing values will fluctuate in sync eg. same asset. 


What happens when everybody in the space monkey-see-monkey-do with this tactic? The borrowing APY will start to shoot up, this is because the dApp is smart enough to adjust the deposit and borrow APY in response to market demand. When this happens and your borrow APY exceeds your reward APY, it means you have to pay out of pocket for the borrowing. To determine whether you still earn aa net yield, do some simple math as follows. 

Net deposit APY of loans - Net borrowing APY = Net APY earning


You can probably still sleep well at this point by using the above tactic, since the MATIC's deposit APY is ranging well at around 10%. However, just take note that this tactic is giving a perpetual daily yield decline as more people onboard.


So I switched tactic to borrowing USDT (which is longing MATIC) and it offers a higher borrow APY reward. Alas, old trick can't last. USDT's borrow APY is EVEN MORE volatile (due to high and volatile demand), which means insane daily monitoring of APY to make sure that my yield doesn't cut and my LTV doesn't explode. Because USDT cannot be used as a collateral asset so my "health factor" came plummeting down. If you have your USDT moved or LP-ed on some other platforms, then you better be vigilant and quick to move it back for debt repayment should the borrow APY skyrocket or "health factor" becomes precarious. This could happen when your crypto assets drop in value against USD stablecoin.


Yesterday, I closed my USDT debt and changed tactic again to continue playing the yield farming game.


That's all for now. Stay tuned for more adventures!


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