Hi All!
In my first article, I wrote about how I moved my whole crypto to HIVE and created an initial portfolio.
I wanted to choose tokens that can generate some income in the long term:
- HBD: 15% interest when staked
- Hive Power: ~3% interest + can be delegated to earn an additional ~10%
- SPS: ~6% interest when staked
- DEC: ???
Investing DEC
I had to think more about DEC. The only passive income opportunity I was aware of was SPL Trader, but due to the huge liquidity (~48 million DEC) in the pool, I could only invest 100,000 DEC.
What were the other ideas?
- Buy some premium cards and rent them out
There are many risks: possible card price inflation, hard to rent out, and hard to sell the card later
- Buy lands and produce goods
The problem with this is that a big investment should be made (buying land, power core, staking DEC, renting cards) for a poor, if not negative (!) income
The final decision: Becoming a merchant 😉
I decided on another risky area: putting DEC and resources into the corresponding pools and earning tokens from transaction fees and price changes.
How are swap pools working?
Warning: it's not easy to understand
If you are putting tokens into a pool, you are providing "liquidity". After each transaction (swap), all liquidity providers get revenue from the transaction fee based on the amount of their shares.
Let's say you want to provide liquidity for the DEC-GRAIN pool. You have 2000 DEC. Let's assume 1 GRAIN = 1 DEC, just for simplicity. You buy GRAIN for 1000 DEC, then put both of them into the pool. After this, you will become a "shareholder" in that pool. If somebody swaps in the pool, every shareholder gets a portion of the swap fee.
Sounds good? Let's see the bad news 😉
I try to explain it as simply as I can, but understanding pools is a difficult terrain...
Every share has two parts. In our example, the DEC and the GRAIN part. The initial rate was 1000 DEC and 1000 GRAIN (worth 1000 DEC).
During swaps, the token ratio can change constantly; you put token A in and get token B. The only constant that pools try to maintain is the product of token amounts: DEC amount x GRAIN amount. This leads to different scenarios:
- If GRAIN is more than DEC: The GRAIN becomes cheaper in DEC
- If DEC is more than GRAIN: The GRAIN becomes more expensive in DEC
Initial value
- 1000 DEC
- 1000 GRAIN (1 GRAIN is worth 1 DEC)
Product: 1000 x 1000 = 1,000,000
Share value: 2000 DEC
Sample 1
- 500 DEC
- 2000 GRAIN (1 GRAIN is worth only 0.25 DEC)
Product: 500 x 1000 = 1,000,000
Share value: 1000 DEC 😧
Sample 2
- 2000 DEC
- 500 GRAIN (1 GRAIN is worth 4 DEC)
Product: 2000 x 500 = 1,000,000
Share value: 4000 DEC 🤑
Summary:
- More DEC in our share = Bought more resources than sold > PROFIT
- Less DEC in our share = Sold more resources than bought > LOSS
You can remove your share from the pools anytime. You get the current DEC and the resource amount in your share.
Splinterlands specific rules
Currently, there are five available pools:
- DEC:VOUCHER
- DEC:GRAIN (land resource)
- DEC:WOOD (land resource)
- DEC:STONE (land resource)
- DEC:IRON (land resource)
Every time you swap from token A to token B, a 10% fee is deducted from token A. Half of this amount (5%) will be burnt, and the other half (5%) will be paid to the shareholders.
Sample:
If you buy GRAIN from 1000 DEC, you only get GRAIN worth 900 DEC. 50 DEC will be burnt, and 50 DEC will be paid to the shareholders.
- If you remove your liquidity within the next 30 days, another 10% withdrawal fee will be applied.
My strategy
Everything discussed here is not a financial advisory, just an experience
- I will invest 500,000 DEC into this challenge. It will last until 2026-12-31
- I will invest 10,000 DEC every Sunday (50 times in total). This is called "Average Dollar Cost Strategy."
- I will put liquidity into all five pools
- I will try to balance the value of the five pools equally (20% each). If pool A's value is bigger than pool B's, then I will invest less in pool A
- Sometimes I will remove some liquidity if necessary to keep the balance
- I will make an article after each month (12 times in total)
Summary
I hope I could write down my thoughts clearly.
I'm really excited about this challenge. If the resources perform well in the long term, it will be successful. If not, then it was an adventure 😉.
See you at the beginning of February with the first numbers!
Thank you for reading this!
Peter
