I'm going to describe two methods of using diesel pools on Hive Engine to both increase your profits or to DCA, both in or out of a token.
The same techniques can be used on other platforms and liquidity pools, I just present them for diesel pools because they are well-known to most of my regular readers and because I use them more frequently myself. It isn't negligible either that adding or removing liquidity from diesel pools is free, and may be subject to a fee on other platforms.
Using Diesel Pools for Higher Profits
Some people may be expecting to talk about rewards for diesel pools and APR for being a liquidity provider. There is that, and you are free to explore those options, but that's not what I will talk about.
I will, however, talk about understanding the crypto cycle well and the two tokens that are part of the diesel pool, and being in the right diesel pool at the right time (we are talking months, maybe years, not changes from week to week).
Since the start of the bull market Bitcoin kept pushing higher and higher, while most alts struggled, until recently.
This is not a well-guarded secret. Everyone kind of knew that, especially if it's not their first rodeo in crypto.
I had an account where I experimented different strategies on Hive-Engine, mostly in diesel pools, since close to the beginning of the year.
One of them was to be part of the Holozing pool, which was a no brainer at first when they had those impressive APRs. But later, I didn't want to continue to take the same risk, and wanted a lower-risk alternative which would still produce a decent APR.
My decision was, after careful consideration, to build up mostly SWAP.HIVE-SWAP.BTC on that account, with a few much smaller ones, sometimes opportunistic.
But that was the core. And we know what happened. BTC kept going up and up, HIVE kept going down (like most alts). Even now, after I liquidated that pool and HIVE almost doubled in a month, my virtual ROI in HIVE of that account is around 75%. The APR would be higher.
Source - Nice view! Better than a lambo, lol.
I haven't tracked the dollar value for this one, only the HIVE value, since my intention is that at the end it will all be turned into HIVE, so that's what I'm interested in tracking.
The way diesel pools work is like this, in case one token goes up and the other goes down in price. To keep the 50:50% ratio between the tokens in the pool, the tokens that go up in price are sold for the ones that go down in price, until there is an equilibrium. That's how, for the SWAP.HIVE-SWAP.BTC pool, as BTC went higher and HIVE lower, SWAP.BTC got sold into SWAP.HIVE and I had more SWAP.HIVE and less SWAP.BTC for the same position, than initially. In the meantime, I also added to the position from rewards of other diesel pools and there were fees paid too, since this is one of the most actively traded diesel pools on Hive Engine.
Recently, BTC has hit a roadblock around 100k, while HIVE and other alts kept moving higher until BTC pushes through that resistance.
In all likelihood, many alts will do better than BTC until the end of the bull market, if for no reason, then because they have been lagging behind for a long time and need to catch up.
This is why I don't have liquidity in that diesel pool anymore. The choices are to either keep HIVE which I multiplied when BTC was going up as it is, liquid, or to pair it with another coin in another diesel pool, but one with a higher potential to rise going forward.
Using Diesel Pools to Dollar Cost Average
I haven't done this yet, but I'm thinking about it, especially as a way to take profits.
The continuous rebalancing a diesel pool must go through to keep the two tokens in equilibrium, can be used as a way to DCA, both for buying and for selling.
But since the next thing people would probably focus on, including myself, is taking profit, not buying, that's what I'll describe going forward.
Let's say you expect HIVE to pump hard at the end. If it does, it will likely be a matter of hours or days, at most, because many will take profits if/when that happens.
One way to take profits in this case is to set sell orders at levels you consider right and wait for them to be hit... But what if they are not hit? What if you set your order 2 cents above the ATH Hive reaches this cycle? You'd probably be pissed...
The alternative is to take profit gradually...
Say HIVE reaches 1.3-1.5$ and after that it's a lottery. You don't know what will the ATH be or when.
One alternative I'll explore here is to add liquidity to the SWAP.HIVE-SWAP.HBD diesel pool. Any gain HIVE makes above the level where you add liquidity is reduced compared to having HIVE liquid, but two things happen in this case:
- unless you already had the SWAP.HBD, you already take some profit to swap SWAP.HIVE to SWAP.HBD for the pool
- as HIVE price goes higher, SWAP.HIVE is sold into SWAP.HBD in that pool to keep the equilibrium, so, effectively, you take profits
What this method supposes is that you remove all liquidity from the pool and swap all SWAP.HIVE to SWAP.HBD at the end, or you start losing dollar value as HIVE moves past the ATH and quickly drops in price.
Last Words
I don't expect either of these methods to be for everyone. You first need to understand them well, then you need to be "compatible" to the types of actions required, and then actions need to be taken at the right time, or you may lose money. So, be careful!
Don't worry if that's not for you! I find enough things that can be profitable and are not for me either. See memecoins, lol.