727 FinanceHow can you build your passive income system through Perps, Loop, and LP Deal?
Author: Chen Xiaomeng
Earn 1000U+ a day while lying down — when investing starts to become boring: a chat about my U position management, cash flow, and how my investment philosophy has changed over the years
A while back I posted a tweet saying that my daily cash flow has gradually stabilized recently, and a pure U position can generate roughly over a thousand U in profit per day. Add to that the BTC and HYPE I hold long term, as well as QQQ, SPY, and some names I personally believe in, and I suddenly feel that investing is becoming more and more boring.
That tweet got quite a lot of views, and quite a few friends asked me where exactly this cash flow comes from, what specific strategies I use, and how my positions are allocated. I've actually been wanting to write a long-form piece systematically discussing my approach to capital management. Having spent these years in crypto, I've participated in quite a few projects and tinkered with many strategies. From the earliest days of researching new projects everywhere, airdrop farming, and token launches, to later doing Perps, DeFi, LP Deals, recursive lending, and options, and now gradually shifting my focus to long-term assets and cash flow management, my investment habits have indeed changed quite a lot.
In the past, when I saw a new opportunity, my first reaction was how much money I could make and whether it was worth jumping in. Now I first consider how long the money will be locked up after it goes in, what the worst case is, whether it will affect other positions, and how much time and energy I need to spend for that bit of yield. This article will discuss my current approach to U position management, including how the capital is divided, where the returns come from, how to understand risk, and why I increasingly lean toward making investing simpler.
First, a clarification: the strategies mentioned in this article are directions I have personally researched or participated in, and returns will change with the market. It does not include Web2 investments (such as brokerage stocks like STRC). Some opportunities have clear time limits, some come with additional subsidies, and some involve smart contract, leverage, and exchange risks. You can refer to the ideas, but you still need to make your own judgments for specific operations.
I. First, a change: valuing cash flow
I think many people go through a similar phase in the investment process.
When capital is small at the beginning, what everyone focuses on most is usually the rate of return. One project offers 10% annualized, another offers 30%. If you only look at the numbers, it's easy to feel the latter is more worth participating in.
Especially in crypto, opportunities with annualized returns of dozens of percent or even hundreds of percent are not uncommon. New protocols launching, exchange subsidies, points incentives, liquidity mining — all kinds of plays emerge endlessly.
I've been through this phase myself. Sometimes, in order to earn a few extra points of yield, I moved funds back and forth between different protocols. A pool had only been funded for a few days when I discovered a new opportunity, calculated that the yield seemed higher, and kept tinkering. This kind of operation certainly has value, especially for people with smaller capital who are willing to put in a lot of effort. Catching a few high-yield windows may be more efficient than holding a certain asset long term. But as positions gradually grew larger, I began to realize that simply pursuing the highest APY does not solve all problems.
Here's a very simple example.
Take the same 100k U: one strategy yields 8% annualized, another yields 20%. It looks like the latter can earn an extra 12,000 U a year, a huge difference. But if that 20% requires bearing token depeg risk, smart contract risk, or locking funds for three months with no exit in between, then whether that extra 12,000 U of yield is worth it needs to be recalculated. What's more, many high APYs inherently include token incentives. A decline in token price, changes to reward rules, or an increase in participating capital can all significantly shrink actual returns.
I now increasingly focus on three questions:
First, where exactly does this yield come from?
Second, how long can this yield last?
Third, how much risk am I actually taking to earn this money?
These three questions are far more important than simply looking at APY. There's another point: I now deliberately distinguish between paper gains and actual cash flow. For example, if I hold BTC and the price rises 10%, the account net value may increase quite a bit. But as long as I haven't sold, this is still unrealized profit, and the price may fall back in the future. Another example is participating in a project and accumulating a lot of points, which at an expected FDV valuation might be worth tens of thousands of U. But the token hasn't been issued yet, and the specific distribution rules haven't been determined, so this money cannot be directly counted as daily cash flow. For me, returns that can actually be settled, withdrawn, and reallocated have much higher reference value. Of course, cash flow isn't just about how much arrives each day. Lending interest, trading fees, hedging costs, changes in funding rates, and losses that have already occurred all need to be included.
Ultimately, what matters is how much money you actually kept over the entire strategy cycle.
II. My position management: every dollar should have its own job
Currently my portfolio is roughly divided into two systems.
One is long-term assets, including BTC, HYPE, U.S. equity index ETFs, and a small number of names I personally believe in and am willing to hold long term.
The other is the U position, mainly responsible for generating cash flow, providing liquidity, and participating in periodic market opportunities.
Although both parts of the capital are my own assets, the management logic is quite different.
1. Long-term holdings: minimize meaningless trading
BTC is a long-term asset I have always valued. I usually accumulate positions through DCA and also use some options strategies in conjunction with market conditions to improve capital efficiency. HYPE is likewise a direction I am willing to follow and hold long term.
On the U.S. equity side, it's mainly index assets like QQQ and SPY. For these positions, I value long-term growth more, as well as whether I can continue to accumulate over the coming years.
I don't require them to generate income for me every day. What matters most for long-term holdings is whether the investment logic has changed, whether the valuation is reasonable, and whether the overall portfolio's risk exposure is still within my tolerance. If you buy and sell frequently because of short-term fluctuations, it's easy to make what was originally simple long-term investing more and more complicated. Of course, long-term holding doesn't mean never selling. Especially for crypto assets like HYPE, volatility and concentration risk are both high, so position size still needs to be controlled.
2. U position: focus on capital efficiency
The U position is managed more actively.
This part of the capital is allocated among strategies such as stablecoin yield, Perps arbitrage, LP Deals, Loop, and Farm according to the market environment.
I usually start from the purpose of the capital and understand them as four layers.
The first layer is the liquidity reserve.
This part of the capital needs good liquidity so it can respond at any time to market changes, position adjustments, and real-life needs. It can earn a certain base yield, but you can't sacrifice all your liquidity just to earn a few extra points.
The second layer is the base cash flow position.
Mainly choose strategies with relatively clear sources of yield, fairly mature rules, and sufficient capital capacity. For this part I care more about net yield, exit conditions, and underlying asset risk, and I won't frequently move all the capital over just because some new protocol offers a higher APY in the short term.
The third layer is the strategy yield position.
Mainly includes Perps arbitrage, options enhancement, and some recursive lending strategies. These strategies require active management, and yields and risks will change with the market, so the position needs a certain degree of flexibility.
The fourth layer is the opportunity position.
Includes farming new projects, points incentives, some LP Deals with additional yield conditions, and early-stage opportunities I believe are worth participating in after my own research. This part of the capital can pursue higher returns, but must accept that the yield may not materialize, or even that principal may be lost. I won't fix the proportions of these four layers too rigidly. Yield opportunities in the market are constantly changing. At some stage stablecoin yields are very good, so the base position ratio can naturally be raised; at another stage a Deal with good risk-reward appears, so capital can be appropriately reallocated.
But one principle is very important: you can't move all the capital originally tasked with liquidity and long-term allocation just because a seemingly tempting project appears in the opportunity position. In the past I might have focused more on how much a certain opportunity could earn; now I additionally consider what this capital was originally doing.
After all, the opportunity cost of capital is real.
III. Perps arbitrage
Perps are a relatively important component of my current cash flow system.
The perpetual contract market has a characteristic: as long as there is an imbalance between long and short demand in the market, funding rates or price differences between contracts and spot may appear. By hedging spot against contracts, or using hedging structures between different markets, you can obtain part of the yield while controlling directional exposure. For example, if the spot price of a coin is 100 U and the perpetual contract has a high positive funding rate, then in theory you can hold spot and short the corresponding perpetual contract, reducing the impact of price fluctuations through hedging while earning the funding rate. Actual operation is of course more complicated, and also involves basis, fees, margin, and fund transfers.The reason I like this type of strategy is that its return logic is relatively easy to understand. There are people in the market willing to pay for leverage and directional exposure, and I earn returns by providing positions in the opposite direction and bearing the corresponding trading and capital management risks. But there is an issue that is often overlooked: hedging out coin price fluctuations does not mean the entire strategy has no risk.
Funding rates can suddenly turn negative, and a position that was collecting money every day may turn into one that pays money every day. If spot and contracts are held on different exchanges, there are also platform risks, fund transfer risks, and the problem that margin on both sides cannot be allocated in a timely manner.
Even if the overall directional exposure is close to zero, during violent market swings, a one-sided position may still be forcibly liquidated due to insufficient margin. For some small-cap coins with relatively poor liquidity, the spread between contracts and spot may also suddenly widen, causing exit costs to be significantly higher than expected. So now when I trade Perps, in addition to looking at funding rates, I also look at trading depth, the exchange, actual hedging costs, and whether the position can be exited relatively smoothly.
In addition, I do not directly annualize the particularly high funding rates of a few days. For example, if a strategy performs very well for three consecutive days, calculating the annualized return based on those three days may produce an extremely exaggerated number. But how long this return can last and how large the market capacity is both need to be verified. As more and more people participate in arbitrage, many spreads will gradually converge. Therefore, Perps positions are more suitable for dynamic management. Participate when returns are good enough and risks are acceptable; after spreads narrow, it is necessary to reassess where the capital should go.
I hope it can continuously contribute cash flow, but I will not assume that it can earn a fixed amount of money every day.
At present, I am mainly doing Entropy and Rh Lighter.
IV. LP Deal: Exclusive Yield Opportunities
Friends who know me should know that over the past two years I have led my community to participate in quite a few LP Deals, and I have also been continuously watching the liquidity cooperation opportunities offered by various projects.
Many new protocols need TVL in their early stages and need real capital to build liquidity and usage scale. To attract capital, project teams are usually willing to offer better terms to early participants, such as higher base yields, additional token rewards, points boosts, or other forms of incentives. For people with a certain scale of capital, the ability to research protocol risks, and willingness to accept lock-up restrictions, there really can be good opportunities here.
In addition to the protocol's own base yield, such opportunities may also involve additional token allocations, referral fund rewards, and other arrangements. Of course, the terms and contracts of different batches vary greatly, and it is impossible to simply use one APY to summarize the actual returns of all participants.
When I evaluate an LP Deal, I usually break the return into several parts.
The first part is the relatively clear base yield.
The second part is the additional subsidies or protocol incentives provided by the project.
The third part is the token rewards that may be realized in the future.
The fourth part is the cost brought by capital lock-up, exit restrictions, and protocol risk.
Here I want to focus on token rewards.
Many Deals look very attractive, largely because of token valuation. For example, if a protocol promises to distribute a certain number of tokens in the future, and everyone calculates based on a certain FDV, it may produce a very beautiful annualized return. But when the token will launch, what the price will be after listing, whether there is a lock-up, and how long the vesting period is may all affect the final return. Especially for tokens with relatively poor liquidity, there may be a very large gap between the paper valuation and the amount that can actually be sold. So I am used to calculating realized returns and future rewards that may be obtained separately.
If, after removing token rewards, a Deal's base yield is still decent and the capital terms are acceptable, then I will be more willing to study it seriously. If most of the expected return comes from future token valuation, then it needs to be treated as a higher-risk opportunity position. Another point that needs to be explained is that I myself produce content and also come into contact with project teams. Only by including the subsidies the project team is willing to offer, the actual capital risk, and one's own time cost can one get closer to the true yield of a Deal.
I have always believed that a good LP Deal depends on how much real return can be retained over the entire contract period, and whether the principal can ultimately exit as expected.
PS: If you want to participate in LP deals ~ welcome to join my community.
V. Loop: While Amplifying Returns, It Also Amplifies the Requirements for Risk Management
Recursive borrowing is also a strategy I have researched and actually operated quite a lot, including Aave, Morpho, Lista, and lending structures designed around assets such as sUSDS Reusd. I have spent quite a lot of time studying them.
The basic logic of Loop is actually easy to understand.
Suppose you have 100,000 U, deposit it into some yield-generating asset, then use it as collateral to borrow stablecoins, and reallocate the borrowed funds into yield assets. As long as the asset yield is higher than the borrowing cost, additional spread may be generated.
Here is a simplified example.
Suppose a certain yield asset has an annualized yield of 3.6%, and borrowing has an annualized cost of 2.25%. If you directly deposit 100,000 U, the theoretical return for one year is 3,600 U. If you additionally borrow 80,000 U and put the borrowed funds into an asset with the same yield, then a total of 180,000 U of yield assets would theoretically generate 6,480 U in one year. At the same time, the 80,000 U borrowing principal requires 1,800 U in interest. Subtracting the two, the theoretical net return is 4,680 U, which is about 4.68% net annualized on the initial 100,000 U principal. Compared with holding directly, it does earn a bit more.
But this is only an extremely simplified example, and it has not yet accounted for protocol fees, price deviation, interest rate changes, liquidation costs, and other factors. If leverage is further increased, net return may still rise, but the entire position will also become increasingly fragile.
There is a place here that is very easy to misunderstand. After recursive borrowing, the total deposit scale displayed on the protocol page cannot be directly regarded as your own net assets. Your collateral scale may already have reached hundreds of thousands or even millions of U, but at the same time you are carrying a large amount of debt. The net assets that truly belong to you need to deduct the borrowing liabilities. And risk exposure cannot be judged only by this portion of net assets. Changes in collateral prices, changes in borrowing rates, and adjustments to protocol liquidation parameters may all affect the entire leveraged structure.
When I had a large sUSDS lending position, I repeatedly paid attention to the collateral ratio, lending spread, health factor, and the impact of different stablecoin borrowing rates on the final net APY. Because in this type of strategy, returns usually accumulate gradually, but once liquidation occurs, losses may appear in a very short period of time.
What is more troublesome is that stablecoins cannot always remain stable at 1 dollar. The redemption rules of the underlying assets, liquidity, collateral mechanisms, and market confidence may all affect the price. If the collateral trades at a discount while borrowing rates rise, then a spread strategy that originally looked very comfortable may see its risk rapidly amplify.
Some Loops also involve multiple protocols. The underlying yield asset comes from one protocol, borrowing occurs in another protocol, and it may also rely on a certain oracle quote. In this way, risk is dispersed across different links. A problem in any link may affect the final position.
So now when I do Loop, I first calculate how much return can be obtained after removing leverage, and then judge whether the additional return gained through borrowing is really worth bearing the liquidation risk. Suppose without leverage I can get 3.6%, and with leverage I can get 4.7%. To bear significantly higher tail risk for the extra 1.1 percentage points, I may not think it is worth it.
Of course, if the yield gap is large enough, the protocol terms are clear, and the leverage ratio leaves enough buffer, then that is another matter. The specific choice depends on the interest rates at the time, protocol risk, and one's own capital structure.
For me, Loop can be a tool to increase capital efficiency, but it is not worth keeping the health factor near the liquidation line for a long time just to make the APY look beautiful.
Especially after the position becomes larger, a loss caused by one extreme market move may take a very long time to earn back through the spread.
VI. Options: Let Long-Term Holdings Generate Some Additional Income
I really like to criticize dual-currency products. I criticized them for 10 consecutive months, but recently I stopped criticizing them because I found that most people simply do not understand the point I was talking about.
For assets you are willing to hold for the long term, if the market price reaches a level at which you are willing to buy, you can consider selling Puts and collecting a certain premium. If the price at expiration is below the strike price, you may need to take delivery at the agreed price. Conversely, for BTC you already hold, if the price rises to a level at which you are willing to reduce your position, you can also consider selling part of the Calls. If the exercise conditions are triggered at expiration, you may need to sell the corresponding position at the agreed price.
For details, you can refer to my previously published "BTC/QQQ Flywheel Strategy".For me, options are a fairly important tool in long-term asset management. Of course, in terms of specific operation and trading, options offer more room for play; I will not discuss here any plays beyond generating yield.
Seven, Farms and points: I will still do them, but I do not want to be PUA'd by them
This part may be where my investment habits have changed the most.
There was a period when I could see all kinds of new projects launching every day. Today a points campaign, tomorrow a Vault, the day after that an early deposit opportunity for some protocol. Many campaigns looked good, and could even create a feeling: if I do not participate, it seems I have missed out on an airdrop that might be very valuable in the future.
Of course, I have participated in many myself. Including Pendle's YT, various early points programs, liquidity incentives for new protocols, and some Farm activities before and after launch.
One big attraction of this type of strategy is that the returns have relatively high elasticity. If the project ultimately performs well, the token rewards obtained by early participants may be significantly higher than the interest generated by simply depositing stablecoins. But conversely, the results often fail to meet expectations. The total points supply may keep inflating, the project's token allocation ratio may be lower than expected, the TGE valuation may be unsatisfactory, and some projects may delay confirming their launch time. For strategies such as buying YT, additional consideration is needed for the gradual erosion of principal as maturity approaches, the uncertainty of points value, and changes in secondary market pricing.
When I look at Farms now, I first calculate the cost of capital. Suppose 100,000 U is placed in a relatively mature yield strategy and can earn 5% annualized. If a new project requires this money to be tied up for three months, then purely from the perspective of time cost, that means giving up about 1,250 U of baseline yield.
If the new strategy also involves buying YT, trading slippage, fees, and smart contract risk, the actual cost will be even higher. The points ultimately received must be able to cover these costs for it to count as truly earning an additional return. But how much the points are worth can often only be estimated. So I will not count unrealized airdrops into my cash flow in advance based on optimistic valuations. If a project's final airdrop is very good, of course I am happy. If it ultimately falls short of expectations, that also must not affect the safety of the entire account's funds.
There is also a practical issue. The larger the capital size, the actual yield of many Farm strategies may not necessarily be more attractive. The total reward pool of some early opportunities is relatively fixed; the more capital is deployed, the marginal return may not increase proportionally. Moreover, many projects have capacity limits, and after large capital enters, it may quickly dilute its own returns. I will still research new projects now, and I will not give up opportunities with a very good risk-reward ratio. It is just that there is no need to participate in every project.
Earning a bit less money that I never understood in the first place is, I think, completely acceptable. Less PUA, less "Points is Points" is better than anything.
Eight, what does a cash flow of over a thousand a day really mean
Back to the tweet at the beginning.
Recently, the pure U position has relatively steadily generated 800–1,000 U in profit per day during this stage. This number is the performance over the recent period and does not mean that the same pace can continue for the next 365 days. If calculated simply, 800 U per day is 292,000 U a year; 1,000 U per day is 365,000 U a year.
Such numbers look beautiful. But if one really understands this as a completely stable cash flow that can compound over the long term, that is obviously a bit too optimistic. Because my current sources of cash flow include strategies of different natures. Some are baseline interest, which changes relatively slowly; some come from Perps funding rates, which may be very good today and drop significantly a few days later; some come from LP Deals with clear maturities, and after the contract ends, the same terms may not be renewable. There are also some that are phased subsidies, such as project teams willing to pay extra yield to attract TVL. All of these need to be looked at separately.
I think a more reasonable approach is to establish three sets of data.
The first set is baseline cash flow.
Only count income whose source is relatively clear, whose liquidity conditions are acceptable, and which has some persistence in the current market environment.
This part determines how much yield the entire account can generate under normal circumstances.
The second set is strategy cash flow.
Including funding rate arbitrage, option premiums, lending spreads, and certain phased yield strategies.
These incomes can raise the overall return level, but they require dynamic adjustment and are not suitable for simple long-term forecasting based on the highest-yield period.
The third set is opportunistic income.
Including token incentives, airdrops, extra Deal rewards, and so on. As long as they have not actually been realized, I prefer to regard them as potential returns. After separating them this way, the situation of the entire account becomes much clearer. Suppose actual income in a certain month is very good, but most of it comes from one-off project incentives; then the data for that month cannot directly represent the return level for the next year. Conversely, if there are no airdrops in a certain month and no particularly good subsidies, but baseline cash flow can still cover expectations, that shows the entire system has begun to have some ability to operate continuously. I now prefer to pursue the latter state.
In addition, when calculating returns, I will pay attention to the actual amount received, accrued but not yet withdrawn returns, and costs that have already occurred. For strategies that still have relatively large open risk, it is also necessary to look at book returns together with changes in overall net value.
This is the cash flow system I want to build.
Nine, the larger the position, the more I care about whether risks will break out in a concentrated way
Many people, when talking about capital management, are used to first discussing how much money should be placed in which protocol. But I think that in DeFi, looking only at the superficial degree of position diversification is far from enough. For example, if you divide your funds into five parts and put them into five protocols respectively, it looks already very diversified.
But if the five protocols all rely on the same stablecoin at the bottom layer, or use the same type of collateral asset, then when a problem occurs with the underlying asset, the five positions may be affected at the same time.
There are many similar situations. Different Vaults may adopt similar yield strategies, different lending markets may rely on the same set of oracles, and even different yield assets may ultimately flow to the same borrower or the same trade at the bottom layer.
On the surface, many different assets have been bought, but what is actually borne may still be the same type of risk. So I now pay more attention to the true exposure after looking through the funds. Including what the underlying asset is, who pays the yield, who holds the redemption right, whether there is additional leverage, and whether a real exit is possible under extreme market conditions.
Especially some stablecoin protocols whose yield sources are relatively complex. On the surface, they are all denominated in USD, but the underlying assets may involve lending, RWA, on-chain credit, yield tranching, or other structures. The risk differences among these products may be very large, and one cannot assume they have the same safety just because the name contains USD.
Liquidity is also a risk management capability
I have always felt that in investing, it is easy to underestimate the value of liquidity. Suppose you have 100,000 U in cash, and the market suddenly drops sharply, or some asset you have been bullish on for a long time reaches a very attractive price. At that time, funds that can be used immediately are very valuable. But if the 100,000 U has all been placed in locked protocols, even if the book annualized yield is higher, there may be no way to seize the opportunity in front of you.
What is more troublesome is that if a protocol itself encounters risk, locked funds also mean losing the ability to respond proactively. Therefore, I now consciously keep a portion of liquidity.
It may not have the highest yield, and at certain times it may even lower the book APY of the entire portfolio, but it can give me options when adjustment is needed. For large positions, being able to actively choose when to enter and when to exit is itself an advantage.
Leverage and correlation risk need to be calculated together
I will also pay special attention to whether different strategies affect each other.
For example, a sum of funds is used both as collateral for borrowing and to participate in other yield strategies, and in the end may also bear certain derivatives risk. If you only look at the expected return of each layer, it is easy to feel that capital utilization is very high. But when risk actually occurs, multiple positions often need to be handled at the same time.
Stablecoin depegging may worsen collateral ratios, funding rates may reverse, and exchange margin may also come under pressure. Several problems happening together are far more troublesome than calculating the maximum loss of a single strategy in isolation. So position management has a very important requirement: I must be clear about where each asset of mine is, what risk it bears, and which position should be handled first when exit is needed.
If a strategy is so complex that I must simultaneously monitor five or six protocols and worry every day about problems in different places, then I will also reconsider whether this bit of extra yield is really worth it.
Accepting lower returns is more important than being forced to bear riskMany people, when running yield strategies, have a psychological tendency that is not easy to notice. Suppose you could originally earn 15% APY, and then market yields drop to 8%, and you start to feel very uncomfortable.
So you keep looking for higher yields, and may even gradually increase leverage, or move money into protocols you are not familiar with. I can understand this mindset too. But a decline in yield may simply be the normal result of market competition, capital supply and demand, or reduced subsidies. In that case, accepting lower yields is itself a reasonable choice. If, in order to maintain past income levels, you keep increasing position risk, you may eventually lose all the money you worked hard to earn earlier.
I am now more willing to adjust return expectations according to the market environment, rather than forcing myself to keep looking for more aggressive plays in order to maintain some pretty APY number.
10. What I plan to do with the U I earn
There is another very important question in a cash flow system: where should the money earned ultimately flow?
If all the yield generated every day stays in the same strategy and continues to be leveraged, or is continuously put into new projects with higher risk, then the account may appear to grow quickly, but overall risk will also keep accumulating.
I now prefer to let cash flow take on multiple tasks. First, part of the yield can remain in the U position as new principal, increasing the account's future cash flow capacity. Second, part of it will gradually be shifted into assets I am willing to hold for the long term.
For example, BTC.
I have always had the habit of dollar-cost averaging into BTC, and I also increase my position by buying on dips or through options strategies. In my view, as long as the long-term logic has not fundamentally changed, continuously accumulating a portion of core assets is something that can be done for many years. Of course, this does not mean buying blindly at any price; position sizing, cost basis, and overall risk still need to be considered.
The same applies to HYPE and other highly volatile crypto assets. Being willing to hold for the long term does not mean you can increase concentration without limit.
On the U.S. equities side, I similarly hope to gradually accumulate index assets such as QQQ and SPY. The risk characteristics of these assets differ from those of the crypto market, and long-term allocation can prevent the entire portfolio from depending entirely on the performance of the crypto industry. Of course, U.S. equities and crypto assets may also fall at the same time when macro liquidity tightens, so this allocation should not be understood as a complete hedge.
I think this point is very important.
If you have accumulated a certain amount of assets in crypto, there is no need to pin all hope for future wealth growth on the next crypto project.
Reasonably shifting part of the yield into different types of long-term assets can gradually improve the asset structure of the entire household. In addition, a certain amount of liquid funds should be kept for emergency needs and subsequent investment opportunities. For me, the cash flow generated by the U position can help complete these long-term allocations without having to sell BTC or other core assets every time to raise funds. The whole system then becomes more layered. On one hand, strategies are used to earn cash flow; on the other hand, long-term assets are continuously accumulated, and positions can be readjusted according to the market environment when necessary.
I hope this approach can operate over the long term.
11. From chasing opportunities to managing the entire account
Having written this far, I actually also want to talk about the biggest change in myself over the past few years.
When I first entered crypto, information asymmetry was very important. Whoever could discover projects earlier, whoever was willing to spend more time studying the rules, and whoever could complete interactions and deploy capital faster could indeed potentially obtain better returns. At that time, time and execution were my advantages.
Later, as capital gradually increased and I began to come into contact with more DeFi and derivatives strategies, I realized that capital efficiency itself is also a discipline. The same sum of money, placed in different protocols, may have completely different sources of yield, liquidity, risk, taxes, and opportunity costs. As the scale of capital continued to change, I began to place increasing importance on overall account management.
Especially two questions.
First, how much risk am I actually taking that I am not aware of?
Sometimes a position looks fine on its own, and another position also looks fine on its own, but when placed in the same account, they may form very high correlation.
For example, crypto asset prices falling, stablecoin liquidity tightening, funding rate changes, and rising liquidation pressure in lending markets may often occur during the same period.
If all positions require additional margin at the worst time in the market, then so-called diversification of funds loses much of its meaning.
Second, I invest so much time every day, what does it ultimately bring me?
This question may be a bit realistic.
Suppose a strategy requires two or three hours a day monitoring the market, repeatedly handling fund transfers and position adjustments, and over a year it does indeed earn some extra money.
If the principal is not large, this extra return may be very important. But when the account already has a certain cash flow capacity, time cost needs to be reconsidered. After all, the money ultimately earned from researching a project, bearing risk, and investing effort should also be compared with other available strategies.
Now I am increasingly willing to choose strategies that I have already researched thoroughly, whose sources of yield are clear, and which can be executed repeatedly. Even if the yield is slightly lower, as long as capital capacity is sufficient, management costs are low, and risk is within my tolerance, I will find it very attractive.
There will always be new things in the market. Every so often, new public chains, new DeFi protocols, new points programs, and new trading opportunities appear. Of course I will continue to research, since this is also something I very much enjoy.
But there is no need for me to turn every new opportunity into my own position. After understanding this point, investing indeed becomes a bit easier.
12. Finally: I hope future investing becomes increasingly boring
Looking back, I actually quite enjoyed that state of constantly searching for opportunities.
Seeing a new project launch, studying its economic model; seeing the yield of a certain pool suddenly rise, calculating capital efficiency; discovering a new arbitrage space, and then figuring out how to get the strategy running. This exploration itself is very interesting, and it has also allowed me to gradually accumulate a lot of experience.
Until recently, when I found that daily cash flow had gradually stabilized and I also had some assets I was willing to hold for the long term, I suddenly began to think about a question. Do I still need to search the market for new opportunities every day as before? My answer now is that there is no need to maintain that pace all the time. When the market is good, I can research more and participate more, using strategies I am familiar with to earn returns. When market opportunities are average, I can simply let capital remain in places I have already researched thoroughly and accept relatively ordinary returns. In periods of higher uncertainty, I can even proactively reduce exposure, sacrificing part of the yield in exchange for better liquidity. I increasingly feel that a mature investment system should allow itself to do nothing for a period of time.
There is no need to have a new trade every day, nor to set a return record every month. When the market rises, long-term assets can participate in growth; when the market fluctuates, some strategies can generate cash flow; when obvious risks appear in the market, the account still has enough liquidity and room for adjustment. Of course, this is only the state I hope to achieve. No asset class or strategy can guarantee good performance in all market environments, and cash flow may also drop sharply at times. But as long as the structure of the entire account becomes clearer, my understanding of risk becomes more sufficient, and capital management becomes more disciplined, then over time there should be more room for active choice. I also do not think that earning 800–1,000 U a day means I have achieved any kind of financial freedom. This number will fluctuate, and many yield opportunities also have life cycles. What is truly meaningful is whether, in the future, the proportion of baseline cash flow can be gradually increased and dependence on high-risk subsidies and short-term market conditions can be reduced.
If one day in the future I only need to check the account regularly, handle necessary position adjustments, and spend the rest of my time working with peace of mind, accompanying my family, playing games, or researching new things I am truly interested in, I will feel that this investment system has truly delivered value. Investing can be very interesting, but I do not want to be kidnapped by the market for my whole life. In the past I always felt that I needed to keep doing something so that the account could continue to grow. Now, instead, I increasingly hope that I can do less and let time slowly play its role.
This is probably what I recently meant when I said investing is becoming increasingly boring.
Of course, this is also a good thing. Finally, I also want to ask everyone, how are you currently allocating your U position? Are you more inclined to pursue high yields, or have you already begun to build your own long-term cash flow system?
If you have good strategies, you are also welcome to exchange ideas. After all, despite what I say, if there really is an opportunity with a very good risk-return ratio, I will most likely still be unable to resist researching it.