- Alya Kremb is the co-founder and chief operating officer of the $10 million crypto hedge fund Diffuse.
- Kremb breaks down the company’s two DeFi yield farming strategies that generate attractive returns.
- It shares a yield farming pool that, according to its website, offers a 90,000% APR before launch.
Even as Bitcoin and Ethereum make new all-time highs, the opportunities in crypto are so numerous that digital asset hedge fund Diffuse is constantly developing new strategies, launching about one fund per quarter.
Founded in 2019 by emerging tech veteran Ayla Kremb and high-frequency trader Kenny Estes, Diffuse, which started out as an alternative wealth manager, only got into crypto in October of last year.
“None of us have been very optimistic about crypto specifically. But after the DeFi summer, we have seen that there is a real opportunity to replace many of the functions currently performed in finance with a different use of technology,” Kremb Insider told the interview.
The duo were fascinated by decentralized finance, which refers to financial services such as trading, borrowing and lending that are automated by software instead of being run by intermediaries.
Kremb and Estes started incubating two DeFi-focused trading strategies on their own balance sheet. They tested them through January of this year before launching them as a fund and raising leverage. As of June, the company raised $10 million in just 90 days for the two DeFi strategies and an index product that tracks the top 30 cryptocurrencies by market cap, according to Kremb.
The two DeFi trading strategies are able to generate attractive returns and attract outside investors so quickly because they operate in the highly complex and risky world of DeFi yield cultivation.
At its core, DeFi yield farming is a way to lock cryptocurrencies in exchange for rewards in the form of tokens. These reward tokens can then be deposited into other liquidity pools to earn even more rewards there.
Yield farming was on everyone’s lips Connection (COMP), a DeFi lending protocol that allows users to earn double-digit interest on their crypto deposits, began attracting large numbers of users to its platform last June. From there, other DeFi platforms such as Spirit (AAVE) boomed during the so-called “DeFi summer.”
2 DeFi Yield Farming Strategies
Diffuse offers two types of high-yield farming strategies.
For investors who are crypto bullish and want to maximize their returns with DeFi, the firm includes so-called blue chip tokens Bitcoin (BTC), ether (ETH) and polygon (MATIC) and put them in different pools.
In order to differentiate itself from competitors, the company only places tokens in emerging pools that are either in the pre-launch phase or just a few hours before launch. The company hired an analyst whose full-time job is to find these new pools through extensive research. It also borrows certain assets and uses them with additional leverage to increase returns.
“It’s not your Aave way of farming,” Kremb said. “Some of the returns in these pools on the day of launch are 75,000% APR, and then that drops to about 50% or 60%.”
For example, one of the emerging pools that the team has been monitoring is called Farmers onlywhich is an upcoming yield farm built on the avalanche (AVAX) blockchain. The yield farm has a USD coin (USDC) Pool that offers a pre-launch 90,000% APR according to its website. Kremb estimates that such returns would decline to around 50% to 100% within two to three weeks of launch.
Farmers Only, which is scheduled to start yield farming on October 23 at 20:00 UTC, also has one tether (USDT) pool with a prelaunch APR of 374,103% as of Thursday afternoon, according to its website.
For investors who want DeFi returns but minimal volatility, Diffuse’s second strategy is to similarly trade USDC and USDT, which are stablecoins pegged to the US dollar at a one-to-one ratio to put in emerging pools. Since stablecoins do not fluctuate in value, investors avoid doubling the market exposure compared to using Bitcoin or Ethereum.
High reward, high risk
Of course, the insane returns of these DeFi yield farming strategies come with a caveat.
Yield farmers could encounter “hard rug pulls” and “soft rug pulls,” which would result in loss of capital and loss of reward tokens, respectively, Kremb said.
Even billionaire investor Mark Cuban couldn’t avoid being dragged into the carpet. In June, he was hit by losses in Titan, a DeFi token that plummeted from $65 to $0 after whale accounts allegedly drained their shares and sparked panic selling.
According to Kremb, Diffuse has implemented processes that protect investors from such risks.
To avoid a hard carpet pull, the team uses some third-party code review sites like RugDoc before entering into a trade.
“We don’t go into things that questionable developers have or that have proven code to be lazy,” she said.
She explains that the team has also isolated itself against a soft carpet move by claiming all of its rewards at least daily. “Every few hours we pull out the rewards so our exposure is really minimized massively,” she added.
Despite the whopping returns, Kremb believes that retail investors should not replicate these strategies themselves due to the time, money, and high risk involved. She estimates that it takes an investor at least $2 million to $3 million in capital and four hours of daily work to implement these strategies.
“We automated a lot of the processes, but we spent a lot of tech dollars to automate them,” she said.
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