Module 9: DeFi Deep Dive
Putting It Together: Building a DeFi Plan
Chapter 14 of 14 · about 6 minutes
14.1 Mint's portfolio
For the final chapter, Hash gave Mint a practical assignment. "You have $10,000 in USDC and 3 ETH, at $3,000 each. Build a DeFi plan using what you've learned. Then tell me what could go wrong, and how much you'd lose if it did."
Mint's total: $10,000 + $9,000 = $19,000.
"And remember," said Hash, "doing nothing with some of it is a valid choice."
14.2 Mint's goals and limits
Before choosing anything, Mint wrote down the constraints:
- Mostly long-term ETH exposure, with modest extra yield.
- Stablecoins as a reserve, earning something while waiting.
- No position whose total loss would be catastrophic.
- No leverage for now (Chapter 11).
- No restaking yet (Chapter 9): too many layers for a first plan.
- A small experimental budget, separately walleted (Module 2, Chapter 12).
14.3 The plan
| Allocation | Amount | Protocol type | Expected yield source | Estimated annual yield |
|---|---|---|---|---|
| Supply USDC to a long-established lending protocol | $5,000 | Lending (Chapter 5) | Borrower interest | ~3% |
| Liquid stake 2 ETH | $6,000 | Liquid staking (Chapter 8) | Staking rewards, after fees | ~2.7% |
| Provide liquidity to a major stablecoin pool | $3,000 | DEX stable swap pool (Chapter 2) | Trading fees | ~4% |
| Experimental farm, separate wallet | $1,000 | Newer protocol with incentives (Chapter 10) | Incentives and points | Highly uncertain |
| Hold 1 ETH in self-custody | $3,000 | None | None | 0% |
| Hold USDC in self-custody | $1,000 | None | None | 0% |
| Total | $19,000 |
14.4 Estimated income
| Position | Estimated annual income |
|---|---|
| USDC lending | ~$150 |
| Liquid staking | ~$162 |
| Stablecoin LP | ~$120 |
| Experimental farm (if it delivers 25%) | ~$250, highly uncertain |
| Self-custody holdings | $0 |
| Total | ~$682, about 3.6% of the portfolio |
"That's not exciting," said Mint.
"It's not meant to be," said Hash. "Most of your return will come from ETH's price, not the yield. The yield is a modest bonus. The plan's real job is to avoid turning a bonus into a disaster."
14.5 Running the risk framework
Mint applied the seven risks from Chapter 13 to each position.
| Position | Biggest risks | Mitigation |
|---|---|---|
| USDC lending | Smart contract, bad debt, withdrawal delays at high utilisation | Long-established protocol, conservative collateral list, moderate size |
| Liquid staking | LST discount, slashing, smart contract, concentration | Large, well-tested LST; no leverage on top |
| Stablecoin LP | One stablecoin depegs and the pool fills with it | Pool of two well-backed stablecoins; monitor pool balance (Module 6, Chapter 8) |
| Experimental farm | Total loss, reward token collapse | Small size, separate wallet, rewards sold on a schedule |
| Self-custody | Key management (Module 2) | Hardware wallet and tested backups |
14.6 Stress test
Mint estimated what would happen in several bad scenarios.
| Scenario | Estimated impact |
|---|---|
| Experimental protocol exploited | −$1,000 (total loss of that position) |
| One stablecoin in the LP pool depegs 5% and the pool fills with it | About −$150 |
| LST trades at a 5% discount and Mint needs to sell | About −$300, avoidable if Mint can wait to redeem |
| Lending protocol suffers bad debt equal to 2% of deposits, passed to lenders | About −$100 |
| ETH falls 50% | About −$4,500 across the 3 ETH, by far the largest risk |
"The scariest line isn't a DeFi risk at all," said Mint. "It's just ETH's price."
"Exactly," said Hash. "DeFi risk should be a small part of your total risk, not the main part. If any single protocol failure would hurt you more than a normal market drop, your plan is too aggressive."
14.7 What Mint chose not to do
| Avoided | Reason |
|---|---|
| Looping staked ETH (Chapter 11) | Adds leverage and depeg risk for about 1% extra yield |
| Restaking (Chapter 9) | Several more layers and uncertain extra rewards |
| ETH/USDC liquidity provision (Chapter 4) | Impermanent loss would reduce long-term ETH exposure |
| High-APY farms on unaudited protocols | Yields likely unsustainable; risk of total loss |
| Borrowing against ETH | Not needed; adds liquidation risk (Chapter 6) |
14.8 Monitoring
Mint set a monthly routine, adding to the checkups from Module 2, Chapter 12 and the dashboard from Module 6, Chapter 12:
- Check lending pool utilisation and supply rate.
- Check the LST's price against ETH.
- Check the stablecoin pool's balance.
- Sell experimental farm rewards and review whether to continue.
- Review approvals and revoke unused ones.
- Re-read news about each protocol for upgrades, exploits, or governance changes.
14.9 Module 9 wrap-up
Mint, Node, and Hash met at the end of the module.
"I've learned what DeFi is, how AMMs and DEXs really work, providing liquidity, impermanent loss, lending and borrowing, health factors and liquidations, stablecoin designs, staking, liquid staking, restaking, yield farming and points, leverage and looping, contagion, and a risk framework for using DeFi safely," said Mint.
"And the lesson?" asked Hash.
"Every yield has a source, and every layer adds a way to fail. DeFi lets me be my own bank, which means I'm also my own risk manager. The best DeFi plan is often the one with fewer layers and smaller yields than the internet is advertising."
Node smiled. "I came into crypto thinking DeFi was a casino. Some of it is. But some of it is genuinely useful, if you understand what you're holding."
"Next, we zoom out from protocols to the whole economy," said Hash. "Interest rates, liquidity, the dollar, and how stablecoins connect crypto to the traditional financial system."
14.10 Try it yourself
Build your own DeFi plan for a hypothetical $10,000, using the structure in this chapter: goals and limits, allocations with yield sources, a risk framework review of each position, a stress test, and a list of what you chose not to do. Calculate your estimated yield and your worst-case DeFi-specific loss. If the DeFi-specific worst case exceeds what a normal market drop would cost you, simplify the plan.
Key takeaways from this chapter
- Start with goals and limits before choosing protocols, including how much to keep outside DeFi entirely.
- A conservative DeFi plan can earn modest extra yield from lending, staking, and stablecoin liquidity.
- Apply the seven-risk framework to every position and mitigate the largest risks.
- Stress test each position; DeFi-specific risks should be smaller than ordinary market risk.
- Deliberately avoiding leverage, extra layers, and unsustainable yields is part of a good plan.
- Monitor positions monthly: rates, pegs, pool balances, rewards, approvals, and protocol news.
- In DeFi, you're your own bank and your own risk manager. Fewer layers often beat higher yields.
Coming up in Module 10: Stablecoins and Macro. How interest rates, global liquidity, the US dollar, and economic data affect crypto; stablecoins as the bridge to traditional finance; ETF flows; and how Bitcoin's halving cycles fit into the bigger picture.