Profits from Shorting w/ Beta Finance

With our upcoming launch on Avalanche, we want to help users understand potential ways to earn through using Beta Finance. With recent market bearishness, it’s important DeFi users have access to financial instruments that help protect their downside loss, or help them profit from the bearishness. Here’s where short selling can benefit DeFi users.

Let’s walk through an example of a short selling strategy with Beta Finance with the $AVAX token from the past week, January 4, 2022 to January 11.

Initiating the Short Position

We believe the price of AVAX is currently overvalued, and that macroeconomic trends and rising interest rates will cause a correction. So, we initiated a short position on AVAX using USDC.e as collateral on Beta Finance.

The current price of the AVAX token is $105.48, and we see that the lending pool on Beta Finance currently has ~2,500 AVAX available for borrowing at a 10.40% APY interest rate.

• The size of our short position was $10,000, or ~94.80 AVAX at the current price of the token
• The transaction cost to initiate this short position was ~0.01 AVAX or ~$1!
• At a 10.40% APY, we are paying ~0.027% x 94.80 AVAX = 0.026 AVAX (~$2) of interest per day.

When the short position is initiated through Beta Finance, the AVAX is sold into the collateral token, USDC.e, giving us 10,000 USDC.e tokens from the ~94.80 AVAX we short.

Closing the Position

Our predictions proved correct, and over the past week we have seen a drop in the price of AVAX. On January 11, the price of the AVAX token is now ~$85, compared to when we had initiated the short position at $105.48.

To close our position, we will repay our debt in AVAX, and keep the excess profit.

• Over the past 7 days, we have accumulated 0.026 AVAX / day x 7 days = 0.182 AVAX in interest to be paid
• With the interest and principal, we will need to repay 94.982 AVAX to close our position and take back our collateral
• The cost to close the short was ~0.01 AVAX

With the current price of $85 per AVAX, the 94.982 AVAX is now worth 8073.47 USDC.e. In the beginning, we shorted 94.80 AVAX and received 10,000 USDC.e, resulting in a 1926.53 USDC.e profit.

Bringing Short Selling to Avalanche

On Avalanche, the total transaction costs for opening and closing the short position was only ~0.02 AVAX (~$2 at the current token price). Now, DeFi users will be able to initiate many smaller positions on Beta Finance with greater opportunity for profitability.

Beta Finance will be launching on Avalanche soon, and users will be able to take advantage of the low borrowing interest rates, as well as liquidity mining incentives to profit or hedge during bearish market activity. Beta Finance is bringing the simplest way to short sell tokens to Avalanche.

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