EAST Strategies, Part 2: Shorting Cryptocurrencies
Shorting is a trading strategy based on an assumption that an asset price will decrease (for example WAVES).Here, a trader borrows an asset, sells it at a high price, and then buys it back at a lower price to return it to the lender. In the EAST ecosystem, the stablecoin can be used to short WAVES or other tokens on Puzzle Lend, a lending protocol where EAST, USDT, WAVES and other assets are available for borrowing and lending.
How Shorting Works
First, you deposit EAST as collateral on Puzzle Lend. Then you borrow the asset you expect to decrease: max amount depends on the value of your EAST collateral. Once you borrow the assets, you sell them immediately and wait for their price to decrease. When it happens, you buy back the same assets at a lower price and return them to Puzzle Lend. The difference between your selling and buying prices is your profit!
Profitability and Risks
This strategy relies on the asset price movement. If it decreases as you expected, you can follow the steps above and profit. But If the asset price increases, you will have to buy back at a higher price, which results in your loss. Also, borrowing on Puzzle Lend includes an interest rate — a dynamic and usually small annual fee. Also,at Puzzle Lend there is a risk of liquidation, if your vault value drops below a certain threshold; then your collateral will be sold to repay your debt.
Example
You start with 1000 EAST. You deposit it to borrow 250 WAVES. At $2 price, you sell your WAVES for $500 immediately. Later, the WAVES price drops to $1. So you buy 250 WAVES back for $250 and return it to Puzzle Lend. After repaying your loan, you still have $250. Congrats on a nice deal!
However, if the price of WAVES jumps to $3 instead of falling, you will have to buy these 250 WAVES back for $750. After repaying your loan, you will have a loss of $250. If the asset price increases even more and your EAST collateral value will not be enough to cover the debt, you may get liquidated.
Visual
Here are 3 simple steps to open your first short position, using Puzzle Lend and WX Network:
1. Supply EAST
2. Borrow WAVES
3. Sell WAVES at WX Network
That’s it! Now just wait for the WAVES price to decrease and make profit!
By the way, if you swap WAVES for EAST, you can use it to add more collateral on Puzzle Lend. And do you remember our previous article about leverage looping? You can loop on Puzzle Lend just like this. Be careful and watch your account health there.
The shorting strategy requires you to keep an eye on the asset price and adjust your strategy accordingly. Puzzle Lend offers a variety of tokens for your experiments here — EAST, USDT, WAVES, and others — and their number will grow in future updates!
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