u/Mandoo_gg

Hi everyone,

I wanted to share my liquidity pool (LP) strategy. I often see people asking about pools, how they work, and how impermanent loss affects their positions, but I rarely see people sharing their actual strategies. There are many ways to make and lose money with LPs, so this is how I approach it.

English is my second language, I used AI to help me with both translations and transcription.

The Strategy

I divide the market into two obvious phases: bull and bear markets. During a bull market, I want exposure to cryptocurrencies. During a bear market, I want to protect my capital and de-risk my positions.

Since we cannot predict exactly when a bull or bear market starts—just like we can't perfectly time tops and bottoms—we need a few indicators to help us understand where we are in the market cycle. I use the 200 EMA on the daily chart, combined with the MACD and RSI.

Bull Market Signal: When the price of ETH (for example) closes above the 200 EMA with a positive MACD and a rising RSI, I consider that the start of a bull market.

Bear Market Signal: When the price closes below the 200 EMA on the daily chart, I consider that the start of a bear market.

Phase 1: At the Start of the Bull Market

Lend: I buy blue-chip crypto (BTC, ETH, or SOL) and lend them on a protocol like Aave.

Borrow: I borrow stablecoins against that collateral. I keep it conservative, maintaining a borrowing ratio around 40–50% to avoid liquidation risk.

Deploy: I swap those borrowed stables to buy more crypto and open a WIDE crypto-to-crypto LP position (e.g., ETH-BTC, ETH-SOL, etc.).

Yield: The earned fees are not compounded back into the pool; instead, they are continuously deposited into Aave as stablecoins.

The Logic: I expect prices to rise. If my pool were a crypto-stable pair (like ETH/USDC), my upside would be capped at the top because I'd get entirely converted into stables. By using a crypto-to-crypto pool, I still profit as the market runs up because the LP converts into the lagging crypto asset, which is still appreciating in value.

The Exit: Once we are near the top of the bull market (again, you can't predict it perfectly), I close the LP, exit entirely to USDC, pay back my borrowed debt, and deposit the remaining stables back into Aave to earn interest.

Optional: Depending on market conditions, I might also sell my lent collateral. If ETH skyrocketed to $10k, I would probably sell it all, lol.

Phase 2: At the Start of the Bear Market

Short via Borrowing: I borrow crypto against my lent stablecoins and immediately sell it for stables.

Deploy: I use a portion of those stables to open a WIDE crypto-stable LP position.

Yield: Just like before, the earned fees are deposited back into Aave.

The Logic: Because I expect prices to drop, holding a borrow position on Aave effectively acts as a short. Limiting spot crypto exposure during a bear market is a must—as we all know, the downside in crypto is brutal.

The Exit: Once we approach what looks like the bottom, I close the loop. I buy back the crypto at a heavy discount to pay off my debt, collect the accumulated crypto from the pool, and get ready to start the entire process over again.

Let me know what you guys think. 🙂

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