Trading my way from zero to $10,000 on Ethereum.
$0 to $10,000
I started this project with few goals in mind:
- Start with $0 and somehow make it to $10,000.
- Reach $10,000 by only using DeFi protocols and applications.
- Give away the $10,000. Read the end for details.
I began in July 2020 but was limited the first few months due to abnormally high fees (gas) on the Ethereum network. Network congestion due to the DeFi boom had made it almost impossible to transact on Ethereum with small amounts of money. Eventually, with some luck and timing, I was able to turn $59.80 from Coinbase Earn into $11,000 as of 1/19/21.
Ethereum address: 0xf8Da4E4DBf8C42BA962fB38EDC8c6837A9d486D3
ENS address: 0to10k.eth
All transactions, excluding the initial Coinbase Earn crypto, happened on a single Ethereum address. This process enables full transparency with auditable records.
The following is a compilation of my trading notes, overview of the DeFi products used, market commentary, and steps taken to reach $10,000.
The DeFi instruments used in the process:
Find me on twitter @realvivek_
Getting Off Zero With Coinbase Earn
Since the acquisition of Earn.com in 2019, Coinbase Earn has added multiple digital currencies to its platform which allows users to earn crypto through tutorials and quizzes.
There are a few alternatives, including Coinmarketcap Earn, but Coinbase Earn suited my needs the best as a U.S. resident.
I finished every quiz available to me at the time, received the crypto, and converted it to ETH. Below is a log of the crypto earned through Coinbase Earn.
After fees, the total sent to the self custody wallet was $53. The next few steps summarize the steps taken to go from $53 to $10,000.
The First $1000
I was now ready to trade with a tiny amount loaded onto a new Ethereum wallet. My wallet balance is $53. The network fees on Ethereum continue to be high which limits most on chain activity.
8/5/2020: A Failed Transaction
The first transaction I have attempted was a ETH to REN trade on Uniswap.
Uniswap is a decentralized protocol for automated liquidity provision, or simply, a decentralized exchange (DEX). It is currently recording $1 billion in daily volume (2% of NYSE). That is not a typo. The ability for users to trade tokens on Ethereum with a simple, fast front end UI, with ample liquidity and low slippage has shown to have an excellent product market fit. In less than 5 minutes a user can connect their Ethereum wallet to the Uniswap protocol and process a trade while retaining custody of their assets.
Back in the summer of 2020, the DeFi landscape was booming with protocol launches, liquidity mining, yield farming, and leverage trading. In result, the network fees became so high that it priced out smaller players. The ETH to REN trade on Uniswap was cancelled (reversed, technically) due to insufficient funds in my wallet to cover the high transaction fees.
What comes next was a bit of a surprise.
Recommended Reading: What is DeFi?, Crypto Fees( projects in pink are built on Ethereum)
9/18/2020: The Uniswap Airdrop
A recent observation among DeFi enthusiasts was that governance tokens were making a coming back and may have actual utility this time around. It was not known how Uniswap would launch and distribute their token but it was all but imminent.
On 9/16/20, Uniswap airdropped 400 UNI tokens retroactively to everybody who has participated in the protocol. At the time of the airdrop, the 400 UNI tokens were valued at over $2000. After the immediate sell side market pressure, the token eventually settled around $3 per UNI.
Uniswap owes its success to the thousands of community members that have joined its journey over the past two years. These early community members will naturally serve as responsible stewards of Uniswap.
400 UNI are claimable by each address that has ever called the Uniswap v1 or v2 contracts.
My balance is now $1,400. The timing of this airdrop played a significant role towards the end goal. Luck also had a part. It was well speculated that Uniswap would release a governance token but the distribution method was unknown. The clever retroactive distribution was a first to my knowledge for a DEX token. Seeing this, I made sure to use 1inch Exchange and dYdX next.
The early DeFi adopters continue to be rewarded — there have been other airdrops and value accrual opportunities for simply having skin in the game. As Nick Chong mentions, there was, on average, $20,000 of claimable airdrops within the DeFi ecosystem.
The following section summarizes my interaction with SushiSwap, 1inch Exchange (DEX aggregator), and Wrapped Bitcoin.
9/16/2020: 400 UNI to 1,069 SUSHI Trade
Seeing that the Uniswap liquidity incentives ended on 9/17/20, which could result in price uncertainty, I swapped 400 UNI for 1069 SUSHI on Sushi Swap. My total wallet balance is $1,379.
Sushi Swap is a Uniswap fork which launched on 8/26/20 by anonymous developers. It basically began as a Uniswap clone with a reward token for liquidity providers (SUSHI). There was quite a bit of drama that ensued with the initial launch.
In Uniswap, trading fees are distributed among LPs. In SushiSwap, trading fees plus SUSHI tokens get distributed to LPs. A portion of the fees also get converted back to SUSHI, and distributed to SUSHI token holders, so that if an LP stops providing liquidity, they can continue receiving part of the protocol’s fees by holding the token. SUSHI is also the key to participating in the protocol’s governance.
Sushi Swap currently accounts for 23% of the total decentralized exchange volume. It has recorded $2.7 billion just over the last 7 days.
Recommended reading: DEX Title Fight: Uniswap vs. Sushiswap
11/19/20: 1069 SUSHI To 0.095 Wrapped Bitcoin Trade
My wallet balance is $1,715. It is slowly increasing to an amount I can comfortably trade on dYdX. I traded 1069 SUSHI for 0.095 WBTC on 1inch Exchange. I specifically used 1inch Exchange to make sure I qualified for their governance token airdrop.
1inch is a decentralized exchange aggregator. DEX aggregators scan multiple decentralized exchanges and liquidity pools to provide users with the best available rates. Trading occurs on the 1inch Exchange front end while the actual transactions are routed through the protocol smart contract in the back end.
Uniswap, Balancer, Compound, Curve, Kyber, AAVE, and 0x are just a few liquidity sources scanned by 1inch Exchange. Matcha and Paraswap, both beautiful in design, are alternative DEX aggregators.
These DEX aggregators are pretty clever in their ingenuity and UI design. From the front end perspective it flows seamlessly similar to google search. On the back end, transactions on multiple smart contracts are executed in the most efficient manner to minimize slippage and fees. Per Messari, decentralized exchange aggregators currently account for 10% of the decentralized exchange total volume.
I’m now holding 0.95 WBTC after today's trade. Wrapped Bitcoin, or WBTC, is essentially Bitcoin on Ethereum. It is an ERC20 token which represents Bitcoin. There is a 1:1 backing between WBTC and Bitcoin, with the Bitcoin reserve held in BitGo custody. There is currently 115,621 ($3.79 Billion USD) Wrapped Bitcoin on Ethereum and the proof of reserves can be found here. The composability with other blockchains via wrapped ERC20 tokens opens endless boundaries, especially for DEX users who no longer have to leave the Ethereum network to gain exposure to tokens on completely different blockchains. I suspect many other mid to large cap crypto tokens to be wrapped and put on Ethereum in the next 12 months.
Market Note: Bitcoin has been at the $18,000 resistance range with positive sentiment and heavy capital inflows. It is bound to break through. Having exposure to WBTC allows me to ride Bitcoin through its all time highs and convert back to Ethereum when the BTCETH ratio hits a local low.
Recommended Reading: Arcane Research Eric Wall’s November Thoughts (On Bitcoin)
12/17/2020: Bitcoin Breaks All Time High
My wallet balance is $2,100 as Bitcoin surges past $20,000 today. Although this trade has worked out, I expected the alt market to contract much more as Bitcoin pushed past $20,000. The position in SUSHI would have actually netted the same return as Andre announced a YFI integration shortly after my trade. Going forward, I’m looking for Bitcoin to continue its rise and a potential ETH contraction. The plan, when the timing is right, is to swap WBTC to ETH and margin trade on dYdX Exchange.
Market Note: Breaking prior all time highs was an monumental milestone for Bitcoin. The writing was on the wall for the industry folks but it came as a surprise to the majority of the retail and institutional market. These skeptics didn’t realize that the nascent space was growing into a powerhouse of an ecosystem. Financial rails, futures products, regulated custodians, prime brokers, and ongoing regulatory clarity were just a few obvious signs that fundamentally, Bitcoin is in the best position it has ever been. The on chain network statistics were even more bullish — one example being the 10x growth in hash power since 2018.
With Bitcoin comes the term blockchain. This term, often associated with thousands of other private and public blockchains, gets diluted in importance. Often overlooked by most is the elegant code, the creative mathematics in the difficulty adjustment, UXTO accounting model, the economics behind the four year supply reduction schedule, and effectively solving the double spend problem. The acuity and sacrifice involved with the anonymous release was paramount to fuel the decentralization ethos and core principles of the network. When this experiment succeeds, if it hasn’t already at $600 billion in market capitalization, it will inevitably be cemented as the most important invention since the internet.
So, what are the major milestones required for Bitcoin to take the next step in becoming a global hedge asset? Michael Saylor in a recent Kraken webinar:
- $1 Trillion in marketcap: Larger than Facebook and Tesla.
- $2 Trillion in marketcap: Larger than Amazon, Google, Microsoft, Apple, and Saudi Aramco.
- $10 Trillion in marketcap: Larger than Nasdaq and Gold.
- $100 Trillion+ in marketcap: Global reserve asset.
Recommended reading: What Explains Bitcoin’s Resurgence? by Nic Carter
12/22/2020: 0.095 WBTC To 3.5 ETH Trade, Matcha, and dYdX
My wallet balance is $2,180 after trading .095 WBTC to 3.5 ETH on Matcha. The ETHBTC ratio had contracted to a point where I felt a reversal may occur as momentum shifts to ETH breaking its prior all time highs.
Matcha is a simple and elegant DEX powered by 0x. For new entrants, Matcha is the best bet to get your DeFi feet wet.
This was a good opportunity to use the 3.5 ETH and deposit it into dYdX Exchange for margin trading. Network fees are still high but 3.5 ETH feels large enough to open a calculated leveraged position.
dYdX is a decentralized exchange on the Ethereum network which supports margin trading and derivatives. Lending and borrowing are also available through the protocol. I have really enjoyed trading on dYdX with its fast, intuitive UI. Similar to other DeFi protocols, all you need is an Ethereum wallet to get started. Connecting to the exchange and executing a trade is 5x faster than doing it on my traditional TD Ameritrade brokerage.
Total cumulative trade volume across Perpetuals, Margin, and Spot trading increased 40x, reaching $2.5 billion in 2020, up from $63 million in 2019.
Margin / Spot Trade Volume: $1.9 billion in 2020, up from $63 million in 2019.
Perpetuals Volume Trade Volume: $563M since the new protocol was launched in April 2020.
2020 Loan Originations: $17.4+ billion from dYdX lending pools.
Traders of all sizes will migrate to decentralized exchanges much faster once layer 2 scaling solutions are implemented. The network fees are just too high right now, especially during pivotal price swings. The next iteration of Uniswap, dYdX, Aave, Synthetix, and many other DeFi protocols will be implementing layer 2 solutions to reduce network fees, almost to zero. Loopring (zkRollup) is one option for those looking to try a L2 implementation today, it has over 30k ETH locked in already.
12/26/20: 1inch airdrop received, 653 tokens.
This is the second governance token that as helped the journey to $10,000. They even used the Uniswap retroactive proxy contract for the airdrop.
The airdrop application was announced on 9/20/20. Alpha move — use the 1inch platform with multiple addresses. I’m certain a lot of DeFi traders made big on this airdrop. I suspect DyDx to follow suit.
Recommended reading: 1inch Token Is Released
1/3/21: Crossing $5,000
My wallet balance is $6,522. The 3x long is up 200%, with 6 ETH in equity. ETH is currently sitting at $1,000, for the first time since 2018. The 1inch airdrop is currently valued at $650.
Reaching $10,000, Next Steps
The final step was to sit back and monitor the margin long position. In this section I summarize the final trades as well as what to do with the money.
I’m feeling confident in the ETH position. In my opinion, Ethereum is still fundamentally undervalued, by a lot. A few positive indicators for the network include:
- Layer 2 scaling solutions like Optimism and Starkware on the horizon.
- CME futures launch.
- Grayscale ETHE unlock.
- 2.2 million ETH currently locked in the Ethereum 2.0 phase 0 deposit contract. That’s over $2 billion locked in a contract until phase 1 is implemented, a duration that could easily surpass 16 months.
- Network fees, daily transaction count, active wallets, total value locked in DeFi, and hashrate are just a few other indicators that are surging.
- 25 billion in stablecoins issued on the network and growing.
1/6/21: dYdX Position Update
My wallet balance is now around $8,000. The PNL on dYdX leveraged position is almost 200%.
Something big happened in DeFi yesterday. Banks in the U.S. can now operate their own nodes and facilitate payments with a stablecoin (USDC). USDC, the second largest stablecoin, currently has a marketcap of $4 billion with a 8x growth in 2020. Brian Brooks is on course to be one of the most influential people in crypto. Brooks was appointed as the acting head of the OCC by Steven Mnuchin, such a beautiful irony.
1/18/21: Closing The dYdX Position
I closed the dYdX margin long position at a 295% PNL. My wallet balance is around $9,500. Keeping the position open would’ve been ideal but the expiry was a few days away. I had to open another ETH-DAI 13 ETH, 2x margin long at $1,200. Margin deposit 6.5 ETH. Home stretch if ETH hangs above $1,200.
My wallet balance is over $11,000 with 7.5 ETH in equity as ETH breaks its all time high of $1,420. I closed the dYdX position at +23% PNL and converted 7.5 ETH to USDC.
Below is a snapshot of the dYdX positions, pay close attention to the fees. This is why L2 was needed yesterday.
This was always intended as a fun side project to see if it was possible going from $0 to $10,000 using DeFi applications. As much as I would like the challenge of taking it to $100,000, especially in this market, there must be an end.
This project was never about the money, but if successful, would provide an opportunity for me to write about digital assets, specially Bitcoin, Ethereum, and DeFi applications. If you are a new entrant to the space, and made it this far into the post, I hope you left with more knowledge than when you began reading.
Decentralized finance, whether this iteration or the next, is here to stay. This post covers some of the large players but probably less than 20% of the DeFi landscape. I didn’t even get the chance to mention my favorite protocol, AAVE. The space has excelled tremendously with the ingenuity of developers and community of investors, analysts, traders, and participants.
As for the money, I’ll cover the taxes on my trading and give away the full amount on the wallet ($11,258). Reply to this thread on twitter if you:
- Want to buy Mastering Bitcoin, Mastering Ethereum, The Infinite Machine, or any Solidity/Python/data analysis books. Post a pic of the receipt and I’ll cover the cost.
- Need a hardware wallet. Post the receipt and I will cover it.
- Could use help with costs related to starting up a Bitcoin or Ethereum node.
- Want to try crypto research products including Messari, TheBlock, Santiment, Glassnode, newsletters, etc.
- Would like help with any costs related to learning or developing on Bitcoin, Ethereum, and DeFi.
I’ll try to set a limit of $200/person to maximize distribution and pick a few people a day. Just reply with what you could use help with and a USDC address.
No need to retweet, follow, or any of that shit.
Have fun out there.
Disclaimer: I’m not a trader. This is not financial advice. I’m an engineer who happens to follow the crypto market structure and DeFi. Legitimate traders could have done this much quicker, perhaps solely on the Ethereum chain despite high network fees. Everyone is a genius in a bull market, use your best judgement when participating in these markets and protocols.
One last note: Reaching $10k would’ve been possible with 3 transactions. Holding the 400 UNI and swapping the 1inch airdrop to 18 AAVE. Even holding my initial 1069 SUSHI position would’ve been well over $8,000 today. I realize this.