Project 0 Guide: How to Earn Enhanced Yield from the Solana-based Protocol

The decentralized finance (DeFi) ecosystem on Solana is heating up. There are over $11 billion worth of assets locked across various protocols, presenting numerous opportunities for investors. 

In this guide, we examine Project 0, a DeFi protocol that identifies itself as a “prime broker.” First, we aim to explain in simple terms what the project does, and then we examine the various strategies you can deploy on the platform. The goal is to amplify your DeFi yield while reducing risk. Note, however, that just like every other form of investing, it is best to manage risk effectively and put in only what you can afford to lose.

What is Project 0?

Project 0 is a DeFi protocol built on the Solana network. If you are familiar with Aave, Compound, or Kamino (on Solana), you already have a basic understanding of how Project 0 works. However, the platform is much more than a place where you can deposit cryptocurrency to earn interest or use it as collateral to borrow. It offers many more capabilities, which we will learn about later in this article.

Project 0 labels itself a “prime broker.” In the traditional world, a prime broker offers a straightforward interface for experienced investors and traders to capitalize on market opportunities. They can buy, sell, use leverage, and manage risks all from a single platform. 

To get started with Project 0, set up a Solana wallet such as Phantom or Jupiter. Fund it with some SOL and head over to the Project 0 website. You can then deposit SOL on the platform to earn yield. Alternatively, you can assess all the assets supported on the platform, convert some SOL to your preferred asset, and then come back to deposit them on Project 0. 

Strategies to Use On Project 0

• Earning Yield

The simplest thing to do on Project 0 is deposit assets to earn yield. At the time of writing, the platform supports a wide range of Solana-based assets, including Blue Chips, Stablecoins, Bitcoin, Governance Tokens, and Memecoins. 

For each asset, you will find the annual percentage yield (APY), weight (the percentage of your deposit you can borrow), and the total deposits in the pool. To begin, connect your Solana wallet, select an asset, and click the SUPPLY button on the lending venue of your choice. Complete the deposit, and your crypto will automatically begin accruing yield. You can view the total amount of your deposits directly from the Portfolio tab.

• Borrow Against Your Assets

Most of the support assets on Project 0 have collateral value. This means that you can borrow against them. For instance, if you deposit $100 worth of SOL on the platform, you can borrow USDC or any other stablecoin. Go to the Unified Borrow tab after depositing your asset, and pick the asset you want to borrow.

Borrowing against your assets is a basic form of crypto lending that comes in handy if you hold some crypto and need a cash flow to meet everyday needs, without wanting to sell your coins because you believe the price will increase further. This strategy can also be used to improve your leverage on an asset, as we’d discuss in the next step.

• Going Leverage Long 

Building on the last step, going long involves using the stablecoin (or any asset) that you have borrowed to purchase additional cryptocurrency. In this case, you assume that the price of the cryptocurrency, for example, SOL, will keep going up within your expected timeframe. 

Hence, you can take the following steps (amounts used in the examples are simply for the purpose of examples; you can use any amount you can afford):

1. Deposit $1,000 worth of SOL, and then borrow $500 worth of $CASH (Phantom-backed stablecoin). 
2. Use the $CASH to buy $50 worth of SOL on Jupiter or any other Solana-based DEX.
3. Add the purchased amount back to your SOL deposit on Project 0. Doing so increases your borrowing capacity, and you can borrow an additional amount and repeat the step (adding leverage)  until you have as much SOL as your position can safely accommodate.

Of course, several factors must also be taken into account. Remember that you will pay interest on the borrowed $CASH. Hence, you must be confident that Solana (SOL) will rise enough to cover your interest rate and earn you a good profit. Also, keep an eye on your Account Health while borrowing. 

Do not borrow so much that your portfolio comes under risk when the price of SOL drops slightly. The higher your account health figure, the safer your position; therefore, aim to maintain a healthy position by using leverage sensibly.

• Going Leverage Short

Going short involves depositing a stablecoin or any other supported asset as collateral on Project 0. Stablecoins are preferred since they lower your chances of liquidation. Let’s take, for example, that you’ve made a deposit of $500 worth of USDC, and you think the price of BTC will go down. 

Here are the steps to take.

1. Borrow $300 worth of WBTC or any other wrapped Bitcoin version supported by Project 0. Assuming a Bitcoin price of $100,000, $300 worth of WBTC would be equivalent to 0.003 WBTC.
2. Next, you go to Jupiter or any DEX of your choice and sell the borrowed WBTC  for USDC. You can then add the USDC back to your Project 0 USDC deposit to boost your yield while waiting for your prediction to play out. 
3. Note that the borrowed bitcoin loan is denominated in bitcoin. So, let’s assume your prediction comes true, and BTC drops to $90,000; you can then buy back 0.003 WBTC on the open market for $270. Use the WBTC to repay your loan on Project 0 and pocket the extra $30 profit (minus trading fees).

Note that you can repeat step 2 above to increase your leverage, i.e., depositing USDC to borrow additional BTC for market sell, with the hope that the price will decrease. 

However, suppose the price of BTC goes against your prediction. In that case, you will need to buy BTC at a higher price to repay your loan, or risk being liquidated when the value of your borrowed amount equals the deposited USDC collateral. Hence, practice good risk management and always maintain good Account Health.

• Looping Stablecoins 

You can amplify your stablecoin or SOL yield by using the Loop feature on Project. The idea behind looping is that you can borrow more coins than you initially deposited on the platform and then earn interest on the borrowed amount as well. 

For example, if you deposit $100 worth of USDC, you can open a loop investment that uses a 2x leverage on another stablecoin, such as $CASH. What happens is that Project 0 would lend you $200 worth of CASH and use it to buy more USDC for you. For the sake of simplification, that would be an additional $200 USDC deposited in the protocol. 

The result is that you now have $300 worth of USDC deposits earning interest, even though you originally had $100. You earn more interest this way, and can exit the loop at any time by withdrawing USDC from Project 0, swapping back to CASH via Jupiter, and then repaying your loan. 

If you allow this strategy to run for some time, you would earn more interest than you initially would have if you simply deposited $100. Note that the interest rate being paid on the asset you are borrowing for the looped position should be less than what is being earned on your deposit. If at any time the interest rate you are paying exceeds the earned amount, it is best to close the loop and explore another opportunity.

• Looping SOL

If you understand the concept of looping stablecoins, then applying the same concept to SOL is similar. Project 0 supports a wide range of liquid-staked SOL, including LST, MSOL, BSOL, and JitoSOL. 

You can choose to deposit MSOL and then use it as collateral to loop SOL with a 2x leverage, for example. What happens is that Project 0 converts the borrowed SOL to MSOL and adds it to your deposited position. So, you earn more than you would have if you simply deposited MSOL or even SOL.

Meanwhile, since MSOL has a higher APY than the amount paid on the borrowed SOL, your yield then becomes the difference between the interest paid and what you earn on the MSOL deposit. At the time of writing, MSOL offers a 9.7% yield while SOL borrowing costs 6.80%. The same applies to most of the SOL LSTs on the platform, making it a low-hanging fruit for investors. 

• Cross-Platform Lending

Cross-platform lending would be the primary feature that distinguishes Project 0 from other lending venues on Solana and other networks. This feature (currently available to a select group of power users) enables you to deposit assets into various Solana-based protocols from a single interface. 

For example, you can have deposits in Kamino, Jupiter Lend, and Drift Protocol, and manage them all from a single interface. 

At the same time, you can use your combined deposits as collateral to borrow funds, as opposed to going on each platform to manage your positions individually. Such an approach gives investors access to more liquidity and unlocks easier management, just as using a “prime broker.” 

Please note that to maximize the cross-lending feature, you must make the deposit directly on Project 0. If you deposit the asset directly on Jupiter Lend or any other platform, it will not be counted toward your portfolio balance on Project 0.

Conclusion

Project 0 brings a unique offering to the fast-growing world of DeFi. While the platform is in its early years, the promise of delivering tools and functionalities that were previously only available to sophisticated users is noteworthy. There are currently a range of strategies for users to explore, with many more to come in the near future. Still, only time will reveal whether the product finds market fit and provides the expected experience to Solana investors.

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