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Hedge funds are quietly running this lending and borrowing loop in their portfolio that over doubles their yield, and they're using top lending platforms like Aave, Morpho, Camino, and many others. I'm going to dive into exactly how you can run it in your own portfolio, how I'm running it in mine, as well as the risk of liquidation that there is here.
So, first things first, you have three components: the collateral, the borrow, as well as the CLP. We're going to dive into all of that in just a second, but very quickly I want to mention if you are looking to get an on-chain cash flow plan and just implement this right away within 4 days, I created a free course. The link's going to be at the top of the description, and it's not going to be available for much longer because we are going to be replacing it with a paid course. We're going to walk you through the exact steps that you can take over the course of 4 days with my AI assistant there to assist you every single step of the way.
But diving into it, let's look at Aave. I have $106,000 supplied. I have $30,000 borrowed, right? Ultimately, what I'm doing here is lending out my core collateral, lending out my core assets that I truly believe in, like Bitcoin, Ethereum, as well as a couple of other minor alts that are also what I would consider blue chip alts. That's the LINK, the Aave, as well as the UNI token.
Now, now that I've lent these assets out and I have, say, $106,000, this can be used as collateral, meaning that I can borrow against it in my portfolio. Now, a lot of people see this and say, "Okay, well, I'm only using, you know, in this case, 40% of my borrow power. Let me go borrow more." Well, ultimately, what happens if you just continue to borrow, borrow, borrow, if this collateral falls in value, which I mean markets go up, markets go down, there is a risk of it falling, then what it has to do is sell your collateral in order to repay your loan. We don't want that because that comes with a hefty fee. We also don't want to sell our Bitcoin or Ethereum prematurely. So, rather, we borrow a small amount compared to our overall supplied assets.
With my current structure, if the market were to move down 50%, I will not get liquidated. And the thing is, the market's not going to move down 50% tomorrow, either. It's going to take time for it to move down 50%, and as long as I have rules in place, I can uh fix up my overall health factor before liquidation happens. And I'll break that down, as well. By the way, if you are new here, and you're enjoying the value so far, make sure you drop a like and subscribe with notifications turned on.
And the thing is, we are lending out assets that are exposed to the market, and we are borrowing an asset that is not exposed to market fluctuations. So, we'll lend out Bitcoin, ETH, other assets that we truly believe in, and then we will borrow a stablecoin. We use USDC, USDT. I borrow a GO, which is Aave's native stablecoin. The reason why I borrow GO is because the APYs are pretty favorable, and they don't fluctuate a ton, basically.
So, moving on into the next step. We have this, say, $30,000 in my case of GO. What do we do with it? Well, ultimately, we deploy it into liquidity pools, specifically concentrated liquidity pools. And the reason why is because this collateral is going to go up, it's going to go down, but our GO, our borrow is going to stay the same. And then, what we do with that GO is we use it to generate more income. Because lending alone doesn't generate us much. I mean, I'm generating 4.4% on my USDC. I'm only lending out 250 bucks in USDC. But, I'm generating maybe 1 to 2% on my Ethereum, ultimately. Uh, and that's liquid staking, so it's not that much, and I'm not even really getting paid to lend out these assets. But, if I was over on Morpho, maybe I get a couple more percentage points uh for my supplied assets.
But, in this case scenario, I take that GO, and I go and I park it into something like ETH to USDC, or wrapped Bitcoin to USDC, or both, right? As you can see, I'm doing that over here with ETH to USDC, as well as wrapped Bitcoin to USDC. I'm generating, in this case, about a 13% APR on ETH to USDC, and about a 4% APR on wrapped Bitcoin to USDC.
Now, most DeFi investors look at these numbers, they say, "That sucks." And the reason why is because we are blinded by the flashy numbers, the 100%, the uh 250%. Hey, sometimes even the 70%, like this position that I'm running over here. What actual smart investors understand is that you don't deploy all your capital into liquidity pools, you don't deploy it all into one liquidity pool either. You diversify. Just like a TradFi portfolio, you wouldn't put your 401K, your Roth IRA into one single individual stock, you would diversify in ETFs, multiple of them, multiple individual stocks, fixed income positions, alternative investments, stuff like that, right? You diversify your portfolio. We do the same thing in DeFi.
For this ETH to USDC position, while it's generating a decent APR, which is about 13%, what it's actually doing behind the curtains is it's buying ETH on the way down. You see, I think structurally we are in a bear market, meaning that I think that the market is going to continue to fall over the next 6 months or so. So, what I can do in this case scenario, let's go ahead and simulate this ETH to USDC position, is I can invest into this position predominantly in USDC. So, we take that GO, we convert it to USDC, right? And then we convert a little bit of that USDC into ETH. That's the ETH that we're buying immediately. And then we leave the remaining USDC, so in this case I have 70% USDC, 30% ETH.
And then what happens is when we pair those together in a liquidity pool, as the price of ETH moves down, say it goes to the bottom of my range, $1,500. I now have $5,760. But wait, I started with $7,500 in this position, now I'm at a loss, and I also have to repay the borrow. What's going on here? Well, again, these are assets I believe in. It's not about getting rich tomorrow, it's about getting rich over the long term, meaning that we need to have a long-term mindset here. I now have 3.84 ETH. I only started with say 1.07 ETH, right? Meaning that I've accumulated well over 2.6 ETH or so, right? So, ultimately, that 2.6 ETH has a lower cost basis than the current price. Its cost basis is going to be around here, around like $1,850 or so, uh, maybe even a little bit less or a little bit more.
But here's the thing. Let's say I exit a liquidity pool now that we're out of range down here. I've generated yield along the way. Hey, maybe it's like uh, 180 days of yield. That's $642 right there, right? Which outweighs literally all of the interest that I accumulated over on Aave plus some. But, this 3.84 ETH, I hold that in my wallet all the way back up to the price of say $2,135. I now have $8,200. Yet, this position started with $7,300. So, I have nearly a thousand dollars more. I also have all the fees that I generated, about $600, right? Uh, so ultimately, I was able to print an extra nearly $2,000 off this position. And guess what? We haven't even breached our break-even price. We're just back at our break-even price.
And you know, all while we're doing that, our core collateral is fully exposed to the market. That way, if the market goes the other way, up, and I know I'm saying this as if it's a bad thing, and in this case it kind of is, right? We just don't have as much gains. But, if the market goes to say $2,500 uh, over the next couple weeks, and ultimately it keeps on going up, well, we're capping our gains in this LP position, right? Uh, we're starting with $7,300, and then ultimately market goes up, and we have about $7,480 or so. And maybe we generate, you know, in this case, uh, 30 days of yield. So, we have an extra $100. That's only about $200 of profit compared to the nearly $2,000 of profit if the market goes down, we hold, and then it comes back up to our initial entry price.
But, my point is, when the market goes up, our core collateral has full exposure to that. And when the market moves down, well, yes, we have full exposure, but it's a long-term position. We've borrowed at a reasonable rate, so we don't have to worry about liquidations getting the better of us. And the beauty is, if it continues to go down, and we're now below our min price, well, we're holding ETH. We can remove that ETH from the liquidity pool, and we could go and bring it in as collateral to help our overall health factor.
And that right there, guys, is called a blue chip flywheel. It's a strategy that me and my team put together, and it's a strategy that the majority of our clients in our consulting firm are running right now in their portfolio, and we are making a ton of money. But with that being said, if you want to take the first step, remember that free course? It's going to be linked in the top of the description. It won't be around for much longer, but it is there, and I hope you enjoyed. Drop a like, subscribe notifications turned on, and I'll see you guys in the next one. Peace.