Build and Document Your First DeFi Strategy

You've now worked through every major DeFi activity this course covers: setting up a wallet and understanding approvals, swapping tokens on a decentralized exchange and managing slippage, providing liquidity and weighing fee income against impermanent loss, and lending or borrowing while managing collateral ratios and liquidation risk. This capstone asks you to pull all of it together into a single, concrete deliverable: a documented DeFi strategy for a fictional $1,000 allocation, built and justified using the exact frameworks you've practiced in every module.

This is deliberately not a new concept to learn — it's an exercise in applying judgment. Real DeFi decisions rarely come with a single obviously correct answer; they come with trade-offs between yield, risk, complexity, and your own comfort level, and the skill this course has been building toward is the ability to reason through those trade-offs explicitly, with real numbers, rather than chasing a headline APR or avoiding DeFi out of vague unease. The capstone is where you demonstrate that skill directly.

The Assignment

Design a safe DeFi strategy for a fictional $1,000 allocation. You must choose exactly one of three activity types as your primary strategy: a token swap (with a specific stated purpose, such as rebalancing into a target asset), a liquidity pool position, or a lending position (with or without borrowing against collateral). Whichever you choose, your strategy document must include four sections:

1. Protocol choice and justification. Name a specific, real protocol (a DEX, a liquidity pool pair, or a lending market) and explain why it passed your vetting checklist from the "Safe First DeFi Workflow" lesson in Module 6 — covering at minimum its audit history, total value locked, and how long it has operated without a major incident.

2. The math. Depending on your chosen activity, show the relevant calculation worked through with real numbers: slippage tolerance and expected price impact for a swap, a fee-income-versus-impermanent-loss comparison for a liquidity position (using the formulas from "Impermanent Loss" and "LP Math"), or a loan-to-value ratio and distance to the liquidation threshold for a lending position (using the formulas from "Collateral Ratios and Liquidation Mechanics"). This section should read as genuine arithmetic, not a vague estimate — show your work the way the worked examples throughout this course have.

3. Risks identified. List the specific risks relevant to your chosen strategy — smart contract risk, impermanent loss, liquidation risk, de-pegging risk, or incentive-reward volatility, as applicable — and state explicitly how your strategy design mitigates or limits each one. A strategy that lists risks without addressing them is incomplete.

4. Exit plan. State the specific, pre-decided conditions under which you would close or adjust the position — a price-move threshold, a health-factor floor, a TVL-drop trigger, or a calendar date — exactly as the safe-workflow lesson taught you to decide in advance rather than under pressure.

Worked Example

A sample capstone picks a conservative lending position: deposit $1,000 USDC into an audited, high-TVL lending protocol, with no borrowing. The protocol choice is justified by the protocol's multi-year operating history, multiple completed audits from reputable firms, and TVL well above the safety thresholds discussed in Module 6. The math section is straightforward because there's no collateral ratio to manage: at a current supply APY of 4%, the position is projected to earn approximately $40 over one year, continuously accrued. The risks identified are smart contract risk (mitigated by choosing an audited, battle-tested protocol rather than a newer, unaudited one) and stablecoin de-peg risk on the deposited asset (mitigated by selecting a stablecoin with a strong redemption track record rather than an algorithmic or thinly-collateralized one). The exit plan states a withdrawal trigger: exit immediately if the protocol's TVL drops more than 30% in a single week, or if a new critical audit finding is published — both signals of either a bank-run dynamic or a newly discovered vulnerability, exactly the kind of risk signal the Module 6 lessons on rug pulls and exploits describe.

A second, more advanced sample might choose a conservative liquidity position instead: $1,000 split evenly into a stablecoin/stablecoin pool, justified by the pool's deep TVL and the structurally low impermanent loss of correlated stablecoin pairs (per the "LP Math" lesson), with the math section showing the advertised fee APR compared against a worst-case IL estimate for a plausible de-peg scenario, risks covering smart contract risk and de-peg risk on either underlying stablecoin, and an exit plan triggered by either stablecoin trading meaningfully off its peg for more than a brief period.

Exercise

Write a one-page strategy document covering all four required sections above, using your own choice of swap, liquidity pool, or lending position. Use real protocol names and realistic current rates or pool data where possible (cached data is acceptable if live access isn't available), rather than invented numbers. Include a screenshot of the relevant transaction or a simulation of it (a testnet transaction, a swap-interface quote screen, or a pool-deposit calculator screen all count). Before submitting, check your document against the grading rubric: protocol choice justified (25%), math correct (25%), risks identified (25%), workflow safe (25%) — a strong submission scores well on all four, not just one or two.

Recap

• The capstone requires one chosen activity (swap, liquidity pool, or lending position), documented across four sections: protocol justification, math, risks, and exit plan.
• Every section should use the specific frameworks and formulas practiced throughout this course — slippage, impermanent loss, LP math, or collateral ratios — not vague or invented figures.
• A complete submission addresses all four rubric criteria equally: a well-chosen protocol with no exit plan, or correct math with no risks identified, is an incomplete strategy.

Resources

• Aave Protocol FAQ
• Uniswap Docs — How Uniswap Works
• Revoke.cash — Manage and Revoke Token Approvals