I've been meaning to make a sizeable move on stablecoins for some time now. The concept really intrigues me, and the regulatory (and other risks) scare me. But, at some point, we have to take the risk to get exposure and at the very least learn more about the ecosystem. I'm on a quest to merge worlds of traditional finance (TradFi) and decentralized finance (DeFi) – hence the Discord's name TradFi x DeFi (which you should join by the way). Getting started with stablecoins, which I've talked about before (i.e. Anchor Protocol) seems like an obvious thing to do. So, with that being said, let's get started...
What are Stablecoins?
For this part, I highly recommend you review the post on Anchor Protocol, because I'm assuming you already know the answer to this... along with the various types of stablecoins.
Usually I talk about risks later; but in this case, I want to talk about risks of stablecoins in general because I don't think this is commonly understood. It's important to understand these risks to determine how you'll allocate your capital. To say that stablecoins have the same (or less) risk as holding fiat in your bank account, is not true. It can't be true, unfortunately.
Although a lot of stablecoins, like Terra's UST for example, are marketed as decentralized – which they are, given the algorithmic nature – the blockchains the coins are native to (in this case Terra) can be centralized. So, you really are at the mercy of team making the right decisions. So, for every coin you hold, keep this in mind.
Smart Contract Risk
This exists at the application level. If there are issues with the code or team of the actual stablecoin being issued, it can be hacked or even rug pulled. And you can lose your entire investment. This is a real risk that can't be ignored.
Stablecoins are a clear regulatory target. We've seen reports from both the SEC and the Treasury department acknowledging stablecoins. Should they enforce strict regulations for on-ramps and off-ramps (which is what I see eventually happening), this can cause a "bank run" on the stable.
That takes me to my next point... illiquidity can occur in bad market conditions, and even regulatory causes. Which means you either can't get your money converted in fiat, and would likely have to pay a premium for liquidity or the stablecoin de-pegs. Again, a risk that can't be ignored.
Liquidation & Oracle Risks
Finally, depending on what strategies you use, liquidation (if leveraging) can be an issue. And, depending on how the peg is maintained, oracle risk (another form of smart contract risk) should also be considered.
Top Stablecoin Yields
If I haven't scared you off until this point, then you're likely a "degen" and deserving of the alpha I hope to provide with my top stablecoin yields – filtered to minimize the risks I mentioned above. I'll also give you my allocations to how I would diversify for the risks as well 🙂 As you might know, DeFi is a rapidly changing landscape so this changes quickly. Join the Discord for us to discuss the latest opportunities, and always do your own research!
- Starting with the most simple way to earn USDC yield on Crypto.com Earn, which gives 10% APY (depending on your CRO stake). The reason why I give this a 30% allocation is because of how simple it is, least regulatory risk, and easiest off-ramp (i.e. easily spend the USDC with their prepaid dnebit card).
- Anchor Protocol on Terra is 🐐 in DeFi. But, it does come with risks which I have mentioned previously. I wouldn't get too comfortable with, but I am bullish on the Terra foundation has been supporting this project by refilling the Anchor reserves and more recently backing UST with $1bn of BTC reserve. This easy 20% APY should get a 15% allocation.
- I will give another 15% allocation to Anchor using a "degen strategy" through either Mirror, Spectrum, or Edge Protocols. This allows us to leverage the 20% APY into something like 40-60% APY. I won't cover them specifically in this post, but will link them for your research. I personally like Mirror Delta Neutral strategy.
- So, we have another 40% to allocate to various other non-UST yield farms. I would (at most) allocate to three of these. So a 2 x 20% allocation to each – depending on what's available, and working. For up to date farms, check out CoinDix – which I sort by stable yields for anything above $1bn in TVL – or Beefy Finance which auto compounds for you!
|Bancor||if room opens up (but unlikely) USDC and USDT 25% APY and DAI at 32%|
|DEI-USDC||28% APY on SpiritSwap using Beefy Finance on the Fantom ecosystem|
|UST-USDC||18% APY on Pangolin using Beefy Finance on the Avalanche ecosystem|
There you have it... with this allocation and these I'd be getting a 22.7% blended APY on DeFi vs essentially nothing on TradFi. It seems like an obvious thing to do, and the risk/reward just makes sense... but, with a small amount of capital that you can afford to lose – especially before any regulatory clarity.
My plan would to re-invest 100% of the yields into crypto projects, and serve as a DCA over time. I think this is the first, and obvious step for anyone looking to allocate and get into the crypto space over time. The opportunities are really exciting. Hope to have you onboard!
Disclaimer: All material presented in this newsletter is not to be regarded as investment advice, but for general informational purposes only. Day trading does involve risk, so caution must always be utilized. We cannot guarantee profits or freedom from loss. You assume the entire cost and risk of any trading you choose to undertake. You are solely responsible for making your own investment decisions. Owners of this newsletter, its representatives, its principals, its moderators, and its members, are NOT registered as securities broker-dealers or investment advisors either with the U.S. Securities and Exchange Commission or with any securities regulatory authority. We recommend consulting with a registered investment advisor, broker-dealer, and/or financial advisor. If you choose to invest with or without seeking advice from such an advisor or entity, then any consequences resulting from your investments are your sole responsibility. Reading and using this newsletter or using our content on the web/server, you are indicating your consent and agreement to our disclaimer.