When you deposit money into protocols, you’re putting your money in smart contracts.
Smart contracts may be vulnerable to cyber-attack and technology failures.
By using this strategy you are using 3 different protocols.
/14
This means 3 different sets of code you have to trust.
What if Anchor/Mirror/Spectrum crashes permanently? Then your $UST will be gone.
The risk is probably 0.01% for this, and I do trust these protocols fully, but it's worth mentioning.
/15
2. Impermanent Loss (only relevant for strategy 2)
And remember I mentioned "Impermanent Loss" in tweet number 2?
Impermanent loss happens when you provide liquidity to a liquidity pool, and the price of your deposited assets changes compared to when you deposited them.
/16
The bigger this change is, the more you are exposed to impermanent loss.
Sounds scary AF, doesn't it?
Let me tell you why you shouldn't worry.
1.5x price change = 2.0% loss
2x price change = 5.7% loss
3x price change = 13.4% loss
5x price change = 25.5% loss
/17
Remember we're buying stocks and commodities like gold/silver, so we're not expecting huge price swings.
In the last thread, I recommended you try to choose mAssets that were less volatile.
Choose big tech stocks over RobinHood / GameStop.
/18
It's very seldom a stock swings more than 100% in a year.
And if it does you may have a 5.7% loss in your long farm reducing your APY from 46% to a little over 40% (which still is great, isn't it?).
I'm not that worried, and I don't think you should be either.
/19
3. Liquidation risk:
When you short or borrow an mAsset you need to put up a 200% collateral for the asset.
What this means is that if you short mTWTR and the price increases by 25%, you will get liquidated.
/20
That's why you have to monitor the asset and see that it performs well from time to time.
You could however increase your collateral at any time if the price of mTWTR continues to go up.
And no, you don't lose money.
Because if the price goes up, your long goes up too!
/21