Thread by @Route2FI

Yesterday I posted a thread called:

"What if you could 2-3x your DeFi yield on stablecoins without using leverage?"

I forgot to mention that you can improve your gains even more by using @SpecProtocol !

+I want to talk a little bit about risks

Ready to earn more $$$?

THREAD/

In case you missed the thread, here it is:

https://twitter.com/Route2FI/status/1454065822515830787?s=20

Make sure you read that one first👆

Just to clarify yesterday's thread, what I actually described was 2 different strategies:

1. Delta Neutral (no IL)
2. Delta Neutral Yield Optimizer (IL may occur)

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IL means impermanent loss and I'll get back to this later in the thread.

But for now, let's do a quick recap of the 2 different strategies:

Delta Neutral (no IL):

1. We start by depositing 50% on Anchor
2. Then we short the mAsset (eg. mTWTR) by using our aUST (44,4K)

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3. Then we borrow mTWTR by using 44,444 aUST. After 2 weeks we get back our short collateral which we can deposit into Anchor again.

That's it, we're now delta neutral.

Let's look at strategy 2:

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Delta Neutral Yield Optimizer (IL may occur)

Steps 1, 2, are exactly the same. The difference is that step 3 is a little bit different + there's a step 4.

3. Instead of borrowing using aUST. We want to buy using $UST. So we buy mTWTR for 25K $UST

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4. In step 3 we bought mTWTR. Now we want to pair it with an equal amount of $UST (so we put in 25K $UST).

In both strategies, we've now spent $100,000.

Hopefully, that was a little bit clearer, if not I'm going to give you some links in the end which makes it easier.

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Strategy 1 APY (Delta Neutral):

You short with 50% of your money: 41% APY
You buy the asset with 50% of your money: 20% APY

So far: 30,5% APY

After 2 weeks you get back your collateral of 25K $UST --> APY increases to 40.33%.

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Strategy 2 APY (Delta Neutral Yield Optimizer):

You short with 50% of your money: 41% APY
You go into a long farm with 50% of your money: 27% APY

So far: 33,75% APY

After 2 weeks you get back your collateral of 25K $UST --> APY increases to 45%.

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I thought I was done there, but some smart people commented below my last thread that we could use @SpecProtocol to further increase our APY.

So let's present Spectrum.

Spectrum Protocol:

Spectrum is a yield optimizer that allows users to earn ...

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compound interest on their LP farming crypto assets.

Remember on Mirror we got 27% APY in the long farm? (see screenshot below).

Then let's see how much we've gotten on Spectrum (next tweet).

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On Spectrum Protocol we could have got 46.75%.

That's almost a doubling from 27%!

Let's look at the effect this would have had on our total APY.

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Strategy 2 APY (Delta Neutral Yield Optimizer) by using Spectrum:

You short with 50% of your money: 41% APY
You go into a long farm with 50% of your money: 46.75% APY

So far: 43.6% APY

After 2 weeks you get back your collateral of 25K $UST --> APY increases to 58.2%.

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To just summarize this quickly, we would have increased our total yield from 45% to 58.2% by doing the exact same thing!

So from Anchor's 19,5% APY we now land on 58.2% APY which is 3x our initial investment.

Why fear ber markets anymore, anon?

$UST got you covered!

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Now let's talk about te different kind of risks:

1. Smart contract risk
2. Impermanent Loss
3. Liquidation risk
4. $UST peg risk

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Smart contract risk:

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.

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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.

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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.

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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

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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.

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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.

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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.

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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!

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4. $UST peg risk:

I've written extensively about this here:

https://twitter.com/Route2FI/status/1442835916737978372?s=20

Read from the tweet in the link until the 20th tweet in the link.

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That was all.

I hope you learnt something new today.

Follow me on Twitter for more DeFi hacks @Route2FI

And subscribe to my newsletter if you're interested in financial freedom, DeFi & crypto in general 👇

getrevue.co/profile/route2…

/23

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/24

If you could help me spread the word by retweeting the first tweet I would be forever grateful

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https://twitter.com/Route2FI/status/1454519452888969220?s=20

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