A few guides on how to earn high interest on your stablecoins using #DeFi.
By far, the easiest and most passive (but also high yield) way is @anchor_protocol, which currently pays out ~19.5% APY in UST.
Let's see how that works. 🧶🪡👇
By far, the easiest and most passive (but also high yield) way is @anchor_protocol, which currently pays out ~19.5% APY in UST.
Let's see how that works. 🧶🪡👇
1/ For reference, here's a step-by-step guide about how to use @anchor_protocol to earn 19.5% APY on your stablecoins:
https://twitter.com/shivsakhuja/status/1467550237036187650
2/ @anchor_protocol facilitates decentralized lending and borrowing.
With this protocol:
- Lenders are earning 19.5%
- Borrowers are paying 18.65%
Wait a minute -- borrowers are paying less than lenders are earning?!
Yes, and it's not a ponzi -- here's how it works...
With this protocol:
- Lenders are earning 19.5%
- Borrowers are paying 18.65%
Wait a minute -- borrowers are paying less than lenders are earning?!
Yes, and it's not a ponzi -- here's how it works...
3/ There are 2 key things going on here:
1. The loans are over-collateralized. (can only borrow < 60% of collateral value)
So, if you have $100 of $LUNA as collateral, you will be able to borrow up to $60 of $UST stablecoin.
1. The loans are over-collateralized. (can only borrow < 60% of collateral value)
So, if you have $100 of $LUNA as collateral, you will be able to borrow up to $60 of $UST stablecoin.
4/ 2. Collateral is staked for interest
This is where most of the money is being generated.
Let's run through the numbers.
This is where most of the money is being generated.
Let's run through the numbers.
5/ Currently, @anchor_protocol has around:
~$ 4.8B in deposits (earning interest)
~$ 2B being borrowed (paying interest)
~$ 6.3B in collateral (staked)
~$ 4.8B in deposits (earning interest)
~$ 2B being borrowed (paying interest)
~$ 6.3B in collateral (staked)
6/ At 19.5% APY paid out to depositors, @anchor_protocol needs to earn 19.5% * 4.8B = $936M in a year.
Now let's understand how @anchor_protocol earns that money..
Now let's understand how @anchor_protocol earns that money..
7/ Borrowers are paying 18.65% on the $2B.
This generates 373M of revenue.
The 6.3B in collateral (mostly $LUNA) is being staked to earn interest. On $LUNA, that is currently ~9%.
This generates 567M of revenue.
This generates 373M of revenue.
The 6.3B in collateral (mostly $LUNA) is being staked to earn interest. On $LUNA, that is currently ~9%.
This generates 567M of revenue.
8/ So @anchor_protocol will bring in 567+373 = 940M of revenue at these rates.
But they only need to pay out $936M in interest to the lenders.
The extra 4M is added to the Yield Reserve. 💰
But they only need to pay out $936M in interest to the lenders.
The extra 4M is added to the Yield Reserve. 💰
9/ Currently, the Yield Reserve has ~$73M, which is used to cover any temporary shortfalls in the borrowing + staking revenue.
Now let's answer some questions you might have:
Now let's answer some questions you might have:
10/ What happens when borrowers collateral value falls? (Ex: if price of $LUNA falls)
The Loan-to-Value or LTV ratio must be < 60%.
If the LTV goes above 60%, borrowers are liquidated. 🏴☠️
Written about here (and how to profit from this):
The Loan-to-Value or LTV ratio must be < 60%.
If the LTV goes above 60%, borrowers are liquidated. 🏴☠️
Written about here (and how to profit from this):
https://twitter.com/shivsakhuja/status/1468635649473331206?s=20
11/ Why would someone borrow money if they have collateral? 🤔
There are many reasons:
- Selling collateral is a taxable event, borrowing against it is not.
- If you sell your crypto, you lose out on potential gains. When you borrow stables, you maintain your crypto exposure.
There are many reasons:
- Selling collateral is a taxable event, borrowing against it is not.
- If you sell your crypto, you lose out on potential gains. When you borrow stables, you maintain your crypto exposure.
12/ Why would someone pay such high interest rates on the borrowing?
If you expect crypto to go up 2x,3x,5x, etc then paying 18% to borrow against it isn't crazy.
Also... we lied about one thing.
If you expect crypto to go up 2x,3x,5x, etc then paying 18% to borrow against it isn't crazy.
Also... we lied about one thing.
13/ @anchor_protocol incentivizes borrowing by issuing $ANC tokens to borrowers.
They issue 19.35% in $ANC tokens to anyone who borrows, meaning you are getting PAID 0.7% to borrow.
Yes, seriously.
They issue 19.35% in $ANC tokens to anyone who borrows, meaning you are getting PAID 0.7% to borrow.
Yes, seriously.
14/ This won't go on forever though..
40% of the $ANC token supply will be used to provide borrower incentives over 4 years.
Also important to note that the rates (borrowing, distribution, staking) fluctuate regularly.
40% of the $ANC token supply will be used to provide borrower incentives over 4 years.
Also important to note that the rates (borrowing, distribution, staking) fluctuate regularly.
15/ Another important note: roughly 7% of collateral is actually in $ETH not $LUNA.
$ETH has lower staking yield than LUNA (~5%). According to my math, Anchor is currently paying out slightly more than they are earning.
$ETH has lower staking yield than LUNA (~5%). According to my math, Anchor is currently paying out slightly more than they are earning.
16/ They could increase the borrow rate or decrease the earn rate to make it sustainable if that continues.
A lot of this will fluctuate based on borrowing demand, market sentiment, token prices, etc.
The numbers above are primarily to illustrate the general mechanism. 🛠
A lot of this will fluctuate based on borrowing demand, market sentiment, token prices, etc.
The numbers above are primarily to illustrate the general mechanism. 🛠
17/ Hope this thread was useful to understand the mechanics of @anchor_protocol.
Don't forget the risks when you use any #DeFi protocol! 💀
Here are some resources you can use to do more research into Anchor 👇
Don't forget the risks when you use any #DeFi protocol! 💀
Here are some resources you can use to do more research into Anchor 👇
18/ Anchor's App: The dashboard has a lot of information about the current numbers in the protocol.
app.anchorprotocol.com
app.anchorprotocol.com
19/ Anchor's official docs:
docs.anchorprotocol.com
This has all the juicy details of how it works described in depth.
docs.anchorprotocol.com
This has all the juicy details of how it works described in depth.
21/ One of my favorite DeFi YouTubers @phtevenstrong (The Calculator Guy) made an in-depth video going over the numbers and sustainability:
Contributor: @shivsakhuja
Like / RT / Follow for threads about #crypto and #DeFi nearly daily.
Let us know what protocol/strategy you're interested in learning about next!
Like / RT / Follow for threads about #crypto and #DeFi nearly daily.
Let us know what protocol/strategy you're interested in learning about next!
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