Balaji has articulated an interesting related concept — "flatcoins". These wouldn't be pegged to a fiat currency, which is an inflationary asset. Flatcoins instead could track real purchasing power in a "flat" manner, as measured against weighted, dynamically calculated baskets of consumer goods prices. Broader application outside DeFi but thought-provoking in any case.
Interdasting. I tweeted about this same topic a few months back. Basically a stable + inflationary mechanic to offset loss in purchasing power. Of course, the question is what is real inflation
Think there's a typo in this sentence — "While USDT is only 1.9x bigger than USDC in terms of market cap, 24h volume for USDT is $59 billion compared to $3.4 billion for USDT."
It should read, "...compared to $3.4 billion for USDC."
It will be interesting to see how MIM and UST handle a bear market. IIRC UST broke its peg back in May to sub .95. Not sure how far MIM has been knocked off kilter so far.
Here's some alfa. Check the fiat/USDT pairs on Binance from that time. Yes, the wicks were real, and prices were 20-30% off market for up to 15 minutes. Due to delays with fiat withdrawals you can only turn over your capital once. EUR/USDT was particularly good, at 1.4 instead of 1.1. Likely will happen during a future crash, maybe a smaller dislocation.
GBP/USDT was quoted at 1.6 and EUR/USDT was quoted at 1.4.
Fair prices were 1.4 and 1.1 respectively.
So if you had or could get fiat, you deposit fiat and buy Tethers.
But to repeat the trade you'd have to recycle Tether back to fiat.
If you're not big enough to do redeems then that's usually to USDC via the 3pool, then wire out USD from a CEX and then convert to EUR or GBP to deposit and buy more USDT at a discount. It's this final step (legacy bank wires) which means you can't do the trade more than once.
So if you have or can borrow decent amounts of fiat at short notice then this was an opportunity to make about 25% on your capital after costs with reasonably small risk (need to be confident that Tether won't go to zero in the brief time you hold it).
I would love to know this, but it's going to be hard for them to share what they're farming. When it's made public, a bunch of people will swarm the pools and reduce their yields. Probably what makes more sense are thoughts around farming strategies: how they look for them, reward selling size & cadence, etc.
Maybe. How many DeFI substack subscribers vs how many total defi users. I think this number is small enough that even revealing this strategy isn’t going to meaningfully cut into their alpha. They are stables after all. Them saying something like, if you only have 10k, dont farm stables on EMN. If you have 500k you should be playing the CRV game, etc… stuff like that. Or more advanced i.e. maybe some TA or concepts of when eth has hit 2 months of straight ATHs, you should be increasing farming stable allocation, I have no idea. We are totally biased given the returns of some currencies, but stable farming with yields between 20-60% per year would absolutely smash tradFI. The argument against it is that you aren’t being compensated enough for the “risk” from a tradFI perspective, but the further I go down the rabbit hole the less “risky” I think crypto is. The more risky I think not having exposure to crypto is. Not sure if I’m just blind by own ignorance. Everyone I know IRL thinks I’m crazy when I even mention vanilla crypto stuff (btc), but I’m probably just hanging out with the wrong people (aka people that have no interest in this stuff)
This moment in the market seems like an ideal time to buy big stacks of the majors, BTFD as they say, do you guys share this view? Also wtf is going on with Ohm? Can the devs do something about the price?
We don't recommend trying to time the market as we're in it for the long term. But I do hedge a couple of times a year and this is one of those times. Don't think we've seen sufficient panic around, too many late longs/leveraged traders so hoping to buy back in cheaper.
Looks like anyone who bought into Ohm last 2 months is break even or negative (including rewards/rebases).
Lots of pain coming for people who are used to up only and haven't learned how to dig for good opportunities which will out-perform the base layers. We might cover more about hedging and relative value on the substack next year.
Thanks for the reply. I would like to learn more about hedging so that would be a great topic. Ohms got me down a little but the way I understand the math it cant go to zero and the rebasing rewards are exponential, with enough time it should turn up, right?
Great to get feedback, we have a list of future topics to cover and we do prioritize based on reader requests. That's another tick for hedging.
We've not changed our opinion on Ohm since our recent articles. You're buying treasury assets at a premium to book value. Personally I expect this premium to reduce over time. I don't hold any Ohm because I don't have a strong view it will outperform ETH, and I was late / missed its period of outperformance earlier this year.
I recently started using the Terra ecosystem and it seems very promising. The yield farming opportunities are numerous and I'm still trying to wrap my head around all the possibilities. The 19.5% stable interest on Anchor protocol is incredible relative to the risk. Then you can take your aUST and use it as collateral to borrow more UST or other assets. All while continuing to earn interest on the initial deposit of UST in Anchor. That's just the tip of the iceberg.
I’ve turned this invaluable information into a Jeopardy Q&A.
Contestant: "I'll take early 21st Century Central Bank Delusions Exposed by Crypto for $1,000, Alex"
Answer: Nothing other than any chance of Mastodon’s kids living in non-Zimbabwe fiat environment.
Question: What does US Treasury burn to maintain its peg after printing trillions US Trash tokens to satisfy disgustingly profligate demands of special interests and craven boomer voting block?
Nice article. Clarified a few things for me. I know BTB has said a few times that to get out of stables and into btc/eth. Do you agree with BTB's skepticism?
From regulatory perspective yes - specifically w/r/t CeFi stables (which is what I believe BTB was referring to). Algostables not so much, but their model is inherently more risky
We've respect for anyone trying to innovate in this important field, but we don't have time to cover all projects. Beanstalk had to pause their smart contracts recently due to bugs, and their stable has broken peg by at least 20% last time I looked. One of their first governance proposals was to pay $300k to a VC guy to do fundraising for them. And I'm not sure that raising the interest rate (weather) is a viable way to control supply/demand for a US dollar pegged product. So not seeing a reason to be bullish on the project yet.
looked into it a little bit, seems interesting but I haven't dug deep enough yet to have an informed opinion. Iguana may have looked into it a bit more
It doesn't seem like anything out of the ordinary: just minting MIM in anticipation of UST collateral being deposited by users who want to borrow those MIM.
Great article as always man!
"Iguana uses the 100 UST to mint $100 worth of LUNA by burning 1 UST"
Believe this part should be burning 100 UST instead of 1 UST. Thanks!
Nice intro article.
Balaji has articulated an interesting related concept — "flatcoins". These wouldn't be pegged to a fiat currency, which is an inflationary asset. Flatcoins instead could track real purchasing power in a "flat" manner, as measured against weighted, dynamically calculated baskets of consumer goods prices. Broader application outside DeFi but thought-provoking in any case.
There was an open call for a development grant, not sure on status — https://1729.com/inflation
Interdasting. I tweeted about this same topic a few months back. Basically a stable + inflationary mechanic to offset loss in purchasing power. Of course, the question is what is real inflation
Think there's a typo in this sentence — "While USDT is only 1.9x bigger than USDC in terms of market cap, 24h volume for USDT is $59 billion compared to $3.4 billion for USDT."
It should read, "...compared to $3.4 billion for USDC."
Thanks we will update; working late into the night these days!
No doubt, on a tear lately. Keep it up!
Thanks! Will do.
And maybe also, "$4.4 billion" instead of "$3.4 billion"
Great poast as always.
It will be interesting to see how MIM and UST handle a bear market. IIRC UST broke its peg back in May to sub .95. Not sure how far MIM has been knocked off kilter so far.
Here's some alfa. Check the fiat/USDT pairs on Binance from that time. Yes, the wicks were real, and prices were 20-30% off market for up to 15 minutes. Due to delays with fiat withdrawals you can only turn over your capital once. EUR/USDT was particularly good, at 1.4 instead of 1.1. Likely will happen during a future crash, maybe a smaller dislocation.
Can you explain more on the fiat withdrawal delay? Do you mean withdrawing USD and then buy OTC?
GBP/USDT was quoted at 1.6 and EUR/USDT was quoted at 1.4.
Fair prices were 1.4 and 1.1 respectively.
So if you had or could get fiat, you deposit fiat and buy Tethers.
But to repeat the trade you'd have to recycle Tether back to fiat.
If you're not big enough to do redeems then that's usually to USDC via the 3pool, then wire out USD from a CEX and then convert to EUR or GBP to deposit and buy more USDT at a discount. It's this final step (legacy bank wires) which means you can't do the trade more than once.
So if you have or can borrow decent amounts of fiat at short notice then this was an opportunity to make about 25% on your capital after costs with reasonably small risk (need to be confident that Tether won't go to zero in the brief time you hold it).
Great Article.
Now can you do a paid version highlighting:
1) Do you farm stables?
2) If so, what % of portfolio?
3) Is this a permanent allocation of your portfolio or do you do this based on market conditions?
4) What are the best farming options for a given amount of $. I.e. best farming for 4 digits, 5 digits, 6 digits, 7 digits.
Thank you!
I would love to know this, but it's going to be hard for them to share what they're farming. When it's made public, a bunch of people will swarm the pools and reduce their yields. Probably what makes more sense are thoughts around farming strategies: how they look for them, reward selling size & cadence, etc.
Maybe. How many DeFI substack subscribers vs how many total defi users. I think this number is small enough that even revealing this strategy isn’t going to meaningfully cut into their alpha. They are stables after all. Them saying something like, if you only have 10k, dont farm stables on EMN. If you have 500k you should be playing the CRV game, etc… stuff like that. Or more advanced i.e. maybe some TA or concepts of when eth has hit 2 months of straight ATHs, you should be increasing farming stable allocation, I have no idea. We are totally biased given the returns of some currencies, but stable farming with yields between 20-60% per year would absolutely smash tradFI. The argument against it is that you aren’t being compensated enough for the “risk” from a tradFI perspective, but the further I go down the rabbit hole the less “risky” I think crypto is. The more risky I think not having exposure to crypto is. Not sure if I’m just blind by own ignorance. Everyone I know IRL thinks I’m crazy when I even mention vanilla crypto stuff (btc), but I’m probably just hanging out with the wrong people (aka people that have no interest in this stuff)
This moment in the market seems like an ideal time to buy big stacks of the majors, BTFD as they say, do you guys share this view? Also wtf is going on with Ohm? Can the devs do something about the price?
We don't recommend trying to time the market as we're in it for the long term. But I do hedge a couple of times a year and this is one of those times. Don't think we've seen sufficient panic around, too many late longs/leveraged traders so hoping to buy back in cheaper.
Looks like anyone who bought into Ohm last 2 months is break even or negative (including rewards/rebases).
Lots of pain coming for people who are used to up only and haven't learned how to dig for good opportunities which will out-perform the base layers. We might cover more about hedging and relative value on the substack next year.
Thanks for the reply. I would like to learn more about hedging so that would be a great topic. Ohms got me down a little but the way I understand the math it cant go to zero and the rebasing rewards are exponential, with enough time it should turn up, right?
Great to get feedback, we have a list of future topics to cover and we do prioritize based on reader requests. That's another tick for hedging.
We've not changed our opinion on Ohm since our recent articles. You're buying treasury assets at a premium to book value. Personally I expect this premium to reduce over time. I don't hold any Ohm because I don't have a strong view it will outperform ETH, and I was late / missed its period of outperformance earlier this year.
+1 for an article on hedging/risk off strategies. Appreciate all the good info!
I recently started using the Terra ecosystem and it seems very promising. The yield farming opportunities are numerous and I'm still trying to wrap my head around all the possibilities. The 19.5% stable interest on Anchor protocol is incredible relative to the risk. Then you can take your aUST and use it as collateral to borrow more UST or other assets. All while continuing to earn interest on the initial deposit of UST in Anchor. That's just the tip of the iceberg.
Anchor will need to reduce their 19.5% yield given the blowout in deposits and a lack of borrowing is putting pressure on costs.
Deposit rates need to fall and borrow rates need to rise.
I’ve turned this invaluable information into a Jeopardy Q&A.
Contestant: "I'll take early 21st Century Central Bank Delusions Exposed by Crypto for $1,000, Alex"
Answer: Nothing other than any chance of Mastodon’s kids living in non-Zimbabwe fiat environment.
Question: What does US Treasury burn to maintain its peg after printing trillions US Trash tokens to satisfy disgustingly profligate demands of special interests and craven boomer voting block?
I've struggled with stablecoins (but of course, I use them). So many have failed.
How do you guys feel about AMPL long-term?
Interesting approach with supply. Not really a stablecoin, so maybe off-topic, but intriguing use cases.
Nice article. Clarified a few things for me. I know BTB has said a few times that to get out of stables and into btc/eth. Do you agree with BTB's skepticism?
From regulatory perspective yes - specifically w/r/t CeFi stables (which is what I believe BTB was referring to). Algostables not so much, but their model is inherently more risky
Based on the last section I assume you aren’t fans of Beanstalk?
We've respect for anyone trying to innovate in this important field, but we don't have time to cover all projects. Beanstalk had to pause their smart contracts recently due to bugs, and their stable has broken peg by at least 20% last time I looked. One of their first governance proposals was to pay $300k to a VC guy to do fundraising for them. And I'm not sure that raising the interest rate (weather) is a viable way to control supply/demand for a US dollar pegged product. So not seeing a reason to be bullish on the project yet.
looked into it a little bit, seems interesting but I haven't dug deep enough yet to have an informed opinion. Iguana may have looked into it a bit more
0xMerlin from Abracadabra recently did a big buyback of SPELL with MIM
https://twitter.com/0xM3rlin/status/1469366036801769474
From the address, it looks like 100 million worth of MIM was printed out of thin air without any collateral backing.
https://etherscan.io/token/0x99d8a9c45b2eca8864373a26d1459e3dff1e17f3?a=0xfddfE525054efaAD204600d00CA86ADb1Cc2ea8a
No collateral deposited:
https://zapper.fi/account/0xfddfe525054efaad204600d00ca86adb1cc2ea8a
Would it be possible for BowTiedIguana to look into this. Is this a smart contract exploit by the team?
If you're referring to this transaction that minted 100 million MIM:
https://etherscan.io/tx/0xb516e030e60023a05111a1548e21478c672a863556d6154d3579d58153d7bcc7
Then it looks like they were just minting MIM to make it available for borrowing with their UST cauldron, which they announced here:
https://twitter.com/MIM_Replenishes/status/1463541989778022411?s=20
It doesn't seem like anything out of the ordinary: just minting MIM in anticipation of UST collateral being deposited by users who want to borrow those MIM.