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Different Avenues of Stablecoin Yield Farming

Exclusive Research

  • Smart utilisation of leverage on stablecoin yield farms amplifies returns without adding too much risk.
  • It's essential to preserve "dry powder" for unforeseen investments, so why not let those unallocated funds grow in the meantime?
  • Allocation of capital to stablecoins carries a high opportunity cost, especially within a bullish environment, but it is pertinent to have a plan of action for when the market cools down.
  • Stablecoin yield farming is generally regarded as a safer play for those with mild risk tolerances, but the application of leverage and associated profits can change the market’s perspective.

Investment Idea

A savvy investor always designates a portion of their capital to be set aside until the opportune conditions occur for an investment thesis, whether that be a correction to scoop up the cryptocurrency at a discount, or a catalyst. Money should always be working for you, and with that logic, there is no reason that monies, not already directed to a particular investment, should not be doing the same.


The most recognised companies offering yield on stablecoins include the likes of Nexo (12%APR), Celsius (8.8% APY), Gemini (8.05% APY) and BlockFi (8.25% APR). With these interest rates in mind, we can view them as control samples and aim to achieve a more handsome reward. To be clear, the intent is to limit risk as much as possible, so speculative investments requiring a cryptocurrency to appreciate in value will not be considered. Examples of this include investments within other cryptocurrencies that yield stablecoins, i.e Stake CAKE-Earn TUSD, or the opposite scenario, i.e. Stake USDC-Earn RGT because this is not delta-neutral.


The gold standard for stablecoin yield farming in the DeFi space lies within the Terra ecosystem. The Anchor protocol allows one to earn 19.5% APY in TerraUSD(UST), on UST deposits. In addition, UST is the 5th largest stablecoin with a market cap of approximately ~$2.7bn. The gargantuan market cap instills comfort because mass adoption ensures liquidity if an instance occurs in which a swift exit is demanded.

The advent of DeFi 2.0 protocols aid our quest in search of additional yield. In most scenarios, the buck stops with the deposit of UST into Anchor because the interest-bearing tokens, aUST are unable to be used elsewhere. Although not yet materialised, it is the aim of the Abracadabra team (creators of SPELL and TIME) to accept these aUST tokens within their native lending/borrowing platform as collateral for borrowing more of their stablecoin, Magic Internet Money (MIM). Once live on the Abracadabra platform, one is able to achieve leverage on UST yield farming via the following recursive loop: Deposit UST in Anchor and receive aUST in return, Deposit aUST into the Abracadabra platform and borrow MIM, Swap MIM for UST, and repeat. What was once a 19.5% APY can be substantially magnified, depending on the limits of the Loan-to-Value (LTV) within Abracadabra.


While the yields from the aforementioned, recognised companies are most definitely attractive in comparison to those currently offered by banks, one must really dig into the details to understand if depositing funds into these platforms are worth it. Although these companies provide benefits such as customer support and other conveniences usually associated with the traditional finance space, the existence of their ancestors are what contributed to the spawn of cryptocurrency and DeFi. The major hazard here is custodian risk, as a singular entity claims ownership of your funds. Moreover, there are usually lock-up periods that don’t allow one to withdraw funds for a set portion of time. While the stated returns have generally been stable, they are indeed variable, and can decline at a moment’s notice. A lock-up period makes the transfer of monies to another platform that offers better returns, impossible.

While the DeFi universe is susceptible to custodian risk too, it also encompasses smart contract risk. Unfortunately, this is amplified as additional protocols are used to gain leverage on your principal. Moreover, in the UST/aUST/MIM example above, the cross-chain transfers from Abracadabra on the ETH network back to the Terra network and vice-versa will chip away at net profitability. The assumption is that Abracadabra will launch on the Terra network to neutralize this risk. Lastly, depending on the leverage multiplier one applies, liquidation risk increases during volatile circumstances when stablecoins un-peg from $1 USD.

Luckily, low-cost insurance (~3% of principal covered) is available to completely negate these risks. For example, coverage protects against, “a loss in value of the UST as it moves off-peg, trading below $0.88 based on a 10-day Time Weighted Average Price (TWAP) calculated using market data extracted from Coingecko.”

Don’t be afraid to dip your toes in the water and capitalise upon leveraged stablecoin yield farming. The advent of insurance drastically reduces risk and should make you feel more confident about stepping outside of your comfort zone. Always do your own research and due diligence before making any investment decisions.

Nothing in this article constitutes professional and/or financial advice. The content is provided exclusively for informational and/or educational purposes. Nothing is to be construed as an offer or a recommendation to buy or sell any type of asset. Seek independent professional advice in regards to financial, tax, legal and other matters.

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