Welcome ser,
In this article I introduce the ultimate stablecoin farm on Terra and what is probably one of the best in DeFi.
Earn 70% APY with no risk of Impermanent Loss using an auto-compounder with an immaculate track record.
But before anything, we need to go through a brief history of stablecoin farming…
Stablecoin Farming
Crypto is rewarding but most coins are extremely volatile compared to assets in TradFi. So when stablecoins pegged to the US Dollar became available in DeFi, ‘farming’ them (earning interest on them) became the only way to make a stable income in crypto. Farming stablecoins is generally done through lending and borrowing, or through Liquidity Pools.
Farming UST on Anchor Earn
When Anchor Protocol came out on Terra in early 2021, earning a constant ~20% APR (interest rate) on stablecoins was revolutionary. The largest centralized 'Borrow & Lend' platforms like Celsius and Nexo offered less than half of that, while Liquidity Pools in decentralized platforms had (and still do) extremely variable APRs.
Also, centralized stablecoins like USDC and USDT are gradually becoming the target of government regulations (and rightly so). Being a decentralized stablecoin, UST has steadily grown as the main alternative. Earning a stable interest on UST on Anchor is not only low-risk, but also a hedge to farming solely USDC and USDT.
Supercharged $UST Farming: Abracadabra's $UST Degenbox
In November 2021, ‘looping’ on Abracadabra became all the rage and in collaboration with TFL, the UST Degenbox was launched in which aUST (UST deposits on Anchor) and MIM would be borrowed using one another as collateral, pumping the farming APR to up to 80% relatively risk-free, but not without certain inconveniences. Astronomical gas fees on ETH, a limited amount of MIM (Magic Internet Money) and of course the added risks of having extra layers of cross-chain smart contracts means this strategy is only for active Degens (another word for active DeFi users) with at least a couple of thousand UST.
Supercharged $UST Farming on Terra: Auto-compounding bPsi
Flying under the radar of the burgeoning Terra Ecosystem lies the humble auto-compounder Spectrum Protocol whose team of three Thai devs are becoming well-known for swiftly and elegantly seizing new auto-compounding opportunities without any hiccups.
And their latest move may be one of their smoothest yet, by presenting a game-changer ~70% APY on single-sided stablecoin farming through auto-compounding the bPsi token (Note: %APR and %APY are not the same: %APY is only realized after a year through compounding the %APR).
But what the hell is bPsi and how is this possible...???
The Achilles heel of Nexus Protocol: Too much $Psi
In October 2021, the much-hyped Nexus Protocol was released, and its $Psi token did a 46x before dumping back to a 5x by Christmas. The platform is fantastic and still has huge potential IMHO, but the Defi 1.0 tokenomics was all over the place with aggressive LP incentives, and a large pre-sale unlock in December which was bound to cause huge dumps (in hindsight, these things are hard to foresee). To fix this, the Nexus team are going Defi 2.0 by reducing inflation while taking ownership of their own liquidity, and oh boy are these guys clever...
The Achilles heal of Pylon Protocol: Illiquid Pools
Pylon Protocol lets investors make loss-less investments in Terra projects by locking UST deposits into project-specific pools for 6, 12 or 18/24 months. The deposit is put to work on Anchor Earn and the ~20% APR is re-directed into buying the project’s token, which becomes redeemable halfway through the agreed period, while the capital UST investment is redeemable at the end of the period. Not a shabby idea at all, but the problem is that these legacy pools are illiquid and therefore too inefficient for DeFi.
The Nexus-Pylon Partnership
The two ailing Terra Protocols decided to work together to bring in a solution: a Liquid Nexus Pylon Pool, where investors can make lossless UST investments to farm (earn) $Psi without the time commitments, while Nexus can bag some of this yield for their treasury and to fix their tokenomics.
The birth of bPsiDP-24m
When an investor deposits UST in this Liquid Pylon Pool, it receives a token that is equivalent to their UST investment. Holding this oddly named bPsiDP-24m token (bPsi for short) lets the investor claim $Psi rewards on Pylon's website. These are paid regularly (per block) for as long as the token is held.
If the investor wants to sell to use their UST elsewhere, they can trade their bPsi token back to UST on Terraswap through two trades: bPsi --> Psi; Psi --> UST. However, doing so means the investor can no longer claim $Psi rewards.
This pool will be active for 24 months, during which half of the 20% yield will be taken by Nexus' treasury so that they can buy back their own liquidity while reducing $Psi inflation which currently incentivizes the Psi - UST LP (note: 80% of $Psi inflation is currently used to incentivize LPs).
Why is bPsi the perfect crop?
But the value of bPsi as the ultimate stablecoin farm on Terra is not evident until auto-compounding is added to the equation, and here are a few reasons why:
- bPsi earns compoundable rewards regularly.
- bPsi remains roughly 1:1 with UST as it is ultimately a UST deposit with benefits, with the $Psi yield separate from the $UST deposit.
- Nexus makes sure that Psi Liquidity Pools required to trade from bPsi to UST have the adequate volume for low slippage swapping (and thus, auto-compounding).
In comes The ‘Spectrum bPsi Degenbox'
A mere two weeks after launch of the Pylon Pool was all it took for the Spectrum Protocol team to release their bPsi single-asset farm (or to use Danku-esque language: the ‘Spectrum bPsi Degenbox’) which yields an APR of about 50% and an %APY of 70% on UST.
This is almost 3x of Anchor's yield and roughly the same as Abracadabra's UST Degenbox, but without the hype and without having to leave the Terra Ecosystem, and all thanks to Spectrum's agile response to automate this farm.
Automation makes the difference
This strategy is perfectly doable manually through Pylon and Terraswap, but that would require the creativity to put the strategy together and the commitment to manually auto-compound.
Spectrum's automation gives the smaller-brain LUNAtics without much time like myself to access these opportunities, and it even lets you pay directly with UST on their platform. And since bPsi currently trades at a slight premium to UST (since its UST that dishes out rewards, or UST with a higher NPV for those technical people), it is actually cheaper to buy it directly in Spectrum (n.b. make sure to check the rates at the time of exchange though!!).
And of course, depositors earn a small but welcome added bonus of 0.5% in $SPEC token for taking part in the farm.
Auto-compounding the Terra Ecosystem
Not only is there added value to investors, but the farm synergizes with the rest of the Terra Ecosystem.
It helps Nexus Protocol deliver on their roadmap by incentivizing the Nexus Pylon Pool, while the predictable and on-going auto-compounding of bPsi has a stabilizing effect on the liquidity pair, allowing for low-slippage trading in and out of the Pylon Pool position, making it even more attractive for investors.
There is nothing better than watching synergies in action, and it is ideas like this that have helped the Terra Ecosystem age just like fine wine (And if you genuinely like good wines, I’d suggest you check out Minerva).
Drawbacks and Risks
Even when considered a low-risk strategy (my humble opinion), higher rewards come at a higher risk, and this farm is no exception. Here are a few reasons why:
- Variable Performance: The %APR of the farm depends on the price of $Psi. If the price halves, %APR halves, and %APY drops even more. On the bright side, interest rates cannot really go below that of Anchor and I don’t personally see $Psi dumping any lower than present as Nexus are still in beta, unless a black-swan arrives.
- Smart Contract Risks: Auto-compounders always come with added smart contract vulnerability risks. The recent hack of Grim Auto-compounder on Fantom saw users lose all of their assets. On the bright side, Spectrum Protocol has never been hacked and has previously been audited by Halborn, with a second audit in the pipeline.
- Keeping the UST peg: Gainz on this farm also depend on how close the market can keep the bPsi to UST peg. If it significantly loses its 1:1 peg, getting out of the farm could come at a cost, so the timing might also be crucial. On the bright side, after the 24 month period, bPsi can be claimed back to UST on a 1:1 through the Pylon website (I won't deny that 24 months in crypto is like 24 years in real life).
Sounds Great, but how do I get in???
1) Depositing $UST directly on Spectrum:
- Go to Spectrum's website and connect your Terra Wallet. Go to the bPsiDP-24m Single Asset Farm.
- Deposit $UST and chose from Auto-Compounding or Auto-Staking (or a Mix of both). For this particular stablecoin farming strategy, we will 'Auto Compound'.
- Before depositing, make sure that you are getting a fair amount of bPsi for your $UST. Depending on market conditions, sometimes you can get slightly more bPsi than the deposited $UST, unlike the case in the image below (You can always compare how much you are getting compared to depositing directly in Pylon as per option 2 below).
- It is good practice to keep note of your TVL upon investment, so that you can calculate your gains when you get out.
- Note that there is a 0.1% Spectrum deposit fee for both options 1 and 2. There are no withdrawal fees.
2) Deposit $UST directly into the Nexus Pylon Pool:
- Go to the Nexus Pylon Pool and connect your Terra Wallet.
- Deposit $UST. Note that a $UST 1.5 fee is charged by Pylon, so if you are putting small amounts it might be worth going for option 1, unless the market value of bPsi is not good (see option 1).
- Go to your Terra Wallet extension of desktop application and add the bPsiDP-24m token so you can see it (for peace of mind!)
- Go to Spectrum's website, connect your Terra Wallet extension and go to the bPsiDP-24m Farm.
- Deposit your bPsiDP-24m tokens. Note Spectrum Fee. Good to note TVL upon investment, to calculate gains.
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Also, for an excellent summary on Podcast form, I suggest you check out this short 20 minute Terra Spaces recording, also available on Spotify, as well as the medium articles from Nexus and Pylon below.
Disclaimer:
None of this content is or should be considered financial or investment advice. I am no financial advisor; I am merely a content writer using freely available information to produce the best OC I can come up with for informative and entertainment purposes.
Reference for text and images below.
