The 10 best places to gain passive income from stablecoins
Stablecoins have grown in popularity within the crypto space over the past year or so. Stablecoins are digital currencies with a stable price. Their value is tied to other assets that are more or less stable. Usually, this more stable asset is traditional currency, a commodity or another digital coin. Stablecoins have become a choice for many investors when looking to spread their risk. In this article, I will show you the 10 best places that you can gain passive income from stablecoins with APY ranging from: -10% to 160%. I'll look at both decentralized and centralized exchanges.
Earlier on I’ve heard about people receiving 10-12% APY on stablecoins. In my mind that sounded awesome. If you’re a hardcore crypto-dude reading this, remember many people who have only been exposed to traditional finance stock 10% per year is typically what’s expected long-term.
1. Anchor Protocol
As I started to dig deeper into stablecoins I found Anchor Protocol which is a part of the Terra Ecosystem (the biggest coin per market cap is LUNA). Anchor Protocol is a protocol that promises a stable savings rate between 19-20% per year on their own stablecoin UST.
The ironic thing is that inside the crypto community no one thinks 19,5% APY is great. The best traders earns this monthly on a regular basis for years, so why would they accept 19,5% for a full year?
19.5% APY on $UST --> read my guide here: https://twitter.com/Route2FI/status/1442835869879181312?s=20…
How can Anchor Protocol offer 19,5%?
My bank only offers me 0,02% per year on a savings account. Remember that banks don’t want what’s best for you. They want what’s best for the banks. When someone deposits a large amount of money into a traditional bank they will use your money to buy assets on which they earn higher APY.
Although 20% APY appears too good to be true, it is real. Anchor protocol can generate at least 20-24% staking revenue on deposits. After reading about the positive experiences many people have had with Anchor Protocol I have serious trouble defending my reasoning as to why anyone would continue investing in the stock market!
I mean, why would someone take on risk in the stock market when they could have “no risk” in a stablecoin in crypto? But I have to be honest, there are some risks that you need to be aware of, so let’s dig into them:
Smart contract risk:
When you deposit money into Anchor Protocol, you’re putting your money in a smart contract. Smart contracts may be vulnerable to cyber-attack and technology failures. It’s therefore very important to check if the contract is audited. Anchor is audited so it is as secure as one can expect in this space.
Anchor is a protocol backed by Terra Luna. But the question you might be asking right now is what if the people behind Anchor Protocol one day just withdraw the money from Anchor and deletes all evidence?
I’m not expecting this to happen, but there are frauds in DeFi, so keep it in the back of your mind.
UST is an alghorithmic stablecoin. $1 UST represents $1 in fiat money. But what if UST loses its peg? Let’s say we enter a bear market and the top coin LUNA drops 50% in value. How does the Terra ecosystem avoid that UST losing its peg?
If UST trades below $1 market makers would quickly trade any coin for UST for a quick profit. This actually happened this year on May 19th when UST dropped to $0,85 (see the picture below).
So why did UST drop from $1 to $0,85? May 19th was an extremely bearish day in the market. People who got afraid sold both normal coins and stablecoins to USD or Euro, many of them to never return to crypto ever again.
UST hovered between $0,96 and $0,99 from May 20 to May 24, before climbing back to $1 on 25th of May. Comparatively, the USDC stablecoin fluctuated between $0.99 and $1 in that same time period.
But what if it’s different next time?
“Normal” stablecoins are partly backed by the US dollar while UST is algorithmically controlled. $UST’s drop was in part driven by a sell-off in Terra’s native cryptocurrency Luna, which plunged by as much as 80% to $4.18.
UST relies on Luna for its stability. The Terra protocol acts as a market maker, making sure that when the supply of UST goes up, the Luna supply goes down, and vice versa. The system is designed to handle $20 million of redemptions with a 2% spread.
But the sharp price declines in Luna, compounded by large amounts of liquidations on Terra’s lending protocol Anchor, drove redemptions from Luna to UST to exceed $80 million, forcing UST to trade at a discount.
This could happen again, but I am aware that the Terra team has improved the peg algorithm stability since the May crash to prepare for new bear markets. In the September crash UST was in fact the most stable coin of them all.
And to just end this, you can actually buy insurance for both smart contract risk and peg risk on Anchor Protocol (see picture below). As of what I’ve heard, this would cost you 2,5% APY per year, reducing your yield from 19,5% to an acceptable 17%.
How can you buy UST?
There are several ways:
Directly on Anchor Protocol via Transak
Directly on the exchanges Kucoin, Coinbase, Uniswap or Terraswap
By buying LUNA on most exchanges –> sending it to a Terra Wallet –> converting LUNA to UST
Overall, I think Anchor Protocol is very good. I’ve tried to be as neutral as possible in listing the risks. However, there is no secret that the Terra Ecosystem is extremely robust, however as with any investment DYOR before you decide to ape in with all your money!
On 30th September the Terra Ecosystem upgraded from Colombus 4 to Colombus 5 and there are around 50 new dApps. The one dApp called Mars Protocol looks really promising. Rumours are suggesting that you will be paid to borrow UST by using your current UST as collateral.
Let’s assume someone has $100K in Anchor Protocol earning 19,5% APY. They could then use this $100K as collateral and borrow an additional $50K. Then they could deposit this $50K as well, meaning they would now have increased their 19,5% interest rate by 50% to approx. 30% APY. That’s effectively yield upon yield!
If you want to maximise your returns even further they could increase it to between 40-60% APY by using Mirror Protocol.
Mirror is a DeFi protocol that enables the creation of synthetic assets called Mirrored Assets (mAssets). mAssets mimic the price behavior of real-world assets. For example: mAMZN, mTSLA, mARKK.
To just give you an example of mTSLA:
You can get 36% APY for just holding mTSLA in Mirror Protocol plus the real-life price appreciation. Imagine if you bought mTSLA when the price was approximately $550 in May (it's around $960 now). That's nearly an increase of 60% increase, in addition to the base rate of 36% APY!
But why would you own real stocks if you can own mirrored stocks and get paid big time for it? Because what is possible is to have a safe strategy that gives you great APY whether the mAsset goes up or down in price.
So how can you make sure you always win?
This is relatively easy; its possible to go both long and short with equal amounts of money. This wouldn't work at your stock broker, but let's look at the screenshot below.
If for example you wanted to go both long and short on Facebook, you would just need to buy equal amounts of FB-shares and get a guaranteed return of 30.5% (23% long / 38% short). In fact, your return will increase to 41% in total and not 30.5% and I'll explain why shortly.
Let's summarize this with an example of buying synthetic Twitter:
1. An investor has 100,000 UST
2. $50,000 UST goes into Anchor (44,444 aUST)
3. 44,444 aUST goes to shorting mTWTR
4. An equal amount of mTWTR is bought (approx. 25,000 UST)
5. The investor pairs their long mTWTR with approx. 25,000 UST
Let's look at the possibilities for passive income from this scenario:
The initial $50K in Anchor earns the investor 41% since they short mTWTR with this $50K through 44,444 aUST.
The next $50K UST will earn 27%. This means that they will earn (41% + 27% / 2) = 34% APY.
After 2 weeks they get back their short sell of $26,236 UST, which means that they've spent approximately $75K on this strategy (100K - 26K). gh the rates offered fluctuate as a result of the market conditions if you are prepared to do a little research I am sure that you will find a protocol that you feel comfortable with and will offer a significantly higher return on your money than if it were left sat in a bank account and this is especially poignant in an high inflationary environment. .
2. Orion Money
On Orion you can deposit the following stablecoins: USDT,USDC,DAI,BUSD,UST and receive between 13.5% - 20% APY.
The APY will be higher if you choose to hold and get paid in the ORION token.
If you want to get paid in your native token and hold no ORION the APY is always 13,5%
3. Kash DeFi
Kash is a DeFi product that makes it easier for people to save, invest and spend with decentralized cash.
You get 18% APY on your UST deposit. They also have a VISA card, and in some countries they let you insure up to $100,000.
4. Celsius Network
If you prefer centralized exchanges, Celsius offers 8.88% - 11.21% APY (depending on if you want to be paid in your native token or in the CEL token). They have almost every stablecoin that exists.
Celsius has also very good rates on borrowing.
5. Venus Protocol
Venus is a decentralized marketplace for lenders and borrowers built on the Binance Smart Chain.
You can get 9-12% APY on USDT, USDC and BUSD.
Their borrowing rates are really low too!
6. Yield Yak
Yield Yak uses leveraged farming. This is considered a low-risk leverage strategy because both lending and borrowing use the same asset.
31% APY on USDT.e, 29% APY on $DAI.e, 24% APY on $USDC.e
This is a really easy to use this platform that operates on the Avalanche network (AVAX).
Kava is a DeFi platform focused on making finance openly accessible to anyone, anywhere in the world.
You can lend out your BUSD for 22% APY and get an additional 36% APY paid out in HARD (which is Kava's Lend token).
Tokemak allows you to deposit single assets like USDC and let them do the yield farming for you without worrying about impermanent loss.
Earnings are paid out in the TOKE token so that the underlying assets can continue to be put to work. 26% APR --> 29.5% APY is possible.
Saber is a leading cross-chain stablecoin and wrapped assets exchange on Solana. One example I found is 28% APY on staking wUST-$USDC. However, they have lots of different stablecoin-pairs. An overall great platform!
Orca is a DEX that operates with nearly zero fees that is on the Solana network.
Its possible to provide liquidity to a trading pool and get 18% APY on USDC/$USDT as an example.
There are lots of pools here, and I am sure you'll find something you like.
A growing yield generating ecosystem
There are tons of other places where you can gain yield on stablecoins in an ever growing DeFi ecosystem, although I've mentioned the ones I like the most in this article.
You may have noticed that I haven't mentioned Ethereum platforms. I like Ethereum, but the gas prices now are simply too high for the average person to realistically operate in that space and achieve any reasonable returns.
Although the rates offered fluctuate as a result of the market conditions if you are prepared to do a little research I am sure that you will find a protocol that you feel comfortable with and will offer significantly higher return on your money than if it were left sat in a bank account and this is especially poignant in an environment of such incredibly high inflation.