Investors are making insane returns
lending out their crypto.
So I decided to invest $100,000 of my own money into
this strategy so you can see if this is actually real.
Is it possible to make more than
$50 a day doing essentially nothing?
Now let's see if I can break the
world record for fastest account set up.
So I need to create a Terra Station wallet and
make sure to keep your seed phrase somewhere safe.
Don't be like that guy in TikTok who had
a seed phrase blasted all over the Internet.
Head over to Kucoin under Spot Trade.
I'll have everything you need linked
down in the description as well.
And if you use those links, you'll
save some money on trading fees.
I'm swapping USDT for UST. Click Buy.
Now copy your wallet address from Terra
Station and paste that into Kucoin.
Choose the Luna Network.
Make sure you type in a memo.
It doesn't matter what your memo is,
they just require some kind of memo.
Send a test transaction if you want to.
I like to because I'm a
little bit neurotic about these things.
Now I need to send over my remaining funds.
Oh, there's a withdrawal a limit.
Do they not realize I'm going
for a world record speed run? You don't understand.
I'm an athlete trying to beat
a speedrun world record here.
- I'm sorry, Sir, I'm going to have to hang up.
They'll call back.
Sending over some more money.
See you tomorrow to finish it off.
Finally, I can transfer the rest.
All right, now that we have our fully
funded wallet, we can head over to anchorprotocol.com.
We need to first connect our wallet, click Earn.
Click deposit.
Make sure our pop up blocker is off.
Click deposit again, choose the amount and proceed.
Sign the transaction and we are good to go.
We're on our way to earning
that juicy passive income.
Also, by the way, if you don't have money in a
Kucoin account, what you can do is buy Bitcoin on
Coinbase, send that to Kucoin, swap your Bitcoin for UST
and then send that to Terra Station connected to
Anchor Protocol and start earning that juicy passive income.
I'll report back to show how much I actually earn here,
but first 20% APY sounds like a recipe for disaster.
So we need to discuss if this is safe and
if these rates are actually sustainable for the long term.
Because Anchor Protocol is without a doubt the
most important app in the Terra ecosystem with
more than $5 billion in current deposits.
If Anchor were to collapse and lose investor money,
this would be the largest failure in crypto history.
In order to understand whether this is actually sustainable
though, we need to start with the basics.
At $5 billion in deposits with a return
of 20% annually, Anchor needs to pay out
about $1 billion per year, assuming no growth.
So this helps us tweak the question a little bit.
Can they afford to pay out $1 billion a year?
And if so, for how long can they keep this up?
In order to determine this, we need to look
at Anchor protocol and how it earns money.
This is done primarily through two ways.
The first is Borrow APR.
This is people who are borrowing money from Anchor protocol
and paying Anchor an interest rate to do so.
This is no different than how a
bank makes money on a loan.
We can see that as of right now, investors
are borrowing $1.2 billion from anchor protocol and paying
just shy of 12% interest to do so.
This means Anchor is earning around
$140,000,000 per year in borrow interest.
But there's a second component because in
order to borrow money from the Anchor
protocol, investors must put up collateral.
And this is because there's no credit scores in crypto.
You must always deposit money in
order to then get a loan.
In this way, Anchor can be sure that
you actually pay your loan back, because if
you don't, that collateral is theirs for keeps.
Right now, investors have $2.8 billion
in Luna and $365,000,000 in Ethereum
deposit as collateral on the platform.
And what's great about this for
anchor is just like a bank.
They can use that deposited Luna and Ethereum
to earn them additional money on the money.
They could lend it out themselves or take a safer
route and stake the assets in order to be paid.
Staking rewards.
I found they're actually listed on
a staking services website called Lido.
So we're going to assume that they're
staking their collateral for that extra income.
But how much does that actually make them?
Well, currently, Luna pays about 7.39%
and ethereum 4.87%.
And now that we know what they're spending
and how they make money, we can determine
how sustainable that 20% interest really is.
So let's build a chart.
We know on current deposits, Anchor will need to
pay out just shy of $1 billion annually.
In terms of making money, Anchor is
profiting about $140,000,000 from interest paid to
them as borrowing fees from investors.
Then they're making $206,000,000 annually from Luna
staking and $17 million from Ethereum staking.
Then we deduct the expenses from the revenue,
and we're left with negative $620,000,000 per year.
Now, of course, this means Anchor
clearly can't pay 20% APY forever.
Major changes would be needed for them to
just break even, much less turn a profit.
So does this mean it's doomsday?
Not quite.
We need to realize that there's a
lot of variables at play here.
First, crypto has been hit hard recently.
That means there's far more people lending out UST
for passive income in order to play it safe
and kind of ride out this storm.
When cryptos are acting a little bit sketchy,
we'll always see a shift to stablecoins.
I mean, that's exactly what I'm doing in this video.
The problem is the more people lending UST
on Anchor, the more Anchor has to spend,
and we can see that their proportion of
lenders versus borrowers isn't looking great.
Spending is going up and revenues are going down.
Now if we see the market turn
bullish again, things will look totally different.
UST will be pulled out as investors by
altcoins lowering Anchor's expense borrowing will become more
popular, increasing the amount that Anchor earns both
on interest and staking rewards.
And the crypto collateral on loans will increase in
value, meaning the staking rewards generated earn Anchor
even more money on the exact same assets.
Now this might make you wonder,
why is the world so cruel?
Why does it have to be that at
the times when we need stablecoin lending
the most, it's also the most unsustainable.
And to that I don't have an answer.
You're going to have to ask
your spirit leader about that one.
But what I do know is that at current rates, Anchor would
have to lower their APR to 7.2% just to break even.
Now, of course, 7.2% isn't bad by any means.
However, that isn't very competitive when you can get
rates of 12% plus on safer, centralized exchanges.
However, I hate to break it to you
that those rates likely aren't sustainable either.
Now this leads us to the next logical question.
Just how long can they stay in the negative?
Is it even worth depositing money if
rates are going to drop next month?
Well, let me introduce you to the Yield Reserve.
This is where Anchor's money is actually coming from.
The Holy Grail, the promised land of 20% APY.
The thing is, their Yield reserve is in place for
markets like the one we're in, people are fearful and
they're moving to stablecoins and borrowing less.
And fun fact, the Yield Reserve
can afford this until they can't.
If we look at the current Yield Reserve chart, we
can see cash is depleting at an extreme pace.
There's about $35 million left as of this recording,
at a burn rate of $1.7 million a day
or about 340 German Innovation awards daily.
We have about 20 days before money completely runs out.
This is not good, but there are options.
And by the time you're seeing this, there's
a chance that at least one of the
following solutions have already been made.
First, more assets are being added to
use as collateral on the platform.
Very soon we'll see Anchor at Solana and Atom.
This matters because it will drive the amount
of money Anchor can make through staked assets.
Second, Do Kwon, the founder of Terra, has indicated
that there may be a cash infusion into the
yield reserve by as much as $300 million.
This would give Anchor Protocol another
six months of cash to burn.
Update: they did it.
They added more funds.
And then there's a few smaller options like
banning Degenbox investing, which allows investors to
earn even more than 20% APY on Anchor.
Now, the issue is none of
these things makes Anchor self sustainable.
It's more like placing a band aid
on a 100 million dollar wound.
What happens if Anchor protocol gets down to
the wire has no more assets to add.
The $35 million in reserves completely runs dry, and
they still need to spend $600 million a year.
Nothing happens.
Rates will just decrease to market rates, likely
around that 7% that we discussed earlier.
The concern isn't so much that they run
out of money because as an investor, I
won't lose money in this situation.
My initial deposit won't disappear.
I'll just earn less on that deposit.
What's more of a D day situation is whether Anchor protocol
and UST are safe to use in the first place.
First, we can see Anchor has been
audited, which is a great side.
I would never deposit a big chunk
of money into an unaudited protocol.
There's just too many risks.
However, this doesn't mean there
aren't skeptics, which is good.
I'm glad there are skeptics.
And it's also important to note that Immunefi is offering
$50,000 to developers who may find bugs on Anchor.
And then the founder of Terra took this to the
next level, tweeting that he would personally pay an additional
$1 million if a critical bug is found.
So it appears that Anchor is
likely safe to use software wise.
But we also need to consider the
potential risks with the UST stablecoin.
See UST is an algorithmic stablecoin.
This is just a fancy way of saying that
the price is stabilized through code in a smart
contract instead of US dollars in a bank account.
This sounds crazy, but imagine Jerome Powell
at the Fed, except if he were
a superintelligent AI robot.
- your move creep.
But even robots get it wrong sometimes,
because while the invention of algorithmic stablecoins
are fascinating, many question their stability long
term for good reason.
In May of 2021, during a brief market crash, UST dropped
below the $1 peg all the way down to $0.84. Now.
Luckily, UST's mechanics worked
properly and the price recovered.
But this didn't mean that there was zero damage done.
I remember reading a Twitter thread about a guy who
panic sold his UST when it dipped, losing $1,400
and there was surely forced liquidation at this time for
people who had high leverage loans backed by UST.
And unfortunately, this isn't worst case scenario.
A while back, Mark Cuban, of all people, was doing some
yield farming when he got a tad greedy and he ended
up investing in this pool containing the stablecoin Dai and another
token called Titan for the ripe APY of 206%.
All was well at first.
In fact, he even made a blog post
titled The Brilliance of Yield Farming, where he
explains the exciting returns that he was getting.
This was until the price of
the Titan token started to slip.
Investors got nervous and a quick sell
off occurred, tanking that crypto's price.
Now, this in itself isn't very uncommon in crypto.
A small token collapsing in price.
What was unique was Titan was the underlying
asset for a stablecoin called Iron.
When Titan collapsed, so did
the stablecoin attached to it.
This created a kind of crypto bank run.
Titan's token price ended up going from
around $60 to less than one Penny.
And Mark Cuban lost his entire investment.
So we know it's possible for an algorithmic
stablecoin to fall off its peg.
But could this actually happen to UST?
Well, we can't say it's impossible.
It's very unlikely at this point because multiple
billions of dollars would need to flow out
of UST instantly for issues of this magnitude.
And in fact, if the worst case were
to happen and UST collapsed, a recent update
in the Terra ecosystem includes an insurance policy
that actually protects users against this exact scenario.
So you can take all this into consideration
when deciding if UST lending is for you.
Now, the real question is how is my investment doing?
It has been a month of
lending UST on the Anchor protocol.
And did it live up to its promise of nearly 20% APY?
It did. Taking a look,
we can see I've earned just over $1,600
doing absolutely nothing but basically just sipping my coffee
and watching my account balance grow like I was
some kind of evil genius watching his plan unfold.
Except all I really did was
just click the deposit button.
So Anchor is dealing with some growing pains.
Current market conditions are causing them
to burn money like never before.
$1.7 million a day, to be exact.
However, they do have some band aid solutions that
will help temporarily as they become more self sustainable.
If they can't reach sustainability, the
result will be lower interest rates,
maybe around 10% or slightly less.
But until then, based on my tests, the nearly
20% APY is very real for those willing to
take the steps to actually deposit the money.
This, of course, isn't risk free and you
should always do your own research as well.
From here, I would highly
recommend joining my Patreon community.
If you were there a month ago, you
would have already known about my UST lending
strategy and you would already be up potentially
hundreds of dollars in interest there.
You'll also find free daily coaching,
a private community and a whole lot more.
So grab your spot as soon as possible and check
why we have more than 12,000 satisfied members. From here,
I would recommend checking out this video on screen covering
some degenerate investments that I recently made and I would
just like to thank you so much for watching and
I hope you have a profitable day!