The Tie Research

Holiday Stablecoin Farming: From 20-100+% APY

By Jack Melnick
April 18, 2023

With the holidays coming up, many of us will have a bit of extra cash on hand. At the same time, with markets de-risking and Bitcoin not looking ready to lead an immediate move higher, the ability to find yield in low risk assets is at an all time premium. Thankfully, we here at the TIE want to spread holiday cheer for all in web3. 

Two premier DeFi protocols, Anchor Protocol and Abracadabra.Money, offer investors tantalizing returns in exchange for their UST (leverage optional). Through their strategies, or a combination, investors can return 100+% APY on UST borrowed against existing collateral. We’ll run through the premier tactics investors in the space are using, starting with the least risky and seeing how far you can take it. 

Anchor Protocol & UST:

Anchor Protocol is the poster child of the Terra Ecosystem, boasting an impressive $10.2bn TVL. On the simplest level, Anchor is designed to be the best savings account you ever had, boasting an incredible ~19.5% interest on deposited UST, paid in UST, not their governance token. 

Strategy One: Minimum Risk - Deposit UST in Anchor Protocol for 19.5% APY

Luna, as a deflationary token, naturally benefits from increasing the supply of UST. Anchor, through creative tokenomic and strategic mechanisms, encourages users to withdraw UST, collateralized by their ETH and LUNA. This creates a cyclical effect; as assets are deposited, UST is borrowed, swapped into LUNA, and redeposited for more UST. In turn, this raises the price of LUNA through burn, which again allows the user to borrow more UST, and… you get it. It’s a lot of cyclical accounting, but if you’re comfortable take a breath because this is just the beginning. If you haven’t worked with LUNA before (or honestly even if you have), it's worth checking out our earlier piece on the ecosystem

Flywheel tokenomics aside, if you already have ETH or LUNA on hand, you don’t even necessarily need to move new money into the protocol. By exchanging each for their bonded peer (bLUNA & bETH), and then depositing it into Anchor, users can borrow up to 50% of the book value of their assets in UST, with a 60% borrow meaning liquidation. This system is commonly used by investors to boost exposure to LUNA by exchanging, and subsequently depositing, borrowed UST for more bLUNA. 

However, it can also be used responsibly to *just slightly* increase the risk profile of existing collateral by supplementing it with stablecoin farming. After depositing bETH or bLUNA, you can then borrow UST against it, up to your risk tolerance. This UST can then be deposited into Anchor’s savings feature to earn its APY. 

This strategy does require a bit of extra work though. There’s no such thing as free-money, even in DeFi, and Anchor charges 18.26% APR on borrowings. This would normally eat almost entirely into the interest from the deposit. To combat this, deposits have the benefit of accruing Anchor governance tokens, $ANC, which are rewarded at around 18.8% on UST borrow amount. So, if Anchor price holds consistently, net borrow cost for the year is actually positive even without savings interest (while putting governance tokens in the hands of the largest platform users). 

Strategy Two: Moderate Risk - Deposit bETH or bLUNA as collateral in Anchor Protocol. Borrow & Deposit UST against it for an additional 19.5% APY. Sell Anchor rewards at EOY to offset borrow APR. 

If you want to juice up your rewards a bit more, an active hand in managing your Anchor reward can pay dividends. For slightly less work, setting a regular schedule to deposit accumulating rewards into the staking pool offers a tantalizing additional 14.5% APR on staked ANC. If you want to take on a bit of extra IL risk on your yield, you can split rewards into ANC and UST to LP and stake for 117% on ANC rewards.

Strategy Two.5: Moderate-r Risk - Deposit bETH or bLUNA as collateral in Anchor Protocol. Borrow & Deposit UST against it for an additional 19.5% APY. Stake Anchor Rewards for bonus yield.

Abracadrabra.Money & Magic Internet Money: 

If this isn’t enough, and you’re the type to always hunt for every last drop of yield, turn no further than Abracadabra.Money. The ETH-based platform, whose governance token is SPELL, offers the ability to mint a collateralized stablecoin, Magic Internet Money (MIM- mentioned recently in the congressional hearings, for name value), against a variety of assets. On top of this basic lending service, offerings catered to more advanced users, like leverage, are also on-tap. 

In case you don’t see where this is headed, by bridging borrowed UST to Abracadabra, instead of depositing directly into Anchor, you can further improve your dollar yield. Leveraging crypto is generally quite risky; The assets are volatile at best to begin with, and smaller cap coins have been known to make 50+% moves. However, because we’re leveraging a dollar stablecoin against another dollar stablecoin, price risks become much less significant. 

The protocol allows users to take up to 9.58x leverage on their UST, depending on your stomach, received in MIM at 16.5% APY. Users can then swap back to UST, bridge back, and deposit into Anchor. Once it’s all said and done, reversing the process should allow you to pay back the loan to Abracadabra, pocketing the 300bp difference in interest rates. As always, you can still optimize your earned Anchor rewards as laid out above. 

Strategy Three: Full Degen - Deposit bETH or bLUNA as collateral in Anchor Protocol. Borrow UST against it, and deposit into Abracadabra.Money. Loop MIM borrow for up to 9.56x Leverage on UST. Bridge back to Terra and deposit into Anchor. Stake / LP Anchor Rewards for bonus yield.


There are a TON of risks to this strategy that we’re compelled to note. First, and most likely is idiosyncratic risk around Abracadabra.Money, whether smart-contract or ecosystem based. SPELL is based as a cog in Dani’s goal of creating a cohesive market that includes:

TIME, the Currency

SPELL and MIM, the Stablecoin and Leverage

ICE, the AMM

SUSHI, as the DEX, based on this co-proposal between ARCA and Dani

If any one of these levers fails, the entire ecosystem is at risk given the interoperability of its components. Dani, the leader of the entire operation, is also a bit of a polarizing figure whose online presence can resemble Elon Musk. Both clearly have grand visions, and huge cult-like fanbases, with vocal presences on both sides. This is a risk worth monitoring, as it could cause non-fundamental sell (or buy) pressure at any given point.

More specifically, two primary risks come from the MIM-UST swap. The first, comes from the price oracle used by Abracadabra to determine prices could fail temporarily, causing users to be liquidated when they thought otherwise. More severely, MIM could lose its peg to the dollar entirely. Historically, the price hasn’t fallen below $0.975, despite heavy recent price volatility in both the broader market and Dani’s projects. While it’s not a green light, it’s nice to see theory hold up in stress tests. 

The last risk worth mentioning comes from Anchor Protocol’s Reserve Yield. The growth of MIM caused significantly more UST than expected to be deposited, leading to more ANC to be paid out as yield. Plenty of work has already been done on the sustainability of Anchor’s 20% APY, which is driven by bLUNA staking rewards claimed by the protocol. A big overhaul in July boosted Anchor’s treasury with $50mn from Terra, as well as updated a number of the yield-generation levers for the treasury.

As always, risk responsibly, this is early-stage DeFi after all. Happy Holidays from the TIE! 

This report is for informational purposes only and is not investment or trading advice. The views and opinions expressed in this report are exclusively those of the author, and do not necessarily reflect the views or positions of The TIE Inc. The Author may be holding the cryptocurrencies or using the strategies mentioned in this report. You are fully responsible for any decisions you make; the TIE Inc. is not liable for any loss or damage caused by reliance on information provided. For investment advice, please consult a registered investment advisor.

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Jack Melnick

Jack Melnick

Jack Melnick, Author at The Tie

VP of Research
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